29 July 2003 GST/HST Interpretation 46768 - GST/HST on Domestic Packaged Wine

Dear XXXXX

We are writing in order to provide you with general information on the application of GST/HST to supplies of domestic packaged wine.

As you are aware, effective July 1, 2003, the excise tax imposed on wine pursuant to the Excise Tax Act (the "ETA") has been replaced with an excise duty imposed pursuant to the Excise Act, 2001 (the "EA, 2001"). We have responded to a number of enquiries pertaining to how the GST/HST applies on the supply of wine made to and made by provincial liquor boards as a result of this change in legislation. As your XXXXX may find this information of interest we would like to take this opportunity to provide you with general comments in this regard.

Excise Duty

Generally, prior to July 1, 2003, domestic packaged wines were purchased by liquor boards on an excise tax-paid basis pursuant to Part IV of the ETA. The boards paid GST/HST on these supplies based on a value of consideration that included the excise tax.

As previously indicated, effective July 1, 2003, the EA, 2001 applies to the manufacture and handling of wine and spirits (among other goods), and the excise tax imposed on wine pursuant to Part IV of the ETA is repealed, although the same rates apply. The Excise Act (the "EA") continues to apply to the manufacture and handling of beer, malt liquor and products manufactured in accordance with subsection 169(2) of the EA.

The Excise Duties and Taxes Division has previously provided liquor boards and the wine industry with information on this matter, such as the "Highlights for Wine Producers and Packagers (Excise Act, 2001)". For further information related to the excise duty treatment of wine, please contact Mr. Preston Gallant, Manager, Excise Duty Operations Unit, Excise Duties and Taxes Division, at (613) 954-4208 XXXXX.

GST/HST

Subject to Part IX of the ETA, section 165 of the ETA provides that every recipient of a taxable supply made in Canada shall pay to Her Majesty in right of Canada tax in respect of the supply, calculated on the value of the consideration for the supply. As defined in subsection 123(1) of the ETA, consideration "includes any amount that is payable for a supply by operation of law". In addition, paragraph 154(2)(a) of the ETA provides that consideration for a supply of property or a service includes any tax, duty or fee imposed under an Act of Parliament that is payable by the recipient, or payable or collectible by the supplier, in respect of that supply or in respect of the production, importation, consumption or use of the property or service, other than tax under this Part that is payable by the recipient.

Effective July 1, 2003, the correct application of GST/HST on domestic packaged wine as it moves in stages from producer to a liquor board to consumers is generally the same as the case of dutiable spirits as described in our letter to you XXXXX. An exception exists with respect to wine sold by small producers, where excise duty is not imposed pursuant to subsection 135(2) of the EA, 2001.

The following examples generally illustrate the GST/HST application to domestic packaged wine sold by producers that are not small producers:

Example 1:

Fact: A licensed wine producer supplies domestic packaged wine to a liquor board from its excise warehouse to a liquor board excise warehouse.

Tax Application:

(i) Duty will not become payable on the wine until the goods are removed from the liquor board's excise warehouse "for entry into the duty-paid market", pursuant to section 136 of the EA, 2001.

(ii) GST/HST is applicable, calculated on the value of consideration for the taxable supply, pursuant to section 165 of the ETA.

(iii) The consideration for the supply does not include the excise duty as: (a) the duty is not an amount payable for the supply by operation of law and (b) it is not "any tax, duty or fee ... that is payable by the recipient, or payable or collectible by the supplier, in respect of that supply or in respect of the production, ... consumption or use of the property ...". At this point, the duty is not payable by the supplier (wine producer) or the liquor board as the goods are moving between two excise warehouses. Similarly, at the time of production, the duty was not payable or collectible by the supplier (wine producer) as the goods went into an excise warehouse of the producer.

(iv) The liquor board may claim an input tax credit in respect of the GST/HST paid or payable on the supply of wine, to the extent the wine was acquired for consumption, use or supply in the course of its commercial activities, and assuming that all the requirements of section 169 of the ETA are met (e.g. documentary evidence).

Example 2

Fact: The liquor board transfers domestic packaged wine from its excise warehouse to its retail outlet:

Tax Application:

(i) Excise duty becomes payable by the liquor board pursuant to section 136 of the EA, 2001.

(ii) No GST/HST is payable or collectible by the liquor board, as it has not made a supply for GST/HST purposes - it keeps ownership of the goods when it moves its own wine to its own retail stores for sale to the public. The fact that duty becomes payable under the EA, 2001 upon this transfer has no immediate effect on the application of GST/HST under the ETA.

Example 3

Fact: The liquor board retail outlet supplies domestic packaged wine to consumers. Duty has been previously paid or became payable by the board (per example 2).

Tax Application:

(i) GST/HST is applicable, calculated on the value of consideration (including the duty) for the taxable supply, pursuant to section 165 of the ETA.

(ii) The consideration for the supply is the excise duty-included amount payable to the liquor board by the consumer for the supply (i.e. the duty is included in the price charged by the liquor board as it was paid by the liquor board and it is being passed on to the consumer). In addition, paragraph 154(2)(a) of the ETA provides that the consideration for the supply of wine includes any "... duty ... imposed under an Act of Parliament ... that is ... payable or collectible by the supplier, in respect of that supply or in respect of the production, importation, consumption or use of the property ...".

Small Producers

Small producers of domestic packaged wine require a wine licence under the EA, 2001. However, these persons are not liable for the payment of excise duty unless they cease to be a small producer. The liquor board should purchase wine from small producers without payment of excise duty, as these goods are not subject to duty. When a liquor board outlet supplies such domestic wine to consumers, GST/HST is applicable on the supply, calculated on the value of consideration for the supply, pursuant to section 165 of the ETA. The consideration for the supply includes any amount payable for the supply by operation of law. The liquor board must charge and remit GST/HST based on the "consideration" paid or payable by its client for the supply of the wine. Since no excise duty was paid in respect of the wine, the tax base for GST/HST purposes will be calculated without reference to the duty.

The foregoing comments represent our general views with respect to the subject matter. Proposed amendments to the Excise Tax Act and the Excise Act, 2001, 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 Memoranda Series, do not bind the Canada Customs and Revenue Agency with respect to a particular situation.

Should you have any further questions or require clarification on the above matter, please do not hesitate to contact me at (613) 952-9213.

Yours truly,

Susan Kissner
Specialty Tax Unit
Financial Institutions and Real Property Division
Excise and GST/HST Rulings Directorate