Trade Talk Blog U
he topic of taxes can be a complicated one, especially when doing business across borders. As Canada implements its new Vape Tax, it is important to understand the implications of this taxation. Knowing what constitutes the tax, who has to pay it, and precisely how it is calculated will allow you to plan appropriately for this extra cost. To help make things clearer, we’ve written this blog post to outline what you need to know about Canada’s VAT/GST taxation of vapes. Read on to get up-to-date information so you can make sure your importation process runs smoothly.
What is the Vape Tax?
In October 2022, Canada brought into effect a “Vape Tax” on vaping substances manufactured in Canada and those imported into Canada to be used as vaping devices. Although the law came into effect in 2022, it wasn’t until January 2023 that buying or selling unstamped vaping products became illegal.
The Vape Tax is an Excise Tax or duty which applies to some goods manufactured in Canada or imported for use in the country, as opposed to tariffs that normally regulate competition and support domestic suppliers. Canada’s excise taxes include other goods such as wine and spirits, tobacco products, and cannabis products. This specific tax applies to e-liquid, disposable vapes, pre-filled pod systems, and NicBase, and excludes hardware such as refillable devices that are not filled before being packaged and sold to consumers.
Importing Vaping Products
An importer who also manufactures vaping products in Canada should obtain a vaping product license. However, an individual or business that is only importing vaping products into Canada is required to apply to the Canada Revenue Agency (CRA) to become a vaping-prescribed person and acquire vaping excise stamps. Packaged vaping products have to be stamped before being imported. Products that are not stamped before importation are placed in a sufferance warehouse to be stamped.
Importers are eligible of becoming a vaping prescribed person if they:
- 18 years or older
- Have sufficient funds to conduct their businesses
- Are not in receivership in respect of their debts
- Have, in the five years before the application date, complied with all Acts of Parliament (other than the Excise Act, 2001) and provincial or territorial legislature that deals with the taxation of or controls on alcohol, tobacco products, or vaping products and with any regulations made under that Act
- Have not acted to defraud Her Majesty in the five years before the application date has not acted to defraud Her Majesty in the past five years immediately before the date of the application
Application and Documents
To apply, importers should complete and submit Form L603, Vaping Prescribed Person Application to the Excise Stamp Order Desk in addition to:
- A business plan (and business overview)
- A sales and marketing plan
- A financial plan (as well as a source of funds)
- A 12-month projection of vaping excise stamp usage
- Financial security
Who has to pay the Vape Tax?
Importers who are bringing packaged vaping products into Canada or other persons who are charged with paying duties are responsible for paying the Vape Tax at the time of importation. Packaged vaping products are imported in the smallest package which includes outer wrapping, packaging, boxes, and containers that will be sold to consumers.
Unpackaged vaping products that are imported into Canada for further manufacturing are not subject to vaping duty at the time of importation. However, vaping product licensees who package vaping products that are manufactured in Canada on or after October 1, 2022, are required to pay the Vape Tax at the time of packaging. More information on the Vape Tax can be found here.
Calculating the Vape Tax
Duty rates, as outlined in Schedule 8 of the Excise Act, 2001, are:
- Vaping liquids:
- $1 per 2 milliliters for the first 10 milliliters, rounded to the nearest unit
- $1 per 10 milliliters after the first 10 milliliters, rounded to the nearest unit
- Vaping solids:
- $1 per 2 grams for the first 10 grams, rounded to the nearest unit
- $1 per 10 grams after the first 10 grams, rounded to the nearest unit
For example, a 30-milliliter bottle of liquid amounts to $7 vaping duty, while a 60-milliliter bottle only adds up to $10 ($5 for the first 10 ml plus $5 for the next 50 ml).
If the vaping products are packaged in Canada, the vaping product licensee should calculate the duty and declare the amount payable to the CRA on their monthly vaping duty and information return. If the vaping products are imported into Canada, the person responsible for paying duties should calculate the amount payable to the Canada Border Services Agency (CBSA) at importation.
Vaping is a growing industry with many taxes and regulations that importers need to keep in mind. Canada’s Vape Tax poses several challenges for importers, as it requires careful planning and understanding of the related regulations. To ensure success when importing vaping products into Canada, importers must take the time to understand customs regulations. Additionally, they must develop a comprehensive understanding of excise taxes and how they apply within the Canadian market. With that said, the best way to ensure compliant importation is to consult an experienced broker who specializes in imports into Canada. By leveraging their expertise and making informed decisions, importers can ensure that importing vaping products into Canada is an efficient process that won’t disrupt their supply chain or put their organization at risk of costly fines and penalties.
How GHY Can Help You
At GHY, we are committed to helping you save money on imports. Our experienced team of customs brokers and concierges will take care of all of your import needs. Book a meeting with one of our Trade Experts, we can advise on how the Vape Tax will affect your bottom line, saving you time and money in the long run.
We also provide full-service solutions for managing, tracking, and filing all required paperwork associated with international trade. This ensures that all processes are handled efficiently and accurately so that your shipments arrive on time and comply with applicable regulations. With GHY at your side, you can rest assured that you’ll receive the best service possible at a competitive rate.