July 2018

This circular replaces EDBN10, Related or Associated Persons Rules for Brewers, dated July 2006.

The information in this circular is for reference purposes only and does not replace the Excise Act or its regulations. Should there be any discrepancy between the information in this circular and that contained in the Act or its regulations, the legislative provisions apply. If the information in this publication does not completely address your particular situation, you may wish to refer to the Act or appropriate regulation, or contact any Canada Revenue Agency (CRA) regional excise office for additional information. These offices are listed in Contact Information – Excise Duties, Excise Taxes, Fuel Charge and Air Travellers Security Charge.

All legislative references in this publication are to the Excise Act (the Act) unless otherwise specified.

Related persons

1. Under section 2.2 of the Act, persons are related to each other if they are related persons within the meaning of subsections 251(2) to (6) of the Income Tax Act. In those subsections, references to “corporation” shall be read as references to “corporation or partnership” and references to “shares” or “shareholders” shall, in respect of a partnership, be read as a reference to “rights” or “partners”.

2. Further information on how the rules for related persons apply can be found in Income Tax Folio S1-F5-C1, Related Persons and Dealing at Arm's Length.

3. Under the Act, corporations that are licensed brewers controlled by individuals connected by blood relationship, marriage, common-law partnership or adoption are deemed not to be related for the purposes of section 170.1 if it is established that they deal with each other at arm's length.

Associated persons

4. Under section 2.3 of the Act, a corporation associated with another corporation under subsections 256(1) to (6) of the Income Tax Act will be considered to be associated with that corporation for the purposes of the production volume limit. A person other than a corporation is associated with a corporation if that corporation is controlled by the person, or by a group of persons of which that person is a member, and each person in the group is associated with each of the others.

5. Further information on how the rules for associated persons apply to corporations can be found in Income Tax Interpretation Bulletin IT-64R, Corporations: Association and Control.

6. Under the Excise Act, a person is also considered to be associated with:

• a partnership, if the person and all other persons associated with the person are entitled to more than half of the partnership’s total profits, or would be entitled to more than half of the total profits if the partnership had profits; or
• a trust, if the total of the values of the interests held by the person and all other persons who are associated with the person is more than half of the total value of the interests in the trust.

7. Additionally, a person is associated with another person if each of them is associated with the same third person.

General

8. The reduced rates of excise duty apply to the first 75,000 hectolitres of beer^{Footnote 1} brewed in Canada in a calendar year by a brewer^{Footnote 2} and any person related to or associated with that brewer. The reduced rates of excise duty are available only to an aggregate total of 75,000 hectolitres of beer produced by all of the related or associated brewers, and not to each brewer in that group.

9. The application of the reduced rates of excise duty are explained in Excise Duty Circular ED212-11, Application of Rates of Excise Duty on the First 75,000 Hectolitres of Beer Brewed in Canada.

Election to allocate the production volume limit

10. Brewers must disclose if they are related to or associated with any other brewers. In addition, pursuant to subsection 170.1(5), each of the related or associated brewers must file an election in the form of an agreement with their regional excise duty office to indicate how the 75,000 hectolitres production volume limit will be allocated among the related or associated brewers, and keep a copy of the agreement on file at each brewery.

11. Each associated and related brewer must file the election no later than the day the first Form K50B, Excise Duty Return – Brewer, is due. For example, a brewer who files their first Form K50B for June must file that form, together with their election agreement, if applicable, by the 10th working day of July.

12. The election agreement will remain in effect until there is a change in:

• the reported relationships; or
• the allocation among the related or associated brewers.

13. When either of the situations above applies, each brewer affected must file a new election agreement by the 10th working day of the month following the change.

14. To assist in filing the election agreement, brewers may use Form RC627, Agreement Among Related or Associated Brewers for the Allocation of Production Volume Limit, or they may develop their own agreement. In that case, the following information must be included:

• the brewer’s business name and address;
• the brewer’s business number (BN) with the excise duty program account (for example, 123456789 RD 0001);
• the brewer’s licence number;
• the date the election is filed;
• the details related to the allocation of the 75,000 hL beer production volume limit, which include
  • the names of related or associated brewers,
  • the BN with the excise duty program account (for example, 123456789 RD 0001) of each related or associated brewer, and
  • the annual production volume allocation by related or associated brewer in increments of hectolitres (that is, from 0 to 2,000 hL, from 2001 to 5,000 hL, from 5,001 to 15,000 hL, from 15,001 to 50,000 hL and from 50,001 to 75,000 hL);
• whether it is an amendment to a previous agreement; and
• the signature of an authorized person of the business.

15. Each brewer must retain a copy of the completed election agreement for their records, as well as any information used to prepare the agreement, because this information is subject to verification by the CRA.

Submitting an election agreement

16. Each brewer who is required to submit an election agreement must send it to the excise duty office responsible for their region. Further information may be obtained from the regional excise duty offices.

Further information