Backgrounder: Federal-Provincial-Territorial Agreement on Cannabis Taxation

The Government of Canada is committed to legalizing, regulating and restricting access to cannabis to keep it out of the hands of youth, and profits out of the hands of criminals.

In support of these twin goals the federal government is working collaboratively with provinces and territories to ensure a coordinated and stable approach to cannabis taxation.

Furthermore, Finance Ministers recognize that meeting the objectives of the legalization of cannabis will entail sustained cooperation between both orders of government and municipalities.

The Ministers agree in principle on the following regarding cannabis taxation for the initial two years after legalization:

General Principles

• Taxes on cannabis will be kept low to support the objectives of its legalization: keeping it out of the hands of youth, and profits out of the hands of criminals.
• In addition to general sales taxes, the combined rate of all federal, provincial and territorial cannabis-specific taxes will not exceed the higher of $1 per gram, or 10 per cent of a producer’s selling price.
  • This tax room will be shared on the following basis: 75 per cent to provincial and territorial governments; 25 per cent to the federal government. Provinces and territories will work with municipalities according to shared responsibilities towards legalization. The federal portion of cannabis excise tax revenue will be capped at $100 million annually. Any federal revenue in excess of $100 million will be provided to provinces and territories.
• Where provinces or territories use Crown corporations for cannabis distribution at the wholesale or retail level, margins and/or mark-ups will be reasonable.
  • Where provinces and territories impose a cannabis-specific tax, margins and/or mark-ups may be applied to cover operating costs and capital expenses, and generate a normal rate of return.
  • Where provinces and territories do not impose a cannabis-specific tax, margins and/or mark-ups may additionally be applied at a level that is in keeping with the agreed-upon taxation room.
• To limit compliance costs, the federal government and provinces and territories will ensure that cannabis-specific taxes are imposed in a coordinated fashion and on the same base.
• A federal-provincial-territorial committee will oversee the implementation of this coordinated approach to cannabis taxation and will monitor and report on its effectiveness, and identify potential adjustments that could support the objectives of legalization over time. The committee will report back to Ministers in December 2018.

Further Agreement to a Coordinated Taxation Framework

• For jurisdictions that agree to participate in a coordinated taxation framework for cannabis, the following terms would apply:
  • The framework will be enacted under federal legislation and administered by the federal government at no cost to provinces and territories;
  • Provincial and territorial rates will be set as a fixed proportion of the federal rate;
  • Aside from specified exceptions, such as Crown monopoly margins/mark-ups, or the application of general sales taxes, no other tax or tax-like instrument will be realized by provinces or territories on the agreed-upon taxation room in respect of legal cannabis sales; and
  • A province or territory may request an adjustment to the provincial or territorial component of the tax rate applied under the coordinated framework to reflect differences between the sales tax rate applied to cannabis in the province or territory and the highest prevailing general sales tax rate, or provincial rate component of the Harmonized Sales Tax, among provinces and territories.
• The following provinces and territories have indicated that they agree in principle to a coordinated federally-administrated taxation framework and will seek necessary authorities to participate:
  • Alberta
  • British Columbia
  • New Brunswick
  • Newfoundland and Labrador
  • Northwest Territories
  • Nova Scotia
  • Nunavut
  • Ontario
  • Prince Edward Island
  • Quebec
  • Saskatchewan
  • Yukon