5 July 2007 Excise Interpretation 94747 - Canadian Whisky and Excise Duty

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 XXXXX in which you requested the Canada Revenue Agency (CRA) to confirm, in writing, the implications for Canadian whisky of the excise duty rate change that came into effect on July 1, 2006.

From your correspondence and in telephone conversations with the author we understand the following.

1. You represent the owners of a brand ("the brand") of Canadian whisky that is produced in Canada by a spirits licensee (SL) licensed under the Excise Act, 2001 (the Act).

2. The brand conforms to the Canadian whisky identity standard as set out in Division 2 of the Food and Drug Regulations.

3. The brand contained a wine blender, which means that for Excise purposes the product was deemed produced at the time of blending and subject to the excise duty rates in effect at that time.

4. On or about XXXXX the brand's formula was amended to exclude wine blenders and the brand is now composed entirely of distilled spirits produced on or before June 30, 2006 ("the new brand").

5. The SL has assigned a separate inventory SKU to the new brand.

6. The SL's inventory records can adequately track the production date of the spirits used in the brand and the new brand.

7. The local Excise officer is familiar with the SL's inventory system and is satisfied that it will adequately support the SL's stated excise liability.

8. The brand is currently shipped to the XXXXX in Excise duty-deferred status and has attached to it an excise rate of duty equal to $11.696 per litre of absolute ethyl alcohol (the new rate).

9. The SL's marketers approached the XXXXX requesting that the excise duty rate be amended to $11.066 per litre of absolute ethyl alcohol (the old rate) because the new brand is composed entirely of old rate spirits.

10. The XXXXX are concerned with the responsibility of any potential excise duty liability and want confirmation from the CRA that the procedure is satisfactory before changing the excise duty rate.

Imposition of Excise Duty

Excise duty is imposed on spirits at the time they are produced at the rate that is in effect at that time. This means that excise duty liability is established at the time of production and exists until it is paid, relieved, or transferred. Excise duty is not payable on the spirits until they are taken for use or packaged. Further, the excise duty may be deferred at the time of packaging if the packaged spirits are immediately entered into an excise warehouse.

The Act provides that spirits may be blended with wine to produce spirits. Such spirits are deemed to have been produced at the time of blending and the duty that was previously imposed on the spirits is relieved. This simply means that excise duty is imposed on the newly produced spirits at the time they are blended.

Excise Duty rates on the brand and the new brand

The CRA can confirm that spirits produced prior to July 1, 2006 are subject to excise duty at the old rate. If the SL added the wine blender referenced in #3 above to the brand after June 30, 2006, then the brand would be subject to excise duty at the new rate.

Based on the information that the SL has eliminated the use of a wine blender and is now using only pre July 1, 2006 spirits in the new brand as noted in #4 above, then the CRA can confirm that this new brand would be subject to excise duty at the old rates.

Transferring and Disclosing Excise Duty Liability

As mentioned above Excise duty is payable on spirits at the time the spirits are packaged unless the packaged spirits are immediately entered into an excise warehouse. At that time, the Act transfers the excise duty liability from the spirits licensee to the excise warehouse licensee. The Act further permits the transfer of non-duty-paid packaged alcohol between excise warehouse licensees. Therefore, at the time of such transfers, the excise duty liability transfers with the product.

To assist licensees in fulfilling their obligations under the Act to report and remit the excise duty payable on packaged spirits removed from an excise warehouse, all licensees transferring Canadian whisky to another licensee on a duty-deferred basis must clearly disclose the excise duty rate applicable on each product being transferred to that licensee. This information is necessary to enable the licensee to comply with the provisions of the Act, including remitting the correct amount of excise duty when the product is removed to the duty-paid market.

If licensees do not disclose the excise duty rate applicable on Canadian whisky product transferred on a duty-deferred basis to another licensee, including to an excise warehouse licensee, then any unpaid liability may be assessed on the transferee and not the receiving licensee.

Potential assessments related to the brand or the new brand

In this particular situation the XXXXX receives the brand or the new brand from an excise warehouse licensee on a duty-deferred basis. When they remove the products to the duty-paid market they calculate the excise duty payable based on information they receive from the transferring licensee and remit the applicable excise duty to the Receiver General for Canada.

The SL producing the brand or the new brand would be the only licensee in a position to know the rate of duty that would apply to the products. As you know the rate of duty is used to calculate the excise duty liability that would be transferred to an excise warehouse licensee when products are entered into an excise warehouse. Therefore, if during the course of Excise verification it was found that the SL producing the brand or the new brand did not use the correct rate of excise duty to calculate the excise duty liability, then an assessment may be raised against that licensee.

We trust this addresses the issues raised. If you require clarification with respect to any of the issues discussed in this letter, please call me at 613-957-8642 or Tim Krawchuk, Manager, Excise Duty Operations - Alcohol at 613-954-5894.

Yours truly,

Joy Piepjohn
Senior Rulings Officer
Excise Duties and Taxes Division
Excise and GST/HST Rulings Directorate

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