3 January 2006 Excise Interpretation 76655 - Excise Tax on Watches, Post Bill C-259

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 request clarification of the application of excise tax to watches, given that Bill C-259 became law on November 25, 2005. Our comments are set out below.

Information Provided

1. Your firm is a customs broker for importers of expensive watches.

2. You have provided examples of expensive watches. Typically, they are made with precious metals, such as 14k or 18k gold and may be adorned with various precious or semi-precious stones, such as diamonds, mother of pearl dials, etc.

Question

You seek confirmation that excise tax was eliminated on watches, regardless of value, with the passage into law of Bill C-259 on November 25, 2005.

Answer

General Rules

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 of the ETA. Goods listed in Schedule I include clocks having a sale price or duty paid value of $50 or more, articles made of semi-precious stones, jewellery, precious and semi-precious stones and goldsmiths' and silversmiths' products. (This last category excludes gold-plated and silver-plated ware for the preparation or serving of food or drink.)

In 2005, the ETA was amended by Bill C-43 and Bill C-259, with the following results:

•   between February 24, 2005, and November 24, 2005, the excise tax rate on clocks (with a sale price or duty paid value of $50 or more) was 8% but effective November 25, 2005, the excise tax rate is raised to 10% until March 1, 2009, when the tax on clocks is eliminated.

•   between February 24, 2005, and November 24, 2005, the excise tax on watches was 8%, but effective November 25, 2005, the excise tax on watches is eliminated.

•   effective February 24, 2005, the excise tax on articles made of semi-precious stones, jewellery, precious and semi-precious stones and goldsmiths' and silversmiths' products drops to 8% and continues to drop by 2% every March 1 thereafter, until March 1, 2009, when the excise tax on these goods will be eliminated.

Excise Tax on Watches

The Canada Revenue Agency (CRA) will administer the amendments to the ETA as described above. Accordingly, effective November 25, 2005, the excise tax on watches is eliminated, whether they are manufactured in Canada or imported into Canada. The CRA views a watch as follows: a portable timepiece that has a movement driven in any of several ways (as by a spring or a battery) and is designed to be worn (as on the wrist) or carried in a pocket.

Where the material composition of a watch is such that it may qualify as another type of taxable good, if the good can be reasonably viewed as only a watch, as defined above, the CRA will treat it as a watch, with the result that no tax will apply to it, effective November 25, 2005.

For example, one of the watches described in your submission had a mother-of-pearl dial. Such an item is taxable, pursuant to section 5.1 of the ETA, being "an article made in whole or in part of ivory, jet ... mother-of-pearl ... or other semi-precious stones". However, because this item is also clearly a watch, the CRA will treat it as such, and there is no excise tax on it, effective November 25, 2005.

The foregoing comments represent our views with respect to the subject matter of your letter. 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 CRA with respect to a particular situation.

If you have any further questions or require 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 Duties and Taxes Division
Excise and GST/HST Rulings Directorate
Canada Revenue Agency

2006/01/12 — RITS 76937 — Excise Tax on Watches, Post Bill C-259