EDN60 Calculation of Cannabis Duty and Additional Cannabis Duty on Cannabis Oil, Edible Cannabis, Cannabis Extracts and Cannabis Topicals

April 2019

The information included in this publication is for reference purposes only and does not replace the Excise Act, 2001 or its regulations. Any reference that is made in this notice to May 1, 2019, or to cannabis duty or additional cannabis duty that is imposed on cannabis oil, as well as on edible cannabis, cannabis extracts and cannabis topicals when these products become available for legal sale is based, in part, on proposed amendments to the Excise Act, 2001 and, in part, on proposed amendments to the Excise Duties on Cannabis Regulations, in Budget 2019 tabled on March 19, 2019. Any commentary contained in this notice should not be taken as a representation by the Canada Revenue Agency (CRA) that the proposed amendments will eventually be made or adopted in their current form.

Should there be any discrepancy between the information in this publication and that contained in the Act or its regulations, the legislative provisions apply. If the information in this publication does not completely address your particular situation, you may wish to refer to the Act or its regulations, or contact any Canada Revenue Agency (CRA) regional excise office for additional information. These offices are listed at Contact Information – Excise and Specialty Tax Directorate.

In this publication, all legislative references to the Act are to the Excise Act, 2001 and all references to the Regulations are to the Excise Duties on Cannabis Regulations, unless otherwise specified.

Table of Contents

• Overview
• Definitions
• Imposition and payment of duty on cannabis oil, edible cannabis, cannabis extracts and cannabis topicals
  • Cannabis duty
  • Additional cannabis duty
• Rates of cannabis duty and additional cannabis duty
• Adjustment rates for the additional cannabis duty in listed specified provinces
• Calculation of cannabis duty and additional cannabis duty payable
  • Step 1 – Determining the flat‑rate cannabis and additional cannabis duties
  • Step 2 – Determining the adjustment to the additional cannabis duty if the cannabis products are delivered to a purchaser in a listed specified province
  • Step 3 – Determining the amounts payable to be reported in Part 5 of Form B300, Cannabis Duty and Information Return
• Maintaining records and filing returns
  • Keeping records
  • Records to be maintained
  • Filing returns

Overview

As part of the Government of Canada’s ongoing efforts to regulate and restrict access to cannabis products, the CRA is responsible for administering and enforcing the excise duty framework for all cannabis products, which generally applies to all cannabis products sold for both medical and non-medical purposes.

The following 3 new classes of cannabis products will be available for legal sale under the Cannabis Act later this year: edible cannabis, cannabis extracts and cannabis topicals. As a result, proposed changes were introduced in Budget 2019 regarding the method for calculating excise duties on these products, as well as on cannabis oils, as follows:

• effective May 1, 2019, excise duties imposed on cannabis oil, which has the same meaning as in the Cannabis Act and its regulations, packaged after April 30, 2019 would be calculated based on the method outlined in this notice. For any cannabis oil packaged prior to May 1, 2019 (including cannabis products delivered to a purchaser after April 30, 2019), the excise duties will be calculated using the method described in Excise Duty Notice EDN55, Calculation of Cannabis Duty and Additional Cannabis Duty on Cannabis Products;
• with respect to edible cannabis, cannabis extracts and cannabis topicals, which have the same meaning as proposed in the Cannabis Act and its regulations, the duty payable would be calculated using the method outlined in this notice when these products become available for legal sale.

In addition, Budget 2019 proposes to amend the definition of low-THC cannabis products so that it continues to apply to dried cannabis, fresh cannabis and cannabis oil given the proposed changes to the product classes under the Cannabis Act. The legislative amendments proposed to the Act in Budget 2019 generally do not expand the low-THC cannabis product definition to include new classes of cannabis products (unless they meet the definition of a cannabis oil).

It should be noted that the method for calculating the excise duties on dried cannabis, fresh cannabis, cannabis plants and cannabis plant seeds, which have the same meaning as in the Cannabis Act and its regulations, remains unchanged. For information on the method for calculating the excise duties on these products, please refer to Excise Duty Notice 55.

Cannabis licensees who package cannabis oil, or who will be packaging edible cannabis, cannabis extracts or cannabis topicals, should carefully review the information included in this notice.

Definitions

The following terms are used in this notice:

Additional cannabis duty means a duty imposed under section 158.2 or 158.22 of the Act, in respect of a specified province. This duty is in addition to the cannabis duty imposed under section 158.19 or 158.21 of the Act.

Base amount means, in respect of a cannabis product and a listed specified province,

1. if the cannabis product is delivered or made available to a person that obtains it otherwise than by means of a purchase, the fair market value of the cannabis product;
2. in any other case, the amount determined by the formula [(A − B) − C)] × [100% ÷ (100% + D)]

where

A  is the total consideration (generally the sales price) as determined for GST/HST purposes, which the purchaser is liable to pay to the vendor for the cannabis product, the container in which the product is packaged, plus any other amount, whether payable at the same time or any other time, charged for, or to make provision for, advertising, financing, commissions, or any other matter;

B  is the flat‑rate cannabis duty determined under paragraph 1(b) of Schedule 7 to the Act, for the purpose of this notice;

C  is, in respect of the listed specified province, the amount determined under paragraph 1(b) of the applicable Schedule to the Regulations for the particular listed specified province, for the purpose of this notice; and

D is the adjustment rate in respect of the listed specified province set out in section 5 of the applicable Schedule to the Regulations for the particular listed specified province (see the section “Rates of the adjustment to the additional cannabis duty in listed specified provinces”, in this publication).

Cannabis duty means a duty imposed under section 158.19 or 158.21 of the Act.

Dried cannabis means, under the proposed amendments, any part of a cannabis plant that has been subjected to a drying process, other than seeds.

Fresh cannabis means, under the proposed amendments, freshly harvested cannabis buds and leaves, but does not include plant material that can be used to propagate cannabis.

Listed specified province means Alberta, Nunavut, Ontario or Saskatchewan, for the purposes of this notice.

Low-THC cannabis product means, under the proposed amendments, a cannabis product

1. consisting entirely of
   1. fresh cannabis,
   2. dried cannabis, or
   3. oil that contains anything referred to in items 1 or 3 of Schedule 1 to the Cannabis Act and that is in liquid form at a temperature of 22 ± 2 degrees Celsius; and
2. any part of which does not have a maximum yield of more than 0.3% THC w/w, taking into account the potential to convert THCA into THC, as determined under the Cannabis Act.

Specified province means a province or territory prescribed by section 4 of the Regulations that has entered into an agreement with the Government of Canada for the coordination of cannabis taxation. All provinces and territories, with the exception of Manitoba, have entered into such agreements.

THC refers to tetrahydrocannabinol, the principal psychoactive constituent of cannabis.

THCA means delta-9-tetrahydrocannabinolic acid.

Total THC of a cannabis product means the total quantity of THC, in milligrams, that the cannabis product could yield, taking into account the potential to convert THCA into THC, as determined under the Cannabis Act.

Imposition and payment of duty on cannabis oil, edible cannabis, cannabis extracts and cannabis topicals

Cannabis duty

Subsection 158.19(1) of the Act would impose a flat-rate cannabis duty on cannabis oil, edible cannabis, cannabis extracts and cannabis topicals that are produced in Canada at the time the cannabis products are packaged in the amount determined under proposed amendments to paragraph 1(b) of Schedule 7 to the Act, that is $0.0025 per milligram of the total THC of the cannabis product. Cannabis oil, edible cannabis, cannabis extracts or cannabis topicals would only be subject to the flat-rate cannabis duty that is determined based on the total THC, in milligrams, of the cannabis product. These products would not be subject to an ad valorem duty rate, unlike dried cannabis, fresh cannabis, cannabis plants and cannabis plant seeds.

For more information, see the section “Step 1 – Determining the flat‑rate cannabis and additional cannabis duties” later in this notice.

Pursuant to subsection 158.19(3) of the Act, the cannabis duty would be payable by the cannabis licensee that packaged the cannabis products at the time of delivery to a purchaser.

Additional cannabis duty

Under section 158.2 of the Act, an additional cannabis duty on cannabis products produced in Canada is imposed in respect of specified provinces. Subsection 5(1) of the Regulations prescribes that the additional cannabis duty would be imposed on cannabis products produced in Canada if they are for consumption, use or sale to consumers in a specified province.

For specified provinces, the amount of additional cannabis duty payable on cannabis oil, edible cannabis, cannabis extracts or cannabis topicals would be determined based on the total THC, in milligrams, of the cannabis product. Under subsection 158.2(2) of the Act, the additional cannabis duty is payable by the cannabis licensee that packaged the cannabis products at the time of delivery to a purchaser (for example, a provincially‑authorized distributor or retailer, or a final consumer).

For listed specified provinces, there is a further amount payable, which is referred to as an adjustment to the additional cannabis duty. The adjustment rate for a listed specified province is provided in section 5 of the Schedule to the Regulations that applies to the province. Therefore, for listed specified provinces, subsection 5(2) of the Regulations would provide that the additional cannabis duty payable on cannabis oil, edible cannabis, cannabis extracts or cannabis topicals is the sum of:

• the flat‑rate additional cannabis duty; and
• the adjustment to the additional cannabis duty.

The adjustment to the additional cannabis duty would be determined under section 5 of the applicable Schedule to the Regulations for the province for which the additional cannabis duty would be imposed.

Rates of cannabis duty and additional cannabis duty

The flat-rate cannabis duty is imposed on cannabis oil, edible cannabis, cannabis extracts or cannabis topicals under section 158.19 and the proposed rates are set out in proposed amended paragraph 1(b) of Schedule 7 to the Act.

With the exception of Manitoba, all provinces and territories have agreed to the coordinated cannabis taxation framework. The Regulations set out the additional cannabis duty rates in paragraph 1(b) (flat‑rate duty) of the applicable Schedule to the Regulations that applies for a particular specified province. For Manitoba, there is no additional cannabis duty payable.

The proposed rates of cannabis duty and additional cannabis duty for cannabis oil, edible cannabis, cannabis extracts or cannabis topicals are indicated in the following table and would apply to all provinces and territories (except Manitoba in respect of the additional cannabis duty).

Adjustment rates for the additional cannabis duty in listed specified provinces

The adjustment rates for the additional cannabis duty required when packaged and stamped cannabis products are delivered to a purchaser in a listed specified province are as follows:

• Alberta, 16.8%
• Nunavut, 19.3%
• Ontario, 3.9%
• Saskatchewan, 6.45%

For more information on how these rates would apply, see the section “Step 2 – Determining the adjustment to the additional cannabis duty if the delivery is to a purchaser in a listed specified province” in this notice.

Calculation of cannabis duty and additional cannabis duty payable

For each delivery of cannabis oil, edible cannabis, cannabis extracts or cannabis topicals made to a purchaser, the flat‑rate cannabis duty and additional cannabis duty must be calculated. For the province of Manitoba, the additional duty calculation is not required. For listed specified provinces, a further adjustment to the additional cannabis duty must be calculated.

The following example will be used throughout this notice to illustrate the calculations required.

Step 1 – Determining the flat‑rate cannabis and additional cannabis duties

The flat-rate cannabis and additional cannabis duties payable on cannabis oil, edible cannabis, cannabis extracts or cannabis topicals are calculated using the milligrams of total THC contained in the final product.

Step 2 – Determining the adjustment to the additional cannabis duty if the cannabis products are delivered to a purchaser in a listed specified province

If the cannabis products are delivered to a purchaser in a listed specified province, a further calculation must be completed to determine the adjustment to the additional cannabis duty. This calculation would be determined by multiplying the base amount ([(A − B) − C] × [100% ÷ (100% + D)]) by the adjustment rate set out in section 5 of the Schedule to the Regulations that applies for the particular listed specified province.

Step 3 – Determining the amounts payable to be reported in Part 5 of Form B300, Cannabis Duty and Information Return

The duties on cannabis products are payable by the cannabis licensee that packaged and stamped the cannabis product at the time of delivery to a purchaser.

The cannabis duty and total additional cannabis duty payable must be reported by the licensee in Part 5 of Form B300, Cannabis Duty and Information Return, in the appropriate cannabis product section.

For each province or territory where cannabis products are stamped for that particular jurisdiction and are delivered to a purchaser, the following information must be entered in the appropriate columns on Form B300:

• under Sales ($), the total sales in dollars;
• under Sales (mg of total THC), the total sales in milligrams of total THC;
• under Cannabis duty ($), the total amount of cannabis duty payable; and
• under Additional cannabis duty ($), the total amount of the additional cannabis duty and, where applicable, the adjustment to the additional cannabis duty.

Maintaining records and filing returns

Keeping records

Every cannabis licensee is required, under subsection 206(1) of the Act, to maintain all records that are necessary to determine whether they are in compliance with the Act.

Records to be maintained

Subsection 206(2.01) of the Act states that every cannabis licensee is required to retain records relating to the amount of cannabis product produced, received, used, packaged, re-worked, sold and disposed of by the licensee. Books and records must 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 cannabis duties and additional cannabis duties, or the amount of any refund the person has claimed.

With respect to the calculation of duties payable, the licensee must retain sufficient documentation to substantiate the cannabis duty and additional cannabis duty payable on each delivery of a cannabis product to a purchaser. This includes documentation detailing the total THC, in milligrams, of cannabis oil, edible cannabis, cannabis extract or cannabis topical delivered to a purchaser, the sales price of the cannabis product delivered to a purchaser, the payment received and supporting documents to verify the place of delivery.

For more information on the requirement to maintain books and records, see Excise Duty Memorandum EDM9‑1‑1, General Requirements for Books and Records.

Filing returns

Under section 160 of the Act, every cannabis licensee is required to file Form B300, for each calendar month, and to calculate, report and remit any cannabis duty and additional cannabis duty payable on that return to the CRA.

Licensees would be required to report total sales of cannabis oil, edible cannabis, cannabis extracts and cannabis topicals in dollars and quantities of total THC, in milligrams, by province or territory on a monthly basis, as well as the cannabis duty and additional cannabis duty payable, which would need to include any adjustments to the additional cannabis duty.

Further information