17 March 2005 Excise Interpretation 59196 - Excise Tax Rates on Jewellery, etc.

Please note that the following document, although correct at the time of issue, may not represent the current position of the Agency. / Veuillez prendre note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'Agence.

Dear XXXXX:

I am writing in regard to our meeting at our offices in Ottawa XXXXX. At that time, you requested our approval of a 20% reduction in your current effective excise tax rates to reflect the drop in excise tax rates from 10% to 8%, as announced in the Federal Budget of February 23, 2005 ("the Budget"). Further, you proposed using these reduced effective excise tax rates for the period February 24, 2005 to March 1, 2006 ("the period").

As outlined in the Excise Tax Act ("ETA"), the only method provided for the calculation of the amount of excise tax payable is to take the sale price of the article, subtract any authorized discounts, and multiply that by the full rate of excise tax in effect at that time. Anything other than this, including the use of an effective rate, is merely a mathematical extension of this methodology, and can only be made for convenience purposes.

Consequently, we are authorized only to confirm the use of excise tax rates set out in the applicable provisions of the ETA, as amended by the Budget. This would be 8% for the period referred to above.

Having said this, for your assistance, we reviewed your calculated effective tax rates, using the alternative values to sale price authorized in our ruling XXXXX, and the 8% excise tax rate currently in effect. (Please note that we applied the 8% tax rate to the selling price less the discount and we used the tax- included method of calculation.) These effective rates are as follows:

To illustrate our calculations, a tax-included item with a sale price of $1000 would be discounted by 60%, resulting in a value for tax purposes of $400. Applying the 8% tax rate on a tax-included basis yields $29.60 of excise tax (That is, 8/108 x $400 = $29.60). This represents an effective tax rate of 2.96% (That is, 29.60/1000 = 2.96%).

We note that in the written submission you provided to us at our XXXXX meeting, the basis of your calculation of your post-Budget effective rates involved the reduction of your pre-Budget effective excise tax rates by 20%. We wish to advise you that this method is not provided for in law. Rather, the correct method to calculate the excise tax payable on a tax-included selling price is set out on Page 1, above.

We hope this information is of assistance to you. If you have any questions, please do not hesitate to contact me at (613) 952-0178 or Pauline Greenblatt at (613) 957-1140 XXXXX.

Doug Rollins
Manager, Excise Tax Unit
Excise Duty and Tax Division
GST/HST and Excise Rulings Directorate

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