February 2018

This version replaces the one dated April 2004.

All legislative references in this publication are to the Excise Act, 2001 (the Act) unless otherwise specified.

The information in this memorandum is for reference purposes only and does not replace the Excise Act, 2001 or its regulations. Should there be any discrepancy between the information in this memorandum 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 duty office for additional information. These offices are listed in Excise Duty Memorandum EDM1-1-2, Regional Excise Duty Offices.

Table of Contents

• Terms used
• Requirement for a user’s licence
• Licensed users and approved formulations
• Types of approved formulations
• Formulation approval process
• Cancelling approved formulations
• Imposing conditions on existing approved formulations
• Changes to an approved formulation
• Changes to a licensed user’s business structure
• Importing approved formulations

Terms used

1. The following terms are used in this memorandum and are defined in section 2 of the Act:

Alcohol means spirits or wine.

An approved formulation is a product that is made with alcohol by a licensed user in accordance with a formula that has been approved by the CRA. It may also be an imported product that, in the opinion of the CRA, would be an approved formulation if it were made in Canada by a licensed user.

Bulk alcohol means alcohol that is not packaged.

A licensed user is a person who holds a user’s licence issued under section 14.

Non-duty-paid, in respect of packaged alcohol, means that duty, other than special duty, has not been paid on the alcohol.

Packaged alcohol means alcohol that is in a container of a capacity of not more than 100 L that is ordinarily sold to consumers without being repackaged, or alcohol that is in a marked special container.

A restricted formulation is an approved formulation that can only be used by a licensed user or be exported because of conditions or restrictions the CRA has imposed under section 143.

Special duty means, in respect of imported spirits, the special duty imposed under subsection 133(1).

Spirits means any material or substance containing more than 0.5% absolute ethyl alcohol by volume other than

1. wine;
2. beer;
3. vinegar;
4. denatured alcohol;
5. specially denatured alcohol;
6. fusel oil or other refuse produced as a result of the distillation process;
7. an approved formulation; or
8. any product containing or manufactured from beer, vinegar, denatured or specially denatured alcohol, fusel oil or other refuse, or an approved formulation, which is not consumable as a beverage.

Wine means

1. a beverage, containing more than 0.5% absolute ethyl alcohol by volume, that is produced without distillation (except distillation to reduce the absolute ethyl alcohol) by the fermentation of
   
   1. non-grain agricultural product,
   2. non-grain plant or plant product that is not an agricultural product, or
   3. a product wholly or partially derived from non-grain agricultural product, or plant or plant product;
2. sake; and
3. a beverage described above that is fortified to not more than 22.9% absolute ethyl alcohol by volume.

Requirement for a user’s licence

2. A person who wishes to use bulk alcohol, non‑duty‑paid packaged alcohol or a restricted formulation must obtain a user’s licence as specified in paragraph 14(1)(c).

3. Instructions and requirements for obtaining a user’s licence are provided in Excise Duty Memorandum EDM2-2-1, Obtaining and Renewing a Licence.

Licensed users and approved formulations

4. Under paragraphs 73(a) and 90(a), a licensed user may use bulk alcohol or non-duty-paid packaged alcohol in an approved formulation. Section 144 relieves the excise duty on bulk and non‑duty‑paid packaged alcohol used by a licensed user in approved formulations.

5. Before using bulk or non-duty-paid packaged alcohol in the manufacture of a product, a licensed user must obtain approval of the formulation from the CRA. The formulation of a final product cannot be a beverage, and it may or may not contain residual alcohol. The approval process is discussed in detail in the section entitled “Formulation approval process”.

6. Information on the obligations and entitlements of licensed users is available in Excise Duty Memorandum EDM3-1-2, Licensed Users.

Types of approved formulations

7. Formulations can be approved with or without conditions. Restricted formulations are a specific type of formulation approved with conditions.

8. Pursuant to section 143, the CRA may impose any conditions or restrictions that are considered necessary in respect of the making, importation, packaging, use or sale of an approved formulation or in respect of any other dealing with an approved formulation.

9. A licensed user must comply with all conditions or restrictions imposed on the approved formulations they produce or receive and must maintain adequate records to confirm their compliance.

10. Only the exact formulation is approved. A licensed user who varies the quantity, composition or ratios of the constituent components of the formula must apply for a new approved formulation before manufacturing it using bulk or non-duty‑paid packaged alcohol.

Formulations approved with conditions

11. Formulations will generally be approved with conditions if:

• the absolute ethyl alcohol in the final product is potable, or
• there is a risk that the alcohol in the formulation could be diverted.

12. The conditions imposed may relate to an approved formulation’s use, disposition or packaging size. Formulations approved with conditions may continue to be controlled under the Act.

13. Liquid homeopathic products are an example of formulations approved with a packaging size condition. These formulations are generally potable. To limit the risk of diversion these formulations are approved by the CRA with the condition that the container cannot have a capacity greater than 60 mL. Containers larger than 60 mL are subject to excise duty.

Restricted formulations

14. Formulations that are approved as restricted formulations are always approved with the condition that they may only be used by a licensed user or exported.

15. Restricted formulations may be intermediate products such as food or alcohol-beverage flavourings that may be used by a licensed user. For example, a licensed user that is also a spirits licensee may blend a restricted formulation, such as flavouring, with bulk spirits provided the final product is spirits.

Formulations approved without conditions

16. Formulations will generally be approved without conditions if:

• the absolute ethyl alcohol in the final product is rendered non potable; or
• there is minimal risk that the alcohol in the formulation will be diverted.

17. Generally, the Act does not impose controls on the possession or disposition of an approved formulation without conditions. However, if any approved formulation is used in a product that is consumable as a beverage, it becomes part of that product and is subject to excise duty.

Formulation approval process

18. The authority to approve a formulation rests with CRA excise duty regional managers. However, the Analytical and Forensic Services Division of the Science and Engineering Directorate (SED) of the Canada Border Services Agency (CBSA) will analyze the formulation and provide their recommendation to the appropriate excise duty regional manager.

Submitting an application for approval

19. To obtain approval of formulations, a licensed user must submit CBSA Form Y15D, Request for Formula Approval. All fields on the form must be completed, otherwise the application may be rejected.

20. On page 1 of Form Y15D, it is important for the licensed user to complete the section “Regional Excise Duty Office Information”, because this is where the SED will return its recommendation. Also, in the section “Approval request information” of that page, the names of all formulations submitted must be listed.

21. The “Data Sheet”, as shown on page 2 of the form, must be fully completed. If more than one formulation is listed on page 1, a separate data sheet must be provided for each formulation submitted. The SED will accept customized data sheets as long as they contain the same information requested on page 2 of the form. The SED may refuse to analyze a formulation if the information provided is insufficient. The following information must be included on each data sheet:

• the quantity of each ingredient used in the formulation, in terms of:
  • units of volume (mL or litres) or mass (grams or kg), for liquid constituents,
  • units of mass (grams or kg) for solid constituents, and
  • units of volume (mL or litres) or mass (grams or kg), for spirits. The strength by volume at 20oC of the alcohol used in the formulation must also be clearly noted;
• the alcoholic content in per cent by volume or per cent by mass, of each ingredient containing alcohol, whether manufactured by the licensed user or purchased from another source;
• the volume or mass of the final package size to be produced by this licensee;
• the total quantity in units of volume of the formulation for a specific batch produced;
• the purported alcohol-per-volume or alcohol-per-mass of the finished product; and
• a summary of the production guide or a copy of the official production guide.

22. A sample of each formulation must be included, except for formulations that are gels, powders, sprays, creams, homeopathic products or food. The minimum volume for a sample must be 60 mL.

23. The completed Form Y15D, all additional data sheets where applicable and all samples must be sent to the following:

Manager, Alcohol and Tobacco Section
Analytical and Forensic Services Division
Science and Engineering Directorate
Canada Border Services Agency
79 Bentley Avenue
Ottawa, ON K2E 6T7

24. During the approval process, the SED or regional excise duty office may contact the licensed user for additional information or to request an additional sample.

Criteria used by the SED when evaluating a formulation

25. When analyzing any formulation for approval, the SED uses a variety of criteria to evaluate its potability.

Particular formulations

26. Cooking wines that contain a minimum of 1.5% salt are typically approved without conditions.

27. Pharmaceutical formulations are often approved without conditions as they are also controlled by Health Canada and they must have a Drug Identification Number (DIN), which alerts the SED that they will be sold as drugs.

28. Personal hygiene products are often approved without conditions since they frequently contain emulsifiers and/or fragrances.

29. Most food made with alcohol is likely to be approved without conditions.

Organoleptic analysis

30. The SED will perform an organoleptic analysis (taste test) to determine the potability of the formulation when they cannot determine whether it is fit for beverage purpose based on its chemical parameters. The recommendation to approve or reject a formulation is based on whether an average person might consider this product as an alcoholic beverage.

31. The SED protocol for organoleptic analysis is as follows:

• samples are tested at 15% alcohol by volume at 20°C; samples that contain more than 15% are diluted with tap water;
• three or more panelists participate in organoleptic analysis; and
• a majority of the participating panelists, with a minimum of three agreeing, is required to determine the potability.

32. For example, cooking wines that contain less than the minimum 1.5% salt content may be subject to an organoleptic analysis to determine their potability.

Results of analysis and recommendation to the CRA

33. After analysis, the SED will make one of the following recommendations to the regional excise duty manager indicated on Form Y15D:

• approve the formulation without conditions;
• reject the formulation;
• approve the formulation with restrictions (to be used in another approved formula or to be exported); or
• approve the formulation with the condition to limit the net package quantity to 60 mL (for homeopathic products only).

34. If the regional excise duty manager approves the formulation, they will send a letter and a copy of the approved formulation to the licensed user. This letter is the licensed user’s authority to manufacture the formulation with bulk or non‑duty-paid packaged alcohol. The approval letter will also specify if it has been approved as a restricted formulation and include any conditions the CRA has imposed on the formulation.

35. If the formulation is rejected, the regional excise duty officer will inform the licensed user in writing that the formulation has been rejected and return the application.

36. Formulations that meet the specifications of any denatured or specially denatured alcohol grades set out in the Denatured and Specially Denatured Alcohol Regulations are examples of formulations that will be rejected because only a spirits licensee can denature spirits under the Act.

37. A complete listing of regional excise duty offices is available in Excise Duty Memorandum EDM1-1-2, Regional Excise Duty Offices.

Cancelling approved formulations

38. A licensed user may request that the CRA cancel a previously approved formulation. To do so, the licensed user must submit a written request to the regional excise duty office and include the formulation number and the date of cancellation.

39. The CRA may also cancel an approved formulation, where:

• the licensed user is no longer operating; or
• information has come to light that affects the approval status of the formulation.

40. The formulation will be cancelled in the SED’s formulation database, and the CRA will advise the licensed user in writing when a previously approved formulation is cancelled.

Imposing conditions on existing approved formulations

41. The CRA may impose conditions on approved formulations at any time under section 143. The regional excise duty manager will advise a licensed user in writing of any new conditions imposed on an existing approved formulation.

Changes to an approved formulation

42. If a licensed user changes the ingredients or the composition of the ingredients, including the quantity of an ingredient in an approved formulation, it is no longer the same formulation that was previously approved. The licensed user must submit the formulation to the SED for analysis and approval by the CRA. Failure to do so could result in the licensed user being assessed the excise duty on the alcohol used in that formulation.

Changes to a licensed user’s business structure

43. When a licensed user makes changes to its business structure (e.g., name change, merger), it might be necessary to make changes to existing approved formulations. For example, if their business number (BN) remains unchanged, a simple update is required. When the BN changes, all approved formulations are cancelled and reissued with a new formulation number, new owner and BN.

44. In all situations where there is a change in business structure, the licensed user must notify the excise duty office responsible for their region to determine the changes needed, if any.

Importing approved formulations

45. The CBSA manages the access of goods to Canada and ensures that the person importing the products complies with the provisions of the Act at the time of import. Any person wishing to import products should contact the CBSA at 1-800-461-9999 for information regarding tariff classification and eligibility of such products.

46. A product containing alcohol that would be an approved formulation if it were made in Canada can be imported by any person. A product containing alcohol that would be approved as a restricted formulation if made in Canada may only be imported by a licensed user.

47. As with restricted formulations made in Canada (see paragraph 15 of this memorandum), a licensed user who is also a spirits licensee may blend an imported restricted formulation (such as flavouring) with bulk spirits provided the final product is spirits.

48. For an imported product to be established as an approved formulation under the Act, it must be analyzed by the SED. As with formulations made in Canada, the SED will recommend whether the imported product should be an approved formulation without conditions, a restricted formulation or spirits. Using the information it receives, the excise duty regional office can then determine the excise implications of importing the product.

Further information