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 and GST/HST Rulings Directorate
Place de Ville, Tower A, 20th floor
320 Queen Street
Ottawa ON K1A 0L5
Case Number: 180877
[Addressee]
Dear [Client]:
Subject: EXCISE INTERPRETATION
Exportation of cigarettes
Thank you for your question of [mm/dd/yyyy], concerning the application of the Excise Act, 2001 to the exportation of […] cigarettes manufactured in Canada for export.
All legislative references are to the Excise Act, 2001 (Act) and the regulations therein, unless otherwise specified.
[…]
INTERPRETATION REQUESTED
You would like to know how the Act applies to the manufacture and export of cigarettes that are not prescribed for purposes of subsections 38(1) and 56(1), and thus do not qualify for relief from the marking requirements and the special duty imposition set out in the Act. For ease of reference, we will refer to these cigarettes as “non-prescribed cigarettes”.
INTERPRETATION GIVEN
A licenced tobacco manufacturer can manufacture and export a limited quantity of non-prescribed cigarettes without affixing an excise stamp to the package. In summary, the non-prescribed cigarettes would be subject to the warehousing requirement in section 37, the marking requirements in section 38, the export quantity restrictions in subsection 50(5), and the special duty imposed under paragraph 56(1)(a) of the Act. Additional information on each of these requirements is provided below along with information pertaining to the refund of special duty when certain conditions are met. Our response focuses on the provisions pertaining only to non-prescribed cigarettes for export; it does not consider tobacco products of a brand that is prescribed for purposes of subsections 38(1) and 56(1) or tobacco products manufactured in Canada for delivery to foreign duty free shops or for use as foreign ships’ stores.
Warehouse and marking requirement
Cigarettes that are not stamped at the time of packaging must be entered into the licensee’s excise warehouse and are required to be marked. Subsection 38(1) of the Act requires that, before a container of cigarettes enters into an excise warehouse, it must have printed on it or affixed to it tobacco markings and other prescribed information. Depending on the circumstances, the marking will specify that the product is not for sale in Canada or not duty-paid. The specific wording, format and application of the tobacco markings and other prescribed information are outlined in the Stamping and Marking of Tobacco Products Regulations (Stamping Regulations). Specifically, the marking for exports of non-prescribed cigarettes can be found in Schedule 7 to the Stamping Regulations.
Quantity restriction
Paragraph 56(1)(a) provides that a special duty is imposed on a tobacco product that is manufactured in Canada and exported if the quantity exported is in accordance with paragraph 50(4)(a). Paragraph 50(4)(a) sets out that Canadian manufactured tobacco may be removed from the excise warehouse of the tobacco licensee who manufactured it only if it is for export by the licensee in accordance with subsection 50(5) and not for delivery to a foreign duty free shop or as foreign ships’ stores. Please note the definition of Canadian manufactured tobacco excludes ‘prescribed brands’.
The amount of Canadian manufactured tobacco that is permitted to be removed from an excise warehouse under these circumstances is restricted. The maximum quantity is allocated between three categories: cigarettes, tobacco sticks, and manufactured tobacco other than cigarettes and tobacco sticks. For each category, a tobacco licensee may export up to a maximum of 1.5% of its preceding calendar year’s production.
Please note that when the quantity limit in subsection 50(5) has been reached for the current calendar year, non-prescribed cigarettes may no longer be removed from the excise warehouse for export. Therefore, any additional quantity of non-prescribed cigarettes for export would be required to be stamped at the time of packaging. As a result, duty would be imposed on the product under section 42 of the Act at the time of packaging and special duty would be imposed under paragraph 56(1)(b) of the Act at the time of export. There are no refund provisions that apply with respect to special duty imposed under paragraph 56(1)(b).
Special duty imposition (within 1.5% threshold)
As noted above, a tobacco licensee may export up to a maximum of 1.5% of its previous year’s production, per category of Canadian manufactured tobacco, from its excise warehouse. These unstamped tobacco products are not subject to duty under section 42 of the Act. However, the tobacco products are subject to special duty at the rates set out in section 3 of Schedule 3 when they are exported.
For example, a carton of unstamped cigarettes containing 200 cigarettes, manufactured by the tobacco licensee in Canada and exported, where the total quantity of exported cigarettes in the current calendar year (up to and including the current export date) does not exceed 1.5% of the tobacco licensee’s previous calendar year’s production of cigarettes, is subject to $21.03 of special duty under paragraph 56(1)(a) of the Act.
Special duty in any other case
In any other case, special duty will apply at the rates set out in section 4 of Schedule 3.
For example, a carton of stamped cigarettes containing 200 cigarettes, manufactured by a tobacco licensee and exported, will be subject to $21.03 of duty under section 42 of the Act and $19.14 of special duty under paragraph 56(1)(b) of the Act.
Note that special duty does not apply if the tobacco products are “prescribed brands” (i.e. tobacco products of a brand that is prescribed for purposes of subsection 56(1)) or if the tobacco products are exported as foreign ships’ stores or for delivery to a foreign duty free shop.
Special duty refund – tobacco licensee (exports within 1.5% threshold)
The special duty paid by a tobacco licensee in respect of tobacco products that are manufactured and subsequently exported by the licensee under the provisions of paragraph 50(4)(a) of the
Act may be refunded under certain conditions.
The refund is limited to the special duty paid less the amount refunded to a foreign importer under subsection 182(1) of Act. A refund of special duty is only payable to the manufacturer after the foreign importer’s refund claim has been approved.
The tobacco licensee must apply for the refund within two years from the day the tobacco products were exported.
Special duty refund – foreign importer (exports within 1.5% threshold)
A person who has imported tobacco products manufactured in Canada into a foreign country may be eligible for a refund of special duty. The refund is limited to the lesser of
* the taxes and duties imposed by the national government of the foreign country where the tobacco products were exported, and
* the amount of the special duty imposed under the Act that was paid by the tobacco licensee who manufactured the tobacco products.
The person who imported the tobacco products into a foreign country must provide satisfactory evidence that
* all taxes and duties imposed on the tobacco under the laws of the foreign country have been paid, and
* the container of the product has printed on it or affixed to it tobacco markings.
The person who imported the tobacco products into a foreign country must apply for the refund within two years from the day the tobacco products were exported.
Subsequently, if the special duty paid by the tobacco licensee in respect of the exported tobacco products exceeds the amount of the refund paid to the foreign importer, the tobacco licensee may apply for a refund of the amount by which the special duty exceeds the refund paid to the importer.
For additional information with respect to claiming a refund, please refer to Excise Duty Memorandum 10.3.1: Refunds.
In accordance with the qualifications and guidelines set out in GST/HST Memorandum 1.4, Excise and GST/HST Rulings and Interpretations Service, the interpretation(s) given in this letter, including any additional information is not a ruling and does not bind the CRA with respect to a particular situation. Future changes to the Excise Act, 2001, regulations, or to the CRA’s interpretative policy could affect the interpretation(s) or the additional information provided herein.
If you require clarification with respect to any of the issues discussed in this letter, please call me directly at 613-948-3676.
Yours truly,
Faye Chen
Rulings Officer
Excise Duty Operations - Tobacco Unit
Excise Duties and Taxes Division
Excise and GST/HST Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
Canada Revenue Agency
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