Vol. 137, No. 13 — June 18, 2003

Registration
SOR/2003-206 5 June, 2003

EXCISE ACT, 2001

Losses of Bulk Spirits and Packaged Alcohol Regulations

P.C. 2003-860 5 June, 2003

Her Excellency the Governor General in Council, on the recommendation of the Minister of National Revenue, pursuant to paragraph 304(1)(o) of the Excise Act, 2001 (see footnote a) , hereby makes the annexed Losses of Bulk Spirits and Packaged Alcohol Regulations.

LOSSES OF BULK SPIRITS AND PACKAGED ALCOHOL REGULATIONS

INTERPRETATION

1. The definitions in this section apply in these Regulations.

"Act" means the Excise Act, 2001. (Loi)

"licensee" means a spirits licensee or a licensed user. (titulaire de licence)

LOSS OF BULK SPIRITS

2. For the purposes of paragraph 109(f) of the Act, bulk spirits are lost when they are lost in any of the following circumstances, on condition that the person responsible for the spirits at the time of the loss keeps records, in accordance with section 206 of the Act, that substantiate the loss:

• (a) a fire;
  (b) shrinkage by evaporation;
  (c) processes relating to manufacturing, including aging, blending, racking, re-distilling, reducing and vatting;
  (d) processes relating to handling, including stock operations and packaging; and
  (e) the physical transfer of the spirits between licensees or between a licensee and an alcohol registrant.

LOSS OF PACKAGED ALCOHOL

3. For the purposes of paragraphs 129(1)(c) and 138(1)(c) of the Act, packaged alcohol is lost when it is lost through breakage that occurs

• (a) while the alcohol is in its original unopened container in an excise warehouse or in the specified premises of a licensed user, on condition that the excise warehouse licensee or the licensed user in possession of the alcohol at the time of the breakage keeps records, in accordance with section 206 of the Act, that substantiate the breakage; or
  (b) during the physical transfer of the alcohol between excise warehouses or between an excise warehouse and the specified premises of a licensed user.

COMING INTO FORCE

4. These Regulations take effect on July 1, 2003.

REGULATORY IMPACT ANALYSIS STATEMENT

(This statement is not part of the Regulations.)

Description

The new Excise Act, 2001 received Royal Assent on June 13, 2002, thereby replacing the legislative provisions of the existing Excise Act, regarding the production and distribution of alcohol and tobacco products. The Act authorizes the Governor in Council to make identified related regulations in support of the new legislation.

Accordingly, the Losses of Bulk Spirits and Packaged Alcohol Regulations have been written to detail the prescribed circumstances under which the excise duty that is imposed on bulk spirits or packaged alcohol is relieved if the person responsible for them loses the bulk spirits or packaged alcohol.

Specifically, they provide the circumstances under which, and the conditions that must be fulfilled:

• (a) for a person to cease to be responsible for bulk spirits that are lost;
  (b) an excise warehouse licensee to be relieved of duty on non-duty-paid packaged spirits that are lost; and
  (c) for an excise warehouse licensee or a licensed user to be relieved of duty on non duty paid packaged wine that is lost.

To meet the circumstances described, the person responsible for the spirits at the time of the loss must have records that substantiate the loss.

The relief of duty on bulk spirits and non-duty-paid packaged alcohol provided for by these Regulations ensures that persons are not required to remit duty on alcohol that is lost due to acceptable manufacturing practices, and that is never entered for consumption or taken for use due to circumstances outside of their control.

Currently, Canada Customs and Revenue Agency (CCRA) may consider an application for remission of excise duty where it can be established that alcohol so lost could not have gone into consumption. CCRA recognizes that accidental losses, in addition to those caused by fire, may occur through no fault or negligence on the part of the licensee. No remission of excise duty is considered for theft as there can be no assurance that the stolen alcohol has not entered consumption through illegal avenues. These Regulations will provide the same provisions for relief and remission of duty currently provided for under subsection 138(1) of the existing Excise Act; the existing Order Respecting the Remission of Excise Duty on Spirits Destroyed by Accident; and current Guidelines for Excise Bonding Warehouse Operations — Goods Subject to Excise Lost through Fire, Accident or Theft.

Alternatives

There is no reasonable alternative to the making of these Regulations. In order to provide for the relief of duty on alcohol that is lost and to specify the conditions that a person must fulfil in order to qualify for that relief, it is necessary to prescribe the circumstances under which losses will qualify and the conditions that must be met. The regulations are necessary to implement the provisions of the new Act and they will formalize the current practice with respect to losses.

Benefits and Costs

These Regulations provide relief from duty on alcohol that is lost under circumstances that are beyond the control of the person who is responsible for the duty on the alcohol. Without these Regulations, such persons would be required to remit duty on alcohol lost in production and that is never entered into consumption or taken for use in any other way. Accordingly, these Regulations protect spirits licensees, excise warehouse licensees, and licensed users from losses of alcohol outside their control.

These Regulations also provide a degree of continuity with the current regulations and guidelines under which licence holders operate. With similar provisions under the Excise Act, 2001 and its regulations there will be a no disruption or impact on the manufacturing processes or record-keeping requirements of the licence holder.

There will be no increased costs to the CCRA as a result of these Regulations.

Consultation

The CCRA and the Department of Finance carried out extensive consultations with the affected industries. Draft regulations were released in December 2001 and a Notice distributed in April 2002 to all current and potential licence and registration holders drawing their attention to the draft regulations and asking for submissions by June 30, 2002. Personal presentations and meetings were held with industry groups expressing interest and their comments and suggestions were actively sought and taken into consideration. During consultations with provincial liquor authorities, Spirits Canada, the Canadian Vintners Association, the British Columbia Wine Institute, or the Wine Council of Ontario, there were no comments received with respect to these Regulations. No written submissions from any other affected groups were received with respect to these Regulations.

These Regulations were pre-published in the Canada Gazette, Part I, on March 22, 2003. No comments were received in response to that pre-publication.

Compliance and Enforcement

The CCRA is responsible for enforcing these Regulations as a part of the standard audit and compliance programs. Licensees will be required to provide acceptable documentation to support any losses claimed.

Excise duty is payable on alcohol that cannot be accounted for as being in a person's possession or as being used in an authorized manner. The failure by a licensee to adequately account for alcohol lost while in their possession would result in an assessment being made on the amount of spirits lost. This would be determined through regular, scheduled audits of the licence holder.

Contact

• Mr. Mark Hartigan
  Manager, Excise Act, 2001 - Implementation
  Excise Duties and Taxes Division
  Excise and GST/HST Rulings Directorate
  Policy and Legislation Branch
  Place de Ville, 20th Floor
  320 Queen Street
  Ottawa, Ontario
  K1A 0L5
  Telephone: (613) 954-5894
  FAX: (613) 954-2226

Footnote a

S.C. 2002, c. 22

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