14 November 2005 Excise Interpretation 64730 - Application of Excise Tax to Jewellery

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:

This is in reply to your facsimile message XXXXX in which you ask for clarification of the $3.00 administrative exemption from excise tax on jewellery imported into Canada. Our comments are set out below.

Information Provided

1. You are a jewellery wholesaler and your customers are retail stores.

2. You do not hold an excise tax license.

3. You import finished silver jewellery into Canada, having a value of $3.00 or less.

Question

What is the application of excise tax to jewellery, imported into Canada.

Answer

General rules regarding excise tax

Pursuant to subsection 23(1) of the Excise Tax Act ("ETA"), there is an excise tax on the manufacture or production in Canada or importation into Canada of goods listed in Schedule I to the ETA. Goods listed in Schedule I include clocks and watches having a value of $50.00 or more, articles made in whole or in part of semi-precious stones, jewellery, precious and semi-precious stones and goldsmith's and silversmith's products. (This last category excludes gold-plated and silver-plated ware for the preparation or serving of food or drink.)

In particular, section 5.2 of Schedule I to the ETA imposes the excise tax on "the following articles, commonly or commercially known as jewellery, whether real or imitation, including diamonds and other precious or semi-precious stones, for personal use or adornment of the person ... "

Pursuant to subsection 23(2) of the ETA, the tax is payable by the manufacturer or wholesaler or by the importer of the goods on importation into Canada.

However, as a matter of administrative policy, excise tax is not imposed on the following:

•   inexpensive items of jewellery having a manufacturer's sale price or duty paid value of $3.00 each or less; and

•   articles of a religious nature or significance such as crosses, including crosses which incorporate precious or semi-precious stones or imitations thereof.

Manufacturers holding an excise tax licence may purchase or import "partly manufactured goods" excise tax free. ("Partly manufactured goods" are goods that are to be incorporated into and form a component part of articles that are subject to excise tax.) Wholesalers holding an excise tax licence may purchase or import finished goods for resale excise tax free.

On February 23, 2005, the Minister of Finance announced in his Budget that the excise tax on jewellery, etc. would be phased out over a four year period. Effective February 24, the excise tax rate would drop from 10% to 8%, and continue to drop by 2% every March 1, until March 1, 2009, when the excise tax rate on jewellery would be 0%.

It must be emphasized that this Budget measure affects only the rate of excise tax on jewellery, etc. There will be no change with respect to the structure or operation of the excise tax on jewellery, etc. during the four year phase-out period. During this period, licensees must comply fully with their legal obligations under the ETA. That is, they must self-assess on their taxable sales, file regular returns and remit regular returns.

This measure became law when Bill C-43 received Royal Assent on June 29, 2005.

Application of Excise Tax to Imported Jewellery

You have described yourself as an unlicensed wholesaler of jewellery. Therefore, any jewellery imported by you will be subject to excise tax at 8% (the current rate) of the duty paid value, unless an exemption applies. For example, imported jewellery having a duty paid value of $3.00 or less is not subject to excise tax. (Please note that this is an administrative exemption; that is, it is not set out in the ETA, but is an approved policy of the Canada Revenue Agency.)

Finally, we would point out that "duty paid value" is defined in subsection 22(1) of the ETA as follows:

"duty paid value" means the value of the article as it would be determined for the purposes of calculating an ad valorem duty on the importation of that article into Canada under the laws relating to the customs and the Customs Tariff whether that article is in fact subject to ad valorem or other duty or not, plus the amount of the customs duties, if any, payable thereon;

The foregoing represents our views on the application of excise tax to your stated question. Proposed amendments to the ETA, if enacted, could have an effect on the interpretation provided herein. These comments are not rulings and, in accordance with the guidelines set out in section 1.4 of Chapter 1 of the GST/HST Memorandum series do not bind the Canada Revenue Agency with respect to a particular situation.

If you have any further questions or required clarification of the above matter, please do not hesitate to contact me at telephone number (613) 957-1140 XXXXX.

Yours truly,

Pauline Greenblatt
Rulings Officer
Excise Duty and Tax Division
Excise and GST/HST Rulings Directorate

2005/10/26 — RITS 55567 — Application of Excise Tax to Modular Links