26 October 2005 Excise Interpretation 64175 - Small Manufacturers Under the Excise Tax Act

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:

Thank you for your letter XXXXX concerning the application of the Excise Tax Act (ETA) to the diesel blending operations of your client. We apologize for the delay in responding.

You have asked two questions with regards to small manufacturers under the ETA. I will respond to each question in the order presented in your correspondence.

In your letter, you have made reference to ET Memorandum 104, which relates to the Small Manufacturers or Producers Exemption Regulations. It should be noted that the regulations and memorandum refer only to Part V of the ETA, the former Federal Sales Tax. However, administratively, the CRA considers the regulations and memorandum applicable to Part III of the ETA, which relates to excise tax.

Questions #1 - Can my client obtain an excise tax licence regardless of the sales volume of goods manufactured?

Subsection 23(1) of the ETA imposes excise tax on items listed in Schedule I to the ETA that are imported or are manufactured or produced in Canada and delivered to a purchaser of those goods at the rate specified in the Schedule. Section 9.1 of Schedule I to the ETA specifies a tax rate of $0.04 per litre on diesel fuel.

Subsection 2(1) of the ETA defines a manufacturer or producer to include "... any person who, by himself or through another person acting for him, prepares goods for sale by assembling, blending, mixing, cutting to size, diluting, bottling, packaging or repackaging the goods or by applying coatings or finishes to the goods, other than a person who so prepares goods in a retail store for sale in that store exclusively and directly to consumers."

Under subsection 64(1) of the ETA, every person who is required under Part III of the ETA to pays taxes, shall apply for licence in respect to that Part.

Paragraph 2(1)(a) of the Small Manufacturers or Producers Exemption Regulations provide that manufacturers, other than those who elect to operate under a licence, who sell goods of their own manufacture that are otherwise subject to consumption or sales tax or who manufacture goods for their own use that are otherwise subject to consumption or sales tax, are exempt from payment of tax, if the value of such goods sold or manufactured for their own use does not exceed $50,000 per calendar year.

Therefore, provided your client manufactures or produces, as defined above, a good subject to excise tax, they can apply under subsection 64(1) of the ETA to operate under an excise tax manufacturer 'E' licence regardless of sales volume. As you have already noted in your letter, ET Memorandum 104 states that small manufacturers who choose to voluntarily apply for a licence are subject to the same conditions as other licensees and are responsible for the filing of returns and the payment of taxes on taxable sales.

Question #2 - Can my client purchase or import all diesel exempt from excise tax if he's voluntarily licensed under the ETA?

Paragraph 23(7)(a) of the ETA provides that tax is not payable on goods that are purchased or imported by a manufacturer licensed for the purposes of Part III and that are to be incorporated into and form a constituent or component part of an article or product that is subject to excise tax under this Act, if the tax on the article or product has not yet been levied under this section.

Your client, provided he obtains a voluntary manufacturers 'E' licence, can only purchase or import diesel fuel exempt of excise tax if the diesel fuel is going to be further manufactured into a product subject to excise tax. The possession of a manufacturers 'E' licence does not allow your client to hold an excise tax-exempt inventory.

I trust this addresses your questions. If you require clarification with respect to any of the issues discussed in this letter, please call me directly at (613) 954-6718.

Yours truly,

Darren Weiner
Excise Taxes Unit
Excise Duties and Taxes Division
Excise and GST/HST Rulings Directorate

2005/03/03 F — RITS 52964 — [Un distributeur de produits de carburant moteur]