Excise Duty Notice EDN78

July 2022

Except as otherwise noted, all statutory references in this publication are to the provisions of the Excise Act, 2001. The information in this publication does not replace the law found in the Act and its regulations.

If this information does not completely address your particular situation, you may wish to refer to the Act or relevant regulation, or contact your CRA regional excise office for additional information. The offices are listed at Contact Information – Excise Duties, Excise Taxes, Fuel Charge and Air Travellers Security Charge.

Table of Contents

• Overview
• Definitions
• Licensing requirements
  • Vaping product licence
  • Excise warehouse licence
• Requirement to apply as a vaping prescribed person
• Imposition and payment of duty on vaping products
  • Vaping duty
  • Rates of vaping duty
  • Additional vaping duty
  • Vaping duty on vaping products taken for use
  • Vaping duty on unaccounted vaping products
• Relief of vaping duty
  • Re-working or destroying vaping products
  • Vaping products imported by a licensee
  • Duty not payable
• Stamping requirements
  • Unstamped vaping products
  • Sale or distribution by a licensee
    • Exception
    • Notice – absence of stamp
    • Unlawful removal
    • Exceptions
• Maintaining records and filing returns
  • Keeping records
    • Records to be maintained
  • Filing returns
    • Branches or divisions filing separate returns
• Debts and the collections process
• Offences and penalties
• Transitional rules
  • Imposition and payment of vaping duty
  • Stamping requirements for vaping products
  • Possession and sale of unstamped vaping products

Overview

The Canada Revenue Agency (CRA) is responsible for administering and enforcing the excise duty framework for vaping products included in the Excise Act, 2001. This framework includes the imposition of excise duties that generally apply to vaping products manufactured in Canada or imported into Canada and intended for the duty-paid market. The duty applies to vaping products whether or not they contain nicotine.

Definitions

The following terms, defined under the Act or related regulations, are used in this notice:

Accredited representative means a person who is entitled under the Foreign Missions and International Organizations Act to the tax exemptions specified in Article 34 of the Convention set out in Schedule I to that Act or in Article 49 of the Convention set out in Schedule II to that Act.

Manufacture includes, in respect of a vaping product, any step in the production of the vaping product, including inserting a vaping substance into a vaping device or packaging the vaping product. It does not include stamping a vaping product.

Packaged means that the vaping product is packaged in the smallest package, including any outer wrapper, package, box or other container, in which it is sold to the consumer.

Person means an individual, a corporation, a partnership, a trust, the estate of a deceased individual, a government or a body that is a society, a union, a club, an association, a commission or another organization of any kind.

Stamped, in respect of a vaping product, means that a vaping excise stamp has been affixed to the vaping product or its container in the prescribed manner to indicate that vaping duty has been paid.

Take for use, in respect of a vaping product, means to consume, analyze or destroy the vaping product.

Vaping device means property that is one of the following:

1. a device that produces emissions in the form of an aerosol and is intended to be brought to the mouth for inhalation of the aerosol
2. a vaping pod or another part that may be used with the vaping device referred to above

Vaping duty means a duty imposed under section 158.57.

Vaping excise stamp means a stamp that is issued by the CRA under subsection 158.36(1) and that has not been cancelled under section 158.4.

Vaping product means one of the following:

1. a vaping substance that is not contained within a vaping device
2. a vaping device that contains a vaping substance

It does not include a cannabis product or a tobacco product.

Vaping product drug means a vaping product that is a drug that has been assigned a drug identification number under the Food and Drug Regulations.

Vaping product licensee means a person that holds a vaping product licence issued under section 14, authorizing the person to manufacture vaping products.

Vaping product marking means prescribed information that is required under the Act to be printed on, or affixed to, a container of vaping products that are not required under this Act to be stamped.

Vaping substance means a substance or mixture of substances, whether or not it contains nicotine, that is produced to be used, or sold for use, with a vaping device to produce emissions in the form of an aerosol.

Licensing requirements

Vaping product licence

Every person is required to obtain a vaping product licence under the Act to manufacture vaping products in Canada, with the exception of persons manufacturing vaping products for personal use. The vaping product licence is issued by the CRA.

The following general information pertains to the requirements of a vaping product licensee under the Act. A licensee must:

• carry out all activities under the licence in accordance with the Act
• comply with the Regulations Respecting Excise Licences and Registrations
• post and maintain adequate financial security of not less than $5,000 and not more than $5 million
• file monthly returns with the CRA on a calendar month basis, regardless of whether vaping duty is payable
• keep all records necessary to determine whether they have complied with the Act

Note that the licence is valid for a period of up to three years and is not renewed automatically.

For detailed information on vaping product licensing requirements, refer to Excise Duty Notice EDN79, Obtaining and Renewing a Vaping Product Licence.

Excise warehouse licence

In addition to a vaping product licence, a person that manufactures vaping products in Canada for export or for sale to an accredited representative, also requires an excise warehouse licence. Section 158.49 requires that vaping products manufactured in Canada that are not stamped, must be immediately entered into the licensee’s excise warehouse.

For detailed information on obtaining an excise warehouse licence, refer to Excise Duty Notice EDN79.

Requirement to apply as a vaping prescribed person

An importer that does not qualify for a vaping product licence (as they do not manufacture vaping products in Canada) is required to become a vaping prescribed person in order to obtain vaping excise stamps. As per subsection 158.36(1), the CRA may issue vaping excise stamps to a prescribed person that is importing vaping products destined for the Canadian duty-paid market.

Under the Act, in order to be issued vaping excise stamps, a vaping prescribed person must:

• meet the requirements as described in paragraph 2(2)(a) through (e) of the Regulations Respecting Excise Licences and Registrations
• post security of not less than $5,000 and not more than $5 million
• file information returns with the CRA on a calendar month basis in respect of the possession and use of any vaping excise stamps issued to them
• keep all records necessary to determine whether they have complied with the Act

For detailed information on becoming a vaping prescribed person, refer to Excise Duty Notice EDN81, Becoming a Vaping Prescribed Person.

Imposition and payment of duty on vaping products

Vaping duty

Effective October 1, 2022, vaping duty is imposed, under section 158.57, on vaping products manufactured in Canada or imported into Canada in the amount determined under Schedule 8. The duty is payable by the vaping product licensee that packaged the vaping product at the time they are packaged, and in the case of imported vaping products, by the importer at the time of importation.

Rates of vaping duty

The rates of vaping duty imposed on vaping liquids under section 158.57 are:

• $1 per 2 millilitres (mL), or fraction thereof, for the first 10 mL of vaping substance in the vaping device or immediate container
• $1 per 10 mL, or fraction thereof, for amounts over the first 10 mL

The rates of vaping duty imposed on vaping solids under section 158.57 are:

• $1 per 2 grams (g), or fraction thereof, for the first 10 g of vaping substance in the vaping device or immediate container
• $1 per 10 g, or fraction thereof, for amounts over the first 10 g

Additional vaping duty

The federal government is working collaboratively with provinces and territories interested in a coordinated framework to taxing vaping products. As of the publication date of this notice, no provinces or territories have entered into an agreement to join a coordinated framework.

Vaping duty on vaping products taken for use

Under section 158.6, vaping duty is imposed on vaping products that are consumed, analyzed or destroyed (taken for use). The vaping duty is payable by the vaping product licensee responsible for the vaping product at the time the vaping product is taken for use. This includes unpackaged vaping products taken for use for research and development or sampling purposes.

Vaping duty on unaccounted vaping products

Under section 158.61, vaping duty is imposed on vaping products, on which vaping duty has not been paid, if the vaping products cannot be accounted for as being in the possession of a vaping product licensee or in the possession of another person, as permitted under the Act. The vaping duty is payable by the vaping product licensee responsible for the vaping product at the time the vaping product cannot be accounted for.

Relief of vaping duty

There are limited circumstances where the vaping duty is either refunded, relieved or not payable with respect to vaping products.

Re-working or destroying vaping products

Under section 158.53, a vaping product licensee may re-work or destroy a vaping product in a manner authorized by the CRA. Under section 187.2, a vaping product licensee may be eligible for a refund of the duty paid on the vaping product, if the licensee applies for the refund within two years of the authorized re-work or destruction. Only the vaping product licensee that has paid the duty and destroyed or re-worked the vaping product may apply for a refund using Form B602, Application for a Refund of Vaping Duty.

Vaping products imported by a licensee

Section 158.62 relieves the vaping duty on imported vaping products that are not packaged or stamped and are imported by a vaping product licensee for further manufacturing.

Section 158.64 relieves the vaping duty payable at the time of importation on vaping products imported by a vaping product licensee for re-work or destruction in a manner approved by the CRA if the vaping products were originally manufactured and stamped in Canada by the licensee.

Duty not payable

Section 158.66 provides for certain circumstances where the duty on vaping products is not payable, including:

• vaping products taken for analysis or destroyed by the CRA
• vaping products taken for analysis by the vaping product licensee in a manner approved by the CRA
• vaping products destroyed by the vaping product licensee in a manner approved by the CRA
• vaping products delivered by a vaping product licensee to another person for analysis or destruction by that person in a manner approved by the CRA
• vaping products that meet the definition of a vaping product drug

Stamping requirements

Under section 158.46, a vaping product licensee cannot enter a vaping product manufactured in Canada into the duty-paid market unless the product is packaged and stamped by the vaping product licensee. The vaping excise stamp indicates that vaping duty has been paid and that the product was manufactured in accordance with the Act. To purchase vaping excise stamps, a vaping product licensee is required to register for the vaping stamping regime.

Under section 158.47, an imported vaping product must be packaged and stamped before it is released under the Customs Act for entry into the duty-paid market. The only exceptions are for a vaping product that is either:

1. imported by a vaping product licensee for further manufacturing by the licensee
2. re-imported by a vaping product licensee for re-work or destruction as authorized by the CRA
3. imported by an individual for their personal use in quantities not in excess of the prescribed limits as per section 5.1 of the Stamping and Marking of Tobacco, Cannabis and Vaping Products Regulations

An importer must be approved by the CRA to purchase vaping excise stamps. If an importer also manufactures vaping products in Canada, they will be able to purchase vaping excise stamps under their vaping product licence. If an importer is not also manufacturing vaping products in Canada, they must apply to become a vaping prescribed person.

For detailed information on the vaping stamping regime, refer to Excise Duty Notice EDN80, Overview of Vaping Excise Stamps.

Unstamped vaping products

Section 158.44 prohibits any person, other than a vaping product licensee, from disposing of, selling, offering to sell, purchasing or possessing unpackaged and unstamped vaping products.

Subsection 158.44(3) allows the following persons to possess unpackaged and unstamped vaping products:

1. in the case of imported vaping products:
   
   1. an excise warehouse licensee in their excise warehouse
   2. a sufferance warehouse licensee in their sufferance warehouse
   3. a customs bonded warehouse licensee in their customs bonded warehouse
2. a prescribed person that is transporting unstamped vaping products under prescribed circumstances and conditions, as outlined in the Regulations Respecting the Possession of Tobacco, Cannabis or Vaping Products That Are Not Stamped
3. a person that possesses the unstamped vaping products for analysis or destruction in a manner approved by the CRA
4. an accredited representative for their personal use or official use
5. an individual who has imported the vaping products for their personal use in quantities not in excess of prescribed limits
6. an individual who is not a vaping product licensee and who has manufactured the vaping products for their personal use
7. a person that possesses vaping products that are vaping product drugs

Subsection 158.44(4) provides the following exceptions that allow a person to dispose of, sell, offer for sale or purchase an unstamped vaping product:

• the vaping product is an imported vaping product that an excise warehouse licensee or a customs bonded warehouse licensee sells or offers for sale and that is either:
  • exported by the licensee in accordance with the Act
  • sold to an accredited representative for their personal or official use
• the vaping product is a vaping product drug

Sale or distribution by a licensee

Under subsection 158.45(1), a vaping product licensee is prohibited from distributing, selling or offering for sale a vaping product unless the product is packaged and stamped.

Exception

Under subsection 158.45(2), a vaping product licensee is permitted to distribute, sell or offer for sale an unstamped vaping product under the following exceptions:

• if an unpackaged vaping product is distributed, sold or offered for sale to another vaping product licensee
• if a packaged vaping product is distributed, sold or offered for sale to an accredited representative for their personal or official use
• if the vaping product is exported by the vaping product licensee
• if the vaping product is a vaping product drug

Notice – absence of stamp

Section 158.48 provides that the absence of a vaping excise stamp on a vaping product indicates that vaping duty has not been paid on that product.

Unlawful removal

Subsection 158.42(1) provides that a vaping product cannot be removed from the premises of a vaping product licensee unless it is packaged and, if the product is intended for the duty-paid market, stamped to indicate that vaping duty has been paid. If the vaping product is not intended for the duty-paid market, vaping product markings are required in accordance with the Act.

Exceptions

Subsection 158.42(2) provides for exceptions that permit a vaping product licensee to remove an unpackaged vaping product from their licensed premises where:

1. the vaping product is being removed for any of the following purposes:
   
   1. for delivery to another vaping product licensee
   2. for export
   3. for delivery to a person for analysis or destruction in accordance with the Act
2. the vaping product is a vaping product drug

Maintaining records and filing returns

Keeping records

Every vaping product licensee and vaping prescribed person is required, under subsection 206(1), to maintain all records that are necessary to determine whether they are in compliance with the Act.

Records to be maintained

Subsection 206(2.02) states that every vaping product licensee is required to retain records that will enable the determination of the amount of vaping product manufactured, received, used, packaged, re-worked, sold and disposed of by the licensee. Books and records are required to be maintained in an appropriate form and contain sufficient information to allow for the verification of a person’s compliance with the Act, including the person’s liabilities and obligations with respect to vaping duties or the amount of any refund the person has claimed.

With respect to exports, all documents used as evidence of export are required to be sufficient to enable the entire shipment of vaping products to be traced from its origin in Canada to its destination outside of Canada.

Subsection 206(2.2) requires that every person that has been issued vaping excise stamps, including vaping product licensees and vaping prescribed persons, retain all records that are necessary to determine the receipt, retention, location, use or disposition of the vaping excise stamps.

For additional information on the requirement to maintain books and records, refer to Excise Duty Memorandum EDM9-1-1, General Requirements for Books and Records.

Filing returns

Section 160 requires every vaping product licensee to file Form B600, Vaping Duty and Information Return, for each calendar month and to calculate and remit any vaping duty payable on that return. Return must be filed and duty must be remitted no later than the last day of the first month following the reporting period.

A licensee that possesses more than one licence under the Act is required to file separate returns for each licence. For example, a vaping product licensee that also possesses an excise warehouse licence is also required to file Form B262, Excise Duty Return – Excise Warehouse Licensee.

Section 4.01 of the Stamping and Marking of Tobacco, Cannabis and Vaping Products Regulations requires that a vaping prescribed person must file Form B601 Vaping Information Return – Prescribed Person, for each calendar month, with respect to the possession and use of any vaping excise stamps issued to them.

For more information about the amounts to include on Form B600 and Form B601, go to Excise duty on vaping products.

Branches or divisions filing separate returns

As set out in subsection 164(1), where a vaping product licensee has separate branches or divisions with distinct operations under a vaping product licence, the licensee may apply to the CRA for authority to file separate returns for each branch or division.

Debts and the collections process

The vaping duty, as well as other amounts payable under the Act, are debts recoverable in Federal Court or any other court of competent jurisdiction or in any other manner provided under the Act, according to subsection 284(1.1).

A vaping product licensee that owes duties may receive a notice or a telephone call from a CRA official as a reminder of their obligation to pay an outstanding amount or debt.

A vaping product licensee or vaping prescribed person that is late in filing returns may receive a notice or telephone call from a CRA official as a reminder of their obligation to file outstanding returns.

Subsection 189(4) states that if a licensee has to file any returns and other records that are required to be filed under the Air Travellers Security Charge Act, the Customs Act, the Excise Act, the Excise Act, 2001, the Excise Tax Act, the Income Tax Act and the Select Luxury Items Tax Act but has not done so, any refund to which they are entitled will be withheld until all required returns are filed.

According to section 290, if a vaping product licensee or vaping prescribed person has any outstanding amounts owing under the Act, the CRA may deduct or set off any amount owing to that person by the Government of Canada (for example, a GST/HST rebate) against those outstanding amounts.

Offences and penalties

Under section 214, any person that manufactures vaping products without a licence is in contravention of the Act and is guilty of an offence. Upon conviction, that person may be liable to a fine or to imprisonment, or to both. The only exception is provided in subsection 158.35(3), which allows an individual who is not a vaping product licensee to manufacture vaping products for their personal use.

Under section 238.1, any person that cannot account for any vaping excise stamps that they have been issued is liable to a penalty of $5 per stamp.

Other offenses and penalties may apply for non-compliance with the Act.

Transitional rules

To facilitate the implementation, application, administration and enforcement of the excise duty framework for vaping products, Bill C-19 includes transitional provisions related to the imposition and payment of vaping duty and the stamping of vaping products, as well as to the possession of unstamped vaping products.

Imposition and payment of vaping duty

Vaping duty is imposed under section 158.57 on vaping products that are manufactured in Canada and packaged on or after October 1, 2022, and on vaping products that are imported into Canada on or after October 1, 2022. The vaping duty on products manufactured in Canada is payable to the CRA at the time of packaging. The vaping duty on imported products is payable at the time of importation and is paid to the Canada Border Services Agency (CBSA).

For a vaping product that is manufactured in Canada and packaged before October 1, 2022:

• if the vaping product is stamped before October 1, 2022, the duty is imposed on the vaping product and is payable on October 1, 2022
• if the vaping product is stamped on or after October 1, 2022, the duty is imposed on the vaping product and is payable at the time that the vaping product is stamped

If a packaged vaping product is imported into Canada before October 1, 2022, and is already stamped at the time it is reported under the Customs Act, the duty is imposed and payable at the time of importation and is paid to the CBSA.

Stamping requirements for vaping products

A vaping excise stamp is required to be affixed to vaping products that are manufactured in Canada and packaged on or after October 1, 2022.

A vaping excise stamp is required to already be affixed to packaged vaping products that are imported on or after October 1, 2022.

For additional information, refer to Excise Duty Notice EDN80.

Possession and sale of unstamped vaping products

Possession and sale of unstamped vaping products that were manufactured in Canada and packaged before October 1, 2022, is permitted up to and including December 31, 2022.

Possession and sale of unstamped packaged vaping products that were imported into Canada before October 1, 2022, is permitted up to and including December 31, 2022.

As of January 1, 2023, no person is permitted to possess or sell unstamped packaged vaping products unless explicitly permitted under the Act.

Further information