12 January 2006 Excise Interpretation 76937 - 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 response to your XXXXX message XXXXX in which you request clarification of the application of the excise tax to watches. Our comments are set out below.

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. For example, a watch may be made of precious metals (e.g., gold) or adorned with precious or semi-precious stones (e.g., diamonds or mother-of-pearl), which enhances it's value considerably.

Our comments

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 to 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.

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. The CRA views a watch as a portable timepiece that has a movement driven in any of several ways (spring or battery) and is designed to be worn (on the wrist) or carried in a pocket. Articles qualifying under this description will not attract the excise tax whether manufactured domestically or imported.

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 further questions or require clarification of the above, please do not hesitate to contact a member of my staff, Pauline Greenblatt, at telephone number (613) 957-1140 XXXXX.

Yours truly,

Phil McLester
Director
Excise Duties and Taxes Division
Excise and GST/HST Rulings Directorate
Canada Revenue Agency