This notice sets out the impact on spirits and wine inventories as a result of the change in excise duty rates that come into effect on July 1, 2006 (new rates). These rate changes result from amendments to the Excise Act, 2001 that received Royal Assent on June 22, 2006. For further information on the new rates, please refer to Excise Duty Notice EDN 9, Excise Duty Rate Changes – July 1, 2006 , published in May 2006 and available on the Canada Revenue Agency website at www.cra-arc.gc.ca/menu/EXAN-e.html.

The application of the new rates of excise duty to existing inventories of spirits and wine will depend on the point at which the duty is imposed, levied or payable, and whether the particular commodity was in bulk or packaged state at the beginning of July 1, 2006.

Spirits

Under the Excise Act, 2001, excise duty is imposed on spirits at the time of production by a spirits licensee, and is payable at the time of packaging, unless the packaged spirits are immediately placed in an excise warehouse. Spirits produced prior to July 1, 2006 will be subject to excise duty at the former rates (old rates) of excise duty when they are released into the duty-paid market. Spirits that are produced prior to July 1, 2006, and packaged on July 1, 2006 or later, will be subject to excise duty at the old rates, regardless of when they enter the duty-paid market.

Spirits produced on or after July 1, 2006 will be subject to excise duty at the new excise duty rates.

Packaged spirits that have been imported prior to July 1, 2006 are subject to additional duty equal to excise duty under subsection 21.2(1) of the Customs Tariff at the old rates of duty. However, packaged spirits that are imported on or after July 1, 2006, will be subject to additional duty at the new rates.

Additional duty equal to excise duty is levied on imported bulk spirits under section 21.1 of the Customs Tariff at the time of importation. If the bulk spirits are imported prior to July 1, 2006, and then packaged on or after that date, the old duty rates will apply regardless of when they are packaged.

Bulk spirits that contain wine as part of a blend and that are blended on or after July 1, 2006 will be deemed to be produced on the date of blending and the new rates of excise duty will apply.

Wine

Under the Excise Act, 2001, excise duty is imposed on wine at the time it is packaged by a wine licensee. Wine that is packaged prior to July 1, 2006, and placed in an excise warehouse, will be subject to excise duty at the old rates of excise duty, regardless of when it is released into the duty-paid market.

Wine that is produced prior to July 1, 2006, but packaged on or after that date, will be subject to the new rates of excise duty. All wine produced and packaged after July 1, 2006 will be subject to the new rates of excise duty. However, if the wine is composed wholly of agricultural or plants product grown in Canada, it will be eligible for a full exemption from excise duty (see EDN 11 and EDN 15).

Additional duty equal to excise duty is levied on packaged wine under section 21.2 of the Customs Tariff at the time of importation. If packaged wine has been placed in an excise warehouse immediately following release from Customs control prior to July 1, 2006, the duty is under deferral and the wine will be subject to the old rates of duty when removed from the warehouse.

Where packaged wine is imported on or after July 1, 2006, it will be subject to additional duty equal to excise duty at the new rates.

Books and Records

Spirits licensees, wine licensees and excise warehouse licensees must maintain adequate books and records to provide sufficient documentary evidence to support the rates of excise duty applied to their excisable goods.

Where a licensee transfers packaged product from its excise warehouse to another, including an excise warehouse of a provincial or territorial liquor board or commission, it is recommended that it clearly indicate the actual rate of excise duty imposed on each batch that is shipped.

Once the new excise duty rates come into effect on July 1, 2006, it is the responsibility of each spirits and wine licensee to support the excise duty liability claimed at the rates that prevailed before that date.

Refunds or Drawbacks of Duty – Transitional Rules

All refunds and drawbacks of duty must be appropriately supported by documentation. The rate of duty to be used in claiming a refund or drawback will be the rate supported by that documentation.