Excise Act Review: Annex IV
- Table of Contents - Previous - Next -

Annex IV
Industrial or Non-Beverage
Use of Spirits, Wine or Beer

Introduction

The proposed excise structure for industrial or non-beverage alcohol^[1] will be similar in many respects to the existing structure, although key changes have been proposed to address areas of complexity and inequity. A significant change is the elimination of the variable rates of duty that currently apply to spirits for specified uses. All authorized non-beverage uses of spirits will now be duty free. Duty-free applications will also be extended to certain uses of wine and beer.

The regulation of duty-free alcohol for non-beverage purposes will continue to rely on approval of product formulas; specification of uses and denaturing standards; and the licensing, registration or authorization of users. These controls, which serve primarily to protect beverage alcohol excise revenues, are based on and integrated with the basic concepts governing the production and warehousing of alcohol, which are explained in greater detail in the annexes covering spirits, wine and beer.

A. Licensees, Registrants or Permit Holders

Under the proposed new excise structure, requirements with respect to licensing, registration or authorization will continue to depend on the form of spirits to be used for non-beverage purposes. Spirits will continue to be defined in three general forms:

• Undenatured spirits -- unaltered spirits in a potable form;
• Specially denatured spirits -- spirits mixed with special denaturants approved by Revenue Canada that may render the product non-potable and make recovery of the spirits less economical; and
• Denatured spirits -- spirits mixed with special denaturants approved by Revenue Canada that render the product non-potable and make recovery of the spirits not economical.

Non-beverage use of beer or wine will be treated in the same manner as undenatured spirits.

A.1. Licensed Manufacturer

A "licensed manufacturer" is a person licensed under the Excise Act to own and possess non-duty-paid bulk or packaged alcohol for further manufacturing or processing of products in formulations approved by Revenue Canada or for use in a manufacturing process in which the ethyl alcohol is completely destroyed.

The category of "licensed manufacturer" will be similar to, and will replace, the category of "bonded manufacturer" under the existing Excise Act. As under the existing excise system, Revenue Canada's approval will be required for each formulation using alcohol.

Licensed manufacturers wishing to use undenatured spirits will be required to demonstrate or provide evidence, at the time of application for formula approval, that no grade of denatured or specially denatured spirits is suitable for the product to be produced.

Formula approval will not be required for the fortification of domestic wine or the production of vinegar. For vinegar, minimum standards of production will be established based on the use of either spirits, beer or wine.

Licensed manufacturers will be required to maintain books and records related to the acquisition, use and disposition of alcohol. A licensed manufacturer must also maintain records related to bulk alcohol that is owned by the manufacturer but is possessed by an excise licensee or an excise registrant.

A.2. Registered User

A "registered user" is a person who, having met specified qualifications in the Excise Act, is authorized by Revenue Canada to use spirits for particular purposes duty free. The qualifications and uses of spirits will be:

• any scientific and research laboratory in receipt annually of aid from the government of Canada or a province may use spirits duty free, for scientific purposes only;
• any bona fide public hospital or municipal health clinic certified by Revenue Canada may use spirits duty free, for medicinal purposes or use as a disinfectant; or
• any university or other post-secondary educational institution recognized by a province may use spirits duty free, for scientific purposes only.

Revenue Canada may approve and register the users who meet these qualifications.

Registered users will be required to maintain books and records related to the acquisition, use and disposition of duty-free packaged spirits.

A.3. SDS Permit Holder

An "SDS permit holder" is a person authorized by Revenue Canada to own and possess a particular grade of specially denatured spirits for a specified non-beverage use.

Under the proposed excise structure, the treatment of specially denatured spirits will be similar in many respects to the treatment under the existing Excise Act. One notable exception is for public hospitals which, under the proposed structure, will now be required to be SDS permit holders to acquire most grades of specially denatured spirits. Public hospitals may continue to acquire rubbing alcohol, a particular grade of specially denatured spirits, without a permit.

Under the proposed excise structure, SDS permit holders will be required to maintain records related to the acquisition, use and disposition of specially denatured spirits. Certain exceptions to the record-keeping requirement will be made for rubbing alcohol.

A.4. Excise Licensee

The proposed new excise structure governing the production of alcohol will apply to producers, packagers and owners of alcohol intended for industrial or non-beverage uses. A person who is a distiller, brewer or vintner will be required to be licensed as an "excise licensee".

A.5. Excise Warehouse Licensee

An "excise warehouse licensee" is a person who is authorized to acquire and store packaged alcohol on a duty-deferred basis in premises specified under its licence as an excise warehouse. Duty deferral on packaged beer will be restricted to beer for the duty-free market or sale to licensed manufacturers. Three classes of persons may apply for an excise warehouse licence: excise licensees, provinces and persons who are not retailers.

A.6. Excise Registrant

An "excise registrant" is a person who is not an excise licensee but is registered with Revenue Canada to possess or transport bulk alcohol that is owned by an excise licensee; a licensed manufacturer; a province; or, in the case of imported bulk alcohol, an unlicensed non-resident.

An excise registrant is also a person who is not an excise licensee but is registered with Revenue Canada to possess or transport bulk or packaged specially denatured spirits that are owned by: an excise licensee; an SDS permit holder; or, in the case of imported specially denatured spirits, an unlicensed non-resident.

Although excise registrants will not be required to provide notification for every movement of bulk alcohol and specially denatured spirits, they will be required to maintain adequate books and records to enable Revenue Canada to verify movement of product. Registrants will also be required to maintain information on the ownership of bulk alcohol and specially denatured spirits in their possession.

In the case of imported bulk alcohol and specially denatured spirits owned by an unlicensed non-resident, excise registrants must maintain information identifying the excise licensee or licensed manufacturer who imported the bulk alcohol and the SDS permit holder who imported the specially denatured spirits.

B. Non-Beverage Use of Spirits, Wine or Beer

B.1. Licensed Manufacturer

Under the proposed excise structure, licensed manufacturers will be able to acquire bulk alcohol from excise licensees and packaged alcohol from excise warehouse licensees on a non-duty-paid basis. As well, licensed manufacturers may directly import bulk alcohol and packaged alcohol on a duty-deferred basis.

Licensed manufacturers will be liable for excise duty or customs duty equivalent on bulk spirits and packaged beer, wine and spirits that they acquire. Although excise duty will not be imposed on bulk beer or wine until it is packaged or taken for a taxable use, licensed manufacturers will be accountable for any losses of these bulk products.

Where bulk or packaged alcohol is used in formulations or processes approved by Revenue Canada, no duty will be payable. However, excise duty or customs duty equivalent will be payable by licensed manufacturers where alcohol is taken for an unauthorized use, at the time it is taken for use.

A special excise duty of $0.12 per litre of absolute alcohol will continue to apply to imported spirits acquired by a licensed manufacturer. This excise duty will be imposed and payable on bulk or packaged spirits at the time of importation by the licensed manufacturer. Where imported spirits are acquired from an excise licensee or an excise warehouse licensee, the special excise duty will be payable at the time of sale to a licensed manufacturer, and will be remittable by the excise licensee or excise warehouse licensee.

Bulk alcohol acquired by a licensed manufacturer may not be resold except where it is returned to the excise licensee who sold the alcohol. Packaged alcohol may be returned unopened in its original container to the excise warehouse that supplied the packaged alcohol. The sale of alcohol by a licensed manufacturer in any other circumstance will not be permitted.

Licensed manufacturers will be liable for duties and penalties on unaccountable losses of bulk and packaged alcohol. Licensed manufacturers will also be liable for duty on packaged alcohol that is stolen. Duties or penalties will not apply to theft of bulk alcohol.

B.2. Registered User

Registered users will be able to acquire packaged spirits duty free for specified purposes, but not beer or wine. Packaged spirits may be sold and delivered from an excise warehouse to a registered user duty free.

Packaged spirits acquired by a registered user may not be resold except where they are returned unopened in their original container to the excise warehouse that supplied the product. The sale of spirits by a registered user in any other circumstance will not be permitted.

Registered users will be liable for penalties for any unaccountable losses, unauthorized use or sale of duty-free packaged spirits. Registered users will also be liable for penalties on spirits that are stolen.

C. Non-Beverage Use of
Specially Denatured Spirits

Under the proposed excise structure, excise duty will continue to be relieved on spirits that are denatured by an excise licensee to a "specially denatured spirits grade" (SDSG) approved by Revenue Canada. Similarly, the customs duty equivalent imposed on imported spirits will not apply if the product is an approved SDSG.

Only an SDS permit holder may purchase or import specially denatured spirits, and only those grades that are specified under the permit. An exception will continue to be made for rubbing alcohol, which may be sold by an excise licensee to, or imported by, an institution certified by Revenue Canada as a public hospital.

Specially denatured spirits acquired by an SDS permit holder may not generally be resold -- they must be either used by the permit holder for the authorized use or returned to the excise licensee who sold the specially denatured spirits. An exception will be made for rubbing alcohol, which may be resold to another SDS permit holder with authorization for this grade; to any institution certified as a public hospital; or to any person for resale to the public, if the rubbing alcohol is packaged.

Although liability for duty is removed on spirits denatured to an approved grade of specially denatured spirits, the owner or importer will be subject to penalties for any unaccountable losses or unauthorized use or sale of specially denatured spirits. The owner or importer will also be liable for penalties on packaged specially denatured spirits that are stolen. Penalties will not apply to the theft of bulk specially denatured spirits.

D. Non-Beverage Use of Denatured Spirits

Under the proposed excise structure, excise duty will continue to be relieved on spirits that are denatured by an excise licensee to a "denatured spirits grade" (DSG) approved by Revenue Canada. Similarly, the customs duty equivalent imposed on imported spirits will not apply if the product is an approved DSG.

Spirits that have been denatured to a DSG approved by Revenue Canada will not be subject to further controls or restrictions on their sale or use, other than a prohibition of any attempt to deodorize or clarify these spirits.

E. Penalties

Under the proposed new excise system, penalty and control provisions for industrial or non-beverage uses of alcohol will relate to the diversion of non-duty-paid or duty-free alcohol and specially denatured spirits from the approved end uses. These will be supplemented by general penalty and control provisions that focus on the unauthorized ownership, possession and disposition of bulk alcohol and, for packaged alcohol, on the storage, possession and disposition of non-duty-paid alcohol.

Penalties will be imposed on licensed and authorized non-beverage users for offences relating to the requirements to keep books and records on the operations of their businesses with respect to the acquisition, storage, disposition and use of non-duty-paid alcohol. Penalties related to the keeping of books and records will also apply to specially denatured spirits.

Penalties will also be imposed on persons involved in diversion activities or who have unlawful possession of alcohol or specially denatured spirits. Penalties will include seizure and forfeiture of the alcohol, the equipment and facilities related to its production and storage, and the vehicles used to transport it.

Note:

[1] For purposes of this annex, the term "alcohol" will refer to spirits, wine or beer and "spirits" to undenatured spirits.

- Table of Contents - Previous - Next -