Digital Brain
digital brain
digital brain

Budget 2018: Cannabis Taxation Plans Move Forward

March 2018 Tax Bulletin 3 minute read

Budget 2018 moves forward with the Government’s plans for the taxation of cannabis.  Plans to tax cannabis have gained momentum as legalization approaches, which is currently expected this summer.  A related goal has been to keep taxes on legal product low enough to discourage sales activity in the black market.

Components of the overall taxation of the industry will include the full range of regular taxes, such as income tax on business profits, GST on product sales, and the property taxes and licence fees payable by businesses in the normal course of operations.  These are all components of taxation that arise under the existing framework of laws applicable to all businesses, and are not specifically addressed in Budget 2018.  Budget 2018 deals specifically with the Government’s plan to impose a special excise tax on cannabis products.

In December of 2017, the federal Government reached a deal with most Provinces on the general framework of the excise tax and how it would be shared.  The overall intent of the framework was to impose a combined federal/provincial excise tax on cannabis products not to exceed the greater of (i) a flat rate duty of a maximum of $1.00 per gram, and (ii) 10% of the producers’ sale price of product.  The amount of the flat rate duty will depend on whether the product represents flowering or non-flowering material (generally referred to as “flower” and “trim”, respectively).  The lower flat rate duty on trim will be $0.30 per gram.  The excise tax will generally apply to all cannabis products available for legal purchase, including fresh and dried cannabis, cannabis oils, and seeds and seedlings for home cultivation.

The federal Government had originally proposed that the excise tax would be split 50/50 with the participating Provinces, but the December, 2017 agreement increased the Provincial share to 75%.  The Provinces will, of course, be on the front lines of implementation of legalization, with many attendant costs.

Budget 2018 also confirmed that while the tax will be shared, with 75% going to the participating Provinces, the federal portion will be capped at $100 million for the first two years after legalization (with any excess also going to the participating Provinces), in recognition of the up-front costs of legalization.

Budget 2018 is consistent with the December, 2017 agreement.  The new excise tax will apply when cannabis for non-medical purposes becomes available for retail sale.  The tax is imposed on manufacturers, and paid only indirectly by consumers (in contrast to GST, which will be payable directly by consumers).  Budget 2018 confirmed that while the new excise tax will generally apply to cannabis products containing THC (tetrahydrocannabinol), products containing very low amounts of THC, for instance, low-THC oils, will generally not be subject to the tax.  Pharmaceutical products derived from cannabis that are approved by Health Canada with a Drug Identification Number, and can only be acquired with a prescription, will also not be subject to the tax.

Cannabis cultivators and manufacturers will be required to obtain a cannabis licence from the Canada Revenue Agency.  All cannabis products that are introduced into the Canadian market for retail sale will also be required to have an excise stamp.  (Excise stamps will have specified colours signifying the province or territory in which the product is to be sold.)

The statutory provisions governing the new excise tax will be enacted by amendments to the Excise Act, 2001.  Unfortunately, the Notice of Ways and Means Motion that accompanied Budget 2018 did not contain the detailed legislative provisions that will govern the new tax (which will be released at a later date).

by Peter Botz

A Cautionary Note

The foregoing provides only an overview and does not constitute legal advice. Readers are cautioned against making any decisions based on this material alone. Rather, specific legal advice should be obtained.

© McMillan LLP 2018

Insights (5 Posts)

Featured Insight

Learning to Live with COVID-19: Ontario Releases Amendments Setting Out New Requirements as of January 31, 2022

The Government of Ontario has released the latest amendments to O. Reg 364/20, setting out new requirements for employers as of January 31, 2022.

Read More
Jan 28, 2022
Featured Insight

FSRA Releases Final Innovation Framework and Opens Testing Environment for Auto Insurance Innovations

SRA recently announced their Final Innovation Framework and Test and Learn Environment Guidance, a positive step forward for financial services innovators.

Read More
Jan 26, 2022
Featured Insight

Getting the Deal Through – Cartel Regulations 2022

Lexology Getting the Deal Through – Cartel Regulations 2022 provides a detailed explanation of how cartel regimes work in practice, including recent developments over the past year and an overview of future changes expected in each jurisdiction.

Read More
Jan 26, 2022
Featured Insight

BC Government Published Workplace Safety Order Mandating COVID-19 Safety Plans

On January 20, 2022, the BC Government published the Workplace Safety order mandating COVID-19 Safety Plans for certain BC workplaces.

Featured Insight

The 2022 Construction Labour “Open Period” – What Employers Need to Know

March 1 – April 30, 2022 is the “Open Period” for ICI collective agreements, and many non-ICI agreements, in Ontario. During this period members of construction unions can apply to the Ontario Labour Relations Board to terminate a union’s bargaining rights with their employer, or – more commonly – a rival union can apply to the Board to displace an existing union, in what is commonly known as a “raid”. During the Open Period employers will likely see increased union activity on sites as incumbent unions will seek to maintain member support, and as rival unions may try to gather support for a raid.

Join us on Wednesday, February 2nd for a discussion about what employers should expect and need to know if a decertification application or a displacement application involving their employees is filed at the Board.

Details
Wednesday, February 2, 2022