July 2006

This Notice is further to Excise Duty Notice EDBN6, Excise Duty Rate Changes on Beer Produced by Small and Mid-Sized Brewers , published in May 2006 and available on the CRA Web site at www.cra-arc.gc.ca/tax/technical/excise-act-notices-e.html. Notice EDBN6 contains a chart showing the various rate reduction limits up to 75,000 hectolitres (hL) of production to which the new reduced rates apply.

As a result of consultations concerning the May 2006 Budget, the Minister of Finance announced on June 28, 2006, a proposal to extend the reduced rates of duty for the first 75,000 hectolitres of beer or malt liquor brewed to all Canadian brewers. As a result, the proposed 300,000 hL production volume threshold has been eliminated. As well, where licensed brewers are related or associated with other brewers, the 75,000 hL limit must be allocated amongst the related or associated brewers. See Excise Duty Notice EDBN 10, Related and Associated Persons Rules – Brewers’ Threshold for information on related and associated persons.

Imported beer is not eligible for the reduced rates of excise duty.

Beer to be excluded from calculation of production volume limit

Under the Excise Act, all beer or malt liquor produced in Canada, other than beer or malt liquor brewed for a non-commercial use, is subject to excise duty. However, for purposes of the reduced rates of duty and the 75,000 hL production volume limit, the following products may be deducted from the calculation of a brewer’s production volume if the brewer can appropriately substantiate the quantities claimed:

• duty-paid beer returned to process stock;
• beer destroyed;
• beer exported, shipped to a United States leased base, or to ships’ stores; and
• beer or malt liquor not exceeding 0.5% alcohol (i.e., non-alcoholic or de-alcoholised beer).

Note: These quantities must continue to be reported on the K50B, Monthly Return – Excise Duty – Beer.

Beer packaged by a brewer other than the producing brewer

The method of reporting transfers of bulk beer or malt liquor between brewers will not change. The product should continue to be shipped excise duty paid. The receiving brewer may claim a credit for the duty paid in accordance with paragraph 5(b) of the Brewery Departmental Regulations (see ED Circular 212-2) and then pay the duty at the time of packaging.

For the purposes of the reduced rates of duty and the 75,000 hL production volume limit, when the receiving brewer packages the beer, the following rules will apply:

• the beer or malt liquor will be included in the production volume calculation of the producing brewer; and
• the rate of duty imposed on the beer or malt liquor at the time of packaging will be the rate of duty that was imposed when it was shipped in bulk by the producing brewer.

Example

Brewer 1 brews and ships 5,000 hL of bulk beer (> 2.5% alcohol) to Brewer 2 for packaging. Brewer 1 includes the 5,000 hL in its calculation of the first 75,000 hL available for the reduced rates of duty. At the time of shipment, Brewer 1 has produced 20,000 hL of beer during the calendar year. Duty on the 5,000 hL will be paid by Brewer 1 at the rate of $21.854 per hL. Brewer 2 receives the bulk beer and will claim a credit for the duty paid on this quantity of beer. Subsequently, Brewer 2 packages 4,950 hL into kegs. Brewer 2 will pay duty on the 4,950 hL packaged at $21.854 per hL regardless of its level of production for that calendar year.

Note: The 4,950 hL is not included in the calculation of Brewer 2’s first 75,000 hL available for the reduced rates of duty.

Contract Production

If a licensed brewer produces beer or malt liquor for another licensed brewer under an agreement, the rate of duty used will be that used by the brewer with the higher rate of duty at the time of the brewing.

Example

Brewer A brews 5,000 hL of beer at 6% alcohol strength under contract for Brewer B. To date, Brewer A has a production volume of 10,000 hL and Brewer B has a production volume of 60,000 hL. If Brewer A were to pay duty on the 5,000 hL of production, the rate of duty would be $12.488 per hL, but in the case of Brewer B the rate of duty would be $26.537. Since the higher rate of duty is the rate for Brewer B, Brewer A must use a rate of duty of $26.537 per hL on the 5,000 hL of beer produced for Brewer B.

The producing brewer must include the quantity of beer produced in its production volume for purposes of the 75,000 hL limit.

Determination of the rate of duty

The reduced rates of excise duty for beer or malt liquor are based on the first 75,000 hL of product brewed in each calendar year. The rate of duty on de-alcoholised beer is always $2.591 per hL, as this type of beer does not qualify for purposes of the 75,000 hL production volume limit.

If a brewer brews more than one type of beer or malt liquor in a month, i.e., different alcohol strengths, the brewer may report the duty liability using the rate of duty that is the most favourable. This determination is limited to duty liabilities within the same production month.

Example

In the first month, a brewer produces 2,000 hL of beer at 2% alcohol by volume and 2,000 hL of beer at 5% alcohol by volume. Since the reduction in rate of duty is greater on the beer with the higher alcohol content, the brewer can first choose to use the lower rate of duty for the beer with a 5% alcohol content.

Credits in the year of production

For purposes of the reduced rates of duty and the calculation of the 75,000 hL production volume limit, where a brewer included a quantity of beer that may be deducted from that limit, such as exports (including deemed exports), or beer destroyed, the brewer can claim a credit or refund in the usual manner as set out in Circular ED 212-7, Credit Entitlements.

These types of credits or refunds would entail two components: one for the actual beer affected and one for the restatement of the entire threshold for the reduced quantity of beer, since the credit or refund would reset the production volume threshold for each subsequent increment.

To assist in the administration of claiming these credits or refunds, the brewer may claim the credit or refund at the rate of duty that was reported for the same type of beer on the brewer’s previous month’s K50B, Monthly Return – Excise Duty – Beer for that same quantity. This will eliminate the need for multiple credit or refund claims.

Credit or refund claims relating to bulk beer received, de-alcoholised beer or beer produced under contract (see "Contract Production") must include the actual rates paid.

As with all credits or refunds, the brewer must be able to substantiate through books and records the rate of duty used on all production and beer credited or refunded.

Credits in the year subsequent to the year of production

Where a brewer files a credit or refund claim in a year after the year in which the beer or malt liquor was produced, the credit or refund may be claimed at the rate of duty that was last reported for the same type of beer on the brewer’s K50B, Monthly Return – Excise Duty – Beer for the year it was produced. The books and records of the brewer must clearly indicate the year to which all beer is produced and for which credits or refunds are taken.

Transitional rules

The reduced rates of excise duty do not apply to beer or malt liquor packaged before July 1, 2006. For the period July 1, 2006 to December 31, 2006 only, the reduced rates of duty are limited to the first 37,500 hL of beer and not to 75,000 hL.

Books and records

Licensed brewers claiming the reduced rates of duty must maintain adequate books and records to support their claims. If a brewer is unable to support its claim, it would then be subject to an assessment or re-assessment of the duty that would have been payable.

Records may include, but are not limited to, production records with associated rates of duty used, records on credits/refunds and records of transactions between licensees.

Reporting

All licensed brewers are required to file a monthly K50B, Monthly Return – Excise Duty – Beer and must continue to use the form N10, Refund/Credit Claim.

Attached are the new forms Schedule 1 - Beer Revenue and Refund/Credit Claim Worksheet, which have been developed to assist brewers in record keeping. These forms are not prescribed and, therefore, brewers may develop their own forms for record keeping, but all the information on the schedule and worksheet must be kept on file for audit purposes.

Schedule 1 - Beer Revenue and Refund/Credit Claim Worksheet

Instructions on how to complete Schedule 1 – Beer Revenue

To view this worksheet, see Schedule 1 - Beer Revenue.

During the year, a brewer may progress through the different increments of reduced rates of duty for beer brewed in Canada. This Schedule 1 has been designed to assist in the calculation of the amount of duty payable each month. This form is not a prescribed form and does not need to be submitted with your K50B Monthly Return - Excise Duty - Beer. It is recommended that Schedule 1 or a similar in-house document be maintained in your records to support the information reported on your monthly return.

Excise duty account number – Enter your 9-digit Business Number (BN), two letter (RD) program identifier, and 4-digit program account number.

Licence number – Enter your licence number issued under the Excise Act and stated on your Brewer’s Licence certificate.

Period ending – Enter the date of the last day of the reporting period.

Company name – Enter the complete legal name.

Mailing address and postal code – Enter the company’s mailing address and postal code.

Box 1 – Total production – Enter the amount from box 12 of the previous schedule. If it is the first reporting period of a calendar year, enter zero.

Columns 1, 3 and 5 – Enter in the applicable row and column the quantity of beer or malt liquor (beer) produced in the period. Where more than one type of beer with different alcohol strengths is eligible for a particular production volume, use the alcohol strength category that is more favourable to you.

Enter on the applicable line all quantities of beer with an alcohol strength less than or equal to 0.5% and volumes greater than 75,000 hectolitres (hL).

Enter on the applicable line all quantities of beer packaged that were produced by another brewer and enter the applicable duty rate, i.e. the rate of the producing brewer, in the rate column. See section entitled "Beer packaged by a brewer other than the producing brewer" in EDBN 9 Reduced Rates of Excise Duty on Beer or Malt Liquor Brewed in Canada.

Columns 2, 4 and 6 – Calculate the amount of duty payable for the quantity of beer claimed (from columns 1, 3 and 5, as applicable, multiplied by the appropriates rate(s) of duty).

Boxes 2, 4 and 6 – Calculate the total quantity of beer produced for each type of beer. Report in the applicable column of the "Total Packaged" line of the K50B the total number of hL produced ("Totals") as taken from each of boxes 2, 4 and 6 from this Schedule.

Boxes 3, 5 and 7 – Calculate the total amount of duty payable for each type of beer produced. Report on the applicable line in column 1 of the "Beer Revenue" section of the K50B the amount of duty payable as shown in boxes 3, 5 and 7 of this Schedule.

Box 8 – Calculate the total number of hL of beer produced for the period (add quantities from boxes 2, 4 and 6).

Box 9 – Enter the quantity of beer from box 10 of the Refund/Credit Claim Worksheet for which you are claiming a refund or credit in this reporting period. The quantity of beer credited will reduce the production volume for purposes of the 75,000 hL limit.

Box 10 – Calculate the quantity of beer that was produced in the period that should be excluded from the 75,000 hL limit, such as beer with less than or equal to 0.5% or bulk beer received and packaged. Do not include in box 10 beer subject to a reduced rate of duty that is subsequently credited or refunded. That beer will be reported in box 9 based on the Refund/Credit Claim Worksheet. Explanation: Provide an explanation for the quantity indicated in box 10.

Box 11 – Calculate the net production for the month (box 8 - box 9 – box 10).

Box 12 – Enter the total number of hL reported since the beginning of the year (add box 1 plus box 11). Report this quantity in box 1 of the Schedule 1 – Beer Revenue for the next period unless the next period is the first period of the next calendar year.

Box 13 – Calculate the total amount of duty payable for the period (add amounts from boxes 3, 5 and 7). Report that amount as the total gross duty in column 1 of the "Beer Revenue" section of the K50B.

Instructions on how to complete the Refund/Credit Claim Worksheet

To view this worksheet, see the Refund/Credit Claim Worksheet.

During the year, a brewer may progress through the different increments of reduced rates of duty for beer brewed in Canada and may therefore use different rates of duty when claiming a refund or credit. This worksheet has been designed to assist in the calculation of the amount of duty to be claimed as a refund or credit. It is not a prescribed form and does not need to be submitted with your N10 Refund/Credit Claim. It is recommended that this form or a similar in-house document be maintained in your records to support the information reported on your N10.

Excise duty account number – Enter your 9-digit Business Number (BN), two-letter (RD) program identifier, and 4-digit program account number.

Excise refund account number – Enter your refund account number.

Licence number – Enter your licence number issued under the Excise Act and stated on your Brewer’s Licence certificate.

Company name – Enter the complete legal name.

Mailing address and postal code – Enter the company’s mailing address and postal code.

Period covered – Enter the date of the first day and the last day of the reporting period covered.

Columns 1,3 and 5 – Enter in the applicable row and column the quantity of beer or malt liquor (beer) for which you are claiming a refund or credit in the period and which will be deducted from the 75,000 hectolitres (hL) limit. See sections entitled Credits in the year of production and Credits in the year subsequent to the year of production in EDBN 9 Reduced Rates of Excise Duty on Beer or Malt Liquor Brewed in Canada to determine the applicable row and column.

Enter on the applicable line all quantities of beer with an alcohol strength less than or equal to 0.5% and volumes greater than 75,000 hL since these amounts do not affect the 75,000 hL limit.

Enter on the line entitled "Other Refund – Explain" all quantities of bulk beer received, and quantities of beer packaged that were produced by another brewer for which you are claiming a credit or refund, and enter the applicable rate of duty, i.e. the rate of the producing brewer, in the rate column (this does not affect the 75,000 hL limit).

Columns 2, 4 and 6 – Calculate the amounts of duty to be refunded or credited for the quantity of beer claimed (from columns 1, 3 and 5, as applicable, multiplied by the appropriate rate(s) of duty).

Boxes 1, 3 and 5 – Calculate the total number of hL of beer claimed for each type of beer. Report in the applicable row of the "Quantity" column of the form N10 – Refund/Credit Claim the total number of hL credited or refunded ("Totals") as taken from each of boxes 1, 3 and 5 from this worksheet.

Boxes 2, 4 and 6 – Calculate the total amount(s) of duty refundable or to be credited for each type of beer. Report in the applicable row of the "Amount Paid" column of the form N10 – Refund/Credit Claim the total duty credited or refunded ("Totals") as taken from each of boxes 2, 4 and 6 from this worksheet.

Box 7 – Calculate the total amount claimed for the period (add quantity from boxes 2, 4 and 6). Report on the line entitled "Total amount of claim" of the form N10 the total amount claimed as shown in box 7 of this worksheet.

Box 8 – Calculate the total number of hL of beer on which a refund or credit is sought (add amounts from boxes 1, 3 and 5).

Box 9 – Calculate the total number of hL of beer on which a refund or credit is sought that is being excluded from the 75,000 hL limit, such as beer with an alcohol strength less than or equal to 0.5%, volumes greater than 75,000 hL, and packaged beer that was produced by another brewer.

Explanation – Provide an explanation for the quantity in box 9.

Box 10 – Calculate the quantity of beer claimed for refund or credit that will affect the calculation of production volume for purposes of the 75,000 hL limit (such as beer exported, deemed exported, destroyed and returned to process stock). Report the amount in box 9 of Schedule 1 – Beer Revenue (Box 8 / box 9).