Please note that the following document, although correct at the time of issue, may not represent the current position of the Canada Revenue Agency. / Veuillez prendre note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'Agence du revenu du Canada.
Excise Duties and Taxes Division
Excise and GST/HST Rulings Directorate
Place de Ville, Tower A, 11th floor
320 Queen Street
Ottawa ON K1A 0L5
[Addressee]
Case Number: 184501
Dear [Client]:
Subject: Excise Ruling
Excise Duty Exemption – […][100% Canadian Wine exemption]
Thank you for your letter of April 28, 2017, received on May 15, 2017.
All legislative references are to the Excise Act, 2001 (Act) and the regulations therein, unless otherwise specified.
STATEMENT OF FACTS
Our understanding of the facts from your letter and your telephone conversation with Ellen Hall on June 2, 2017 is as follows:
1. […]([…][XYZ]) produces a range of ciders that are marketed and sold under the […] brand.
2. The ciders are made using juice pressed on-site at the winery from apples purchased from […][Company A] located in […][City 1, Province 1].
3. The apples are grown in Canada […].
4. In the past, apples from […][Company B] of [Province 1] have also been used in the cider production.
5. 100% of the apple juice fermented to produce [XYZ]’s ciders comes from these apples.
6. […][Describes the production method].
7. […][Describes the production method].
8. […][Describes the production method].
9. […][Describes the production method]
10. […][Describes the production method]
11. The concentrate is purchased from a concentrate broker in […][City 2], and its place of origin varies depending on the broker’s supply. The concentrate is not produced in Canada.
12. To the best of [XYZ]’s knowledge, there is no commercially available apple concentrate produced in Canada.
13. […].
14. Your letter presented a discussion of Anissa Foley, Barry Foley v Her Majesty The Queen, 2013 TCC 276 (Foley) where the issue of incidental ingredients was discussed at length by the Court. You state that […] in that case the Court ruled use of non-Canadian fruit concentrates to sweeten wines did not result in the loss of the exemption. You make the following references in your presentation:
a. […]
b. The Court viewed that the total volume of fruit juice contained in a finished batch of wine was “hardly a principal ingredient” and supported the conclusion that the fruit wines in question qualified for the exemption (paragraph 23).
You state that this applies equally to [XYZ]’s ciders given that they contain approximately […]% concentrate and supports the conclusion that the exemption should apply to them.
c. The Court viewed that the use of concentrate could not result in the loss of the exemption, as a Canadian alternative to the Polish concentrate was not available. (paragraph 24).
You state that the same logic holds in this case; there is no Canadian alternative to the concentrate used by [XYZ] and it is an important, if minor, ingredient in its ciders.
RULING REQUESTED
You would like to know if the ciders produced by [XYZ] […] are eligible for the exemption relief available under paragraph 135(2)(a) of the Act.
RULING GIVEN
Based on the facts set out above and our review of the relevant legislation and publications, the ciders containing the apple concentrate do not qualify for the exemption relief set out in paragraph 135(2)(a) of the Act.
EXPLANATION
Juice concentrates is one of the specific ingredients that must be Canadian-grown to qualify for the exemption relief set out in paragraph 135(2)(a) regardless of why (impact on taste or alcohol content) and when (before, during, or after the fermentation process) the concentrate was added. This includes the apple concentrate added to the ciders produced by [XYZ]. The apple concentrate was not produced in Canada, and it is not considered an incidental agricultural or plant product-based ingredient.
The CRA’s policy approach to the 100% Canadian wine exemption is to specify all the agricultural and plant-based ingredients that must originate from Canadian sources, not just the primary ingredients that are fermented.
The following ingredients, added at any time prior to packaging, must be Canadian-grown for the cider, or any wine, to qualify for the exemption:
1. the primary raw material that is fermented, for example, apples, grapes, berries, honey;
2. any juice that is fermented – the raw materials to make the juice must have been grown in Canada;
3. any juices, juice concentrates, fruits or plant products added in the process must be made from raw materials grown in Canada; and
4. any spirits, wine or beer added, including brandy or fruit spirits to fortify the wine, must have been made from raw materials grown in Canada.
Additives, such as sugar and yeast, are considered incidental ingredients in wine and the addition of these ingredients, regardless of source, will not exclude an otherwise qualifying wine from the duty exemption.
Your letter refers to the Foley case and its similarity to your circumstances as stated in # 14 above. This case was an informal process and is not precedent setting.
As a result of Foley, the CRA made a minor change in its interpretation and application of paragraph 135(2)(a); specifically, the inclusion of Paola as an incidental ingredient. The Court ruled that the Paola syrup was sugar and not fruit juice. This application is consistent with the CRA’s policy and publications that state that the origin of sugar will not disqualify a wine from the excise duty relief provision, provided the wine otherwise qualifies.
The CRA did not agree with the Court’s interpretation of paragraph 135(2)(a) that only the ingredients fermented must be wholly Canadian. Excise duty is imposed on wine packaged in Canada at the time it is packaged. It is the wine in the package that is subject to or relieved of excise duty, and that wine is more than a product of the fermented raw material.
We are bound by this ruling provided that none of the above issues is currently under audit, objection, or appeal under the provisions of the Act, that there are no relevant changes in the future to the Act or to our interpretative policy, that you have fully described all the necessary facts for which you requested this ruling.
If you have any questions or require any clarification on the above matter, please call Ellen Hall at 613-670-7205 or me at (613) 670-7280.
Yours truly,
Tim Krawchuk
Manager, Excise Duty Operations – Alcohol
Excise Duties and Taxes Division
Excise and GST/HST Rulings Directorate
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