15 July 2003 Excise Interpretation 46123 - (unnamed)

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 letter XXXXX concerning the application of excise tax to jewellery imported into Canada by your client, XXXXX.

Our understanding of the facts is as follows:

1. XXXXX is licensed for excise tax purposes as a manufacturer or producer of jewellery.

2. XXXXX wishes to import partly manufactured jewellery into Canada in order to undertake manufacturing activities such as packaging, labelling, boxing, affixing price tags and other similar processes.

3. XXXXX would export the finished jewellery pieces to retailers in the United States.

Ruling Requested:

1. Your client wishes to confirm that no excise tax liability would arise from the importation of the unfinished jewellery into Canada for further manufacture or from the subsequent export of the finished jewellery to the United States.

2. Your client wishes to confirm that there is no de minimus requirement with respect to value added to a finished product before excise tax exemption would apply to goods which are further manufactured in Canada.

Ruling Given:

1. In 1981, the definition of manufacturer or producer in the ETA was expanded to include "marginal" manufacturing activities such as "a person (a) who assembles, blends, mixes, cuts to size, dilutes, bottles, packages, repackages, or otherwise prepares goods for sale other than a person who so prepares goods in a retail store for the purpose of sale in that store exclusively and directly to consumers ..." (p. 2(1)(f)). These manufacturers or producers were required to become licensed and account for excise tax on their sales of qualifying goods.

XXXXX would be considered to be a marginal manufacturer or producer of goods for the activities you described above, in addition to any other manufacturing or producing operations.

Paragraph 23(7)(a) of the Excise Tax Act (ETA) states that excise tax is not payable in the case of goods that are purchased or imported by a manufacturer licensed for purposes of Part III of the ETA and that are to be incorporated into and form a constituent or component part of an article or product that is subject to excise tax under the Act. This means that a licensed manufacturer or producer of goods subject to excise may purchase partly manufactured goods exempt from tax under their licence and certificate of further manufacture.

This also means that persons such as your client, who fall under the expanded definition of a manufacturer or producer are also entitled to purchase or import goods to be marginally manufactured exempt from tax under their excise tax license.

Therefore, XXXXX may import partly manufactured jewellery for further manufacture exempt from tax under their excise tax license. XXXXX would quote excise tax status code 88 on their import documentation for Customs purposes.

If XXXXX should sell the goods in question in Canada, then excise tax would apply at the rate of 10% on the selling price of the goods.

If XXXXX exports the goods directly to the United States, without being used in Canada, then excise tax would not apply. The goods must be exported in accordance with Canada Customs requirements. I have enclosed a copy of Memorandum ET 308 "Exports" for your information. XXXXX should contact Canada Customs directly to ensure correct compliance with the export requirements.

2. The ETA does not add a minimum percentage of value to the finished product before the exemptions to excise tax liability apply.

The above information is provided based on the facts you have provided. If the facts change this ruling may no longer apply.

I hope this information is satisfactory. If you have further questions, please feel free to contact me at (613) 952-0178.

Yours truly,

Douglas A.Rollins
Manager
Excise Taxes and Special Levies