The federal government in Canada imposes both an excise tax and an excise duty on tobacco products. In addition, each province also applies its own tobacco tax to every tobacco purchase. Finally, regular General Sales Tax (GST) and Providential Sales Tax (PST) or Harmonized Sales Tax (HST) will also apply to each purchase, as to other non-exempt goods sold in Canada. The cumulative result is that the Canada tobacco tax consists of several pieces that are applied to each tobacco product over and above regular sales tax. Jeremy Scott Law may be able to assist those who have questions about Canada’s tobacco tax and how it applies to their business. Learn more by calling (902) 403-7201 today.
An Overview of Canada’s Tobacco Tax
Canadian tax law includes provisions for both an excise tax and an excise duty on all tobacco products. Excise duties only apply at the federal level, while excise taxes occur throughout each province as well.
Excise Duties
A duty only applies to products being imported into Canada. The rates of the duty may vary based on where the product originated and the type of product. Duties are adjusted annually to account for inflation. Tobacco tax duties apply to:
- Tobacco sticks
- Cigars
- Manufactured tobacco
- Cigarettes
Any item that contains tobacco is likely to be subject to a duty. In addition, vaping substances have their own duty, even though they contain no tobacco.
Excise Taxes
An excise tax is simply an additional tax imposed on certain products. In Canada, those products include tobacco as well as alcohol, cannabis, and vaping products. Arguably the purpose of the tax is to discourage the use of these products by increasing the prices. As of April 1, 2023, the federal excise tax on a carton of 200 cigarettes is $31.66 or $3.17 per pack of cigarettes.
Every province in Canada also has an excise tax on tobacco as well. These vary a great deal. Currently, the lowest tax is in Quebec, at $37.80 per carton or $2.78 per pack. On the other end of the scale, Northwest Territories has the highest rate per carton at $68.80, while Newfoundland has the highest per-pack rate, charging $6.50. The Physicians for a Smoke-Free Canada report that an “average” pack of cigarettes will vary between $11.68 to $15.92, even though the product itself will cost only $4.18 per pack. By the time federal excise duties, federal excise taxes, providential taxes, and applicable sales taxes are added in, the price of a pack roughly triples throughout Canada.
GST, PST, and HST
Like many other non-essential products, tobacco products are also subject to normal taxes on goods in Canada. GST is 5%, and PST is either 7% or 6%, depending on location. The highest HST rate in Canada is the 15% rate applied in New Brunswick, Nova Scotia, Prince Edward Island, and Newfoundland.
Tobacco Taxes Beyond Cigarettes
While cigarette and cigar taxes receive significant attention in Canada, other tobacco products are taxed as well. The Government of British Columbia explains that within this province tobacco taxes apply to:
- Cigarettes
- Heated tobacco products
- Cigars
- Loose tobacco products (including fine-cut and pipe tobacco)
- Chewing tobacco
Tobacco in any form is therefore subject to tobacco taxes. In addition, strict laws regarding the sale, purchase, possession, and transportation of tobacco products apply in many provinces.
Cigars often have additional duties and taxes, over and above the normal tobacco duty. The tax rates on cigars can be very high, depending on where the cigars are sold. In Ontario, the rate of tax on a cigar is 56.6% of the taxable price of the cigar. In British Columbia, cigars are taxed at a rate of 90.5%, with a maximum of $7.00 per cigar.
Tobacco Tax FAQs
Tobacco taxes in Canada can seem overwhelming because there are many levels of taxation. Jeremy Scott Law has created a short list of frequently asked questions to address some of the most common questions regarding Canada tobacco tax as a quick reference guide.
Who Pays Tobacco Tax?
Most consumers of tobacco products must pay a tobacco tax. However, certain members of the Diplomatic Corps may not have to pay tobacco tax. In addition, under the Tobacco Tax Act, some First Nations individuals may qualify for a tobacco tax exemption when purchasing tobacco products from reserve retailers.
How Is Tobacco Tax Collected?
Consumers pay tobacco tax when they purchase tobacco products. This means that retailers must collect the tax at the point of sale. However, collection from the consumer is actually a reimbursement for retailers because retailers themselves are supposed to also pay tobacco tax when they purchase the products from their suppliers.
Suppliers must remit tobacco tax payments to the Minister each month. Monthly tobacco tax returns may be filed either in paper form or online, but in either case returns are generally due by the 28th day of the month following the reporting period. Some entities may have slightly different deadlines.
Which Companies or Individuals Need To Register To Collect or Pay Tobacco Tax?
Any operation that produces, transports, or sells tobacco products needs to register with the Minister of Finance. These companies or individuals include those who import or export tobacco products as well. A few types of entities that commonly need to register include:
- Manufacturers
- Retailers
- Wholesale tobacco sellers
- Those who sell unmarked cigarettes or unmarked fine tobacco
- Those who mark and fine-cut tobacco
If a business owner is uncertain whether they should register, they may wish to contact the Minister to describe their business and inquire if registration is necessary. Registration will entail obtaining a permit to deal with tobacco. Registration may also immediately require that the company post security through a bond or letter of credit.
What Happens If Someone Does Not Comply With Tobacco Tax Requirements?
Tobacco taxes in Canada are overseen both by individual provinces and at the federal level. Failure to follow Canada tobacco tax requirements can lead to fines and penalties. In some situations, selling tobacco products without the proper permits or registrations can result in jail time and the seizure of tobacco products. Audits, inspections, and investigations are conducted from time to time to ensure compliance.
Get Help With Tobacco Tax in Canada
Given all of the variables a business must consider, the Canada tobacco tax can be complicated, but an experienced Canadian business tax attorney may be able to help. Contact the office of Jeremy Scott Law today by calling (902) 403-7201 to learn more about our proactive tax advisory services and get more information about tobacco taxes and duties in Canada and what they mean for you.