Each year, the government of Canada releases a Budget that outlines planned spending and expected government revenue, as well as the current and expected economic positions and conditions.
In addition, the Budget also proposes changes to legislation affecting businesses, individuals, charities, and trusts. These changes often aim to improve the economy and provide more fairness amongst Canadians.
As part of the 2018 Federal Budget, the current Liberal government has outlined six changes to Sales and Excise Tax that could affect taxpayers (businesses and individuals) across Canada, including the introduction of rules governing the taxation of Cannabis.
1. The Government is Moving Forward with the Application of GST/HST to Investment Limited Partnerships
Previously proposed in September of 2017, the government plans to move forward with new GST/HST legislative and regulatory measures for Investment Limited Partnerships (i.e. limited partnerships whose primary purpose is investing in financial instruments such as shares).
The changes are as follows:
- GST/HST will only apply to management and administrative services rendered on or after September 8, 2017.
- GST/HST will be payable on the FMV of the services.
- An election will be available to delay the application of these amendments until January 1, 2018.
2. Consultation Will be Sought Regarding Holding Corporation Rules
Currently, the Holding Corporation Rules allow parent companies to claim ITCs (input tax credits) on expenses regarded as reasonably related to the ownership of shares or debt of a related corporation, allowing them to recover GST/HST paid.
The government seeks to clarify applicable expenses, as well as explore the application of the Holding Corporation Rules to corporation only. They will also address the degree of the relationships held between the parent company and related corporation.
3. Tax on Tobacco Products May Increase Yearly vs. Every 5 Years
Currently, to account for inflation, the excise tax on tobacco products increases automatically every 5 years. The 2018 Budget proposes to increase the rate of this inflation to yearly.
In addition, the Budget proposed a $1.00 excise tax increase on every 200 cigarettes starting February 28, 2018.
4. Cigarette Producers and Sellers Will be Subject to An Inventory Tax
In addition to the above proposals, a tax of $0.011468 per cigarette will apply to all inventories held by cigarette manufacturers, importers, wholesalers and retailers. While some exemptions apply, most of these parties will be required to file and remit their cigarette inventory tax by April 30, 2018.
5. New Excise Duty Tax Proposed for Cannabis
With the legalization of cannabis on its way, the government has proposed a new framework for the application of excise tax on Cannabis products, including a requirement for cultivators and manufacturers to obtain a license from the Canada Revenue Agency (CRA) to remit these new taxes.
Once licensed, the licensee will have to pay the higher of:
- A flat dollar rate per gram, seed or seedling applied when the product is being packaged for final retail; or
- An ad valorem (according to value) rate applied upon delivery to the licensed retailer.
The tax will apply to all Cannabis products including, fresh, dry, oil, seeds and seedlings and all products will require an excise stamp before they enter the retail market.
This tax will not apply to products with less that 0.3% of THC or prescription pharmaceutical products.
6. Amendments Will be Made to Rules Governing Agricultural Products
In addition to the above proposed changes, it is recommended that rules governing agricultural products be adjusted to ensure GST/HST is charged on the sale of Cannabis plants and seeds.
For more information on how these changes could affect your business, contact us today!
