Amidst vast speculations, the Canadian Budget for 2019 was released on Tuesday for outlining the spending plans of the government in the upcoming year. It ushers in a large number of breathers in the form of relaxed interest rates for student loans, incentives to first-time homebuyers, new spending/investment programs as well as various updates for exercising control over the cannabis taxation regime.
Proposed Taxation Method
Cannabis products such as edibles and concentrates shall be added to the approved list of items in the Cannabis Act on 17th October 2019. A new method has also been decided upon by the government for levying tax on the new products. This model shall concentrate on taxing the intoxicant content of cannabis rather than just the quantum of flower.
The budget has proposed that, “edible cannabis, cannabis extracts (including cannabis oils) and cannabis topicals be subject to excise duties imposed on cannabis licensees at a flat rate applied on the quantity of total tetrahydrocannabinol (THC).” This upcoming change shall in no way affect the current taxation rates on seeds, cannabis flower and seedlings.
According to the document, the “combined federal-provincial-territorial THC-based excise duty rate for cannabis edibles, cannabis extracts (including cannabis oils) and cannabis topicals is proposed to be $0.01 per milligram of total THC.” The ultimate aim of the government here is to simplify the cannabis taxation process for licensed producers.
According to the budget,“the proposed THC-based rate would alleviate compliance issues that producers have encountered with respect to the tracking of the quantity of cannabis material contained in cannabis oils, and would allow producers and administrators to more easily calculate and verify excise duties for cannabis edibles, extracts and topicals.”
Currently, a flat rate (also known as ad valorem rate) is levied by the government on the quantum of cannabis present in the final product along with a “percentage of the dutiable amount of the product as sold by the producer.”
Taxation Of Medical Cannabis
In spite of giving us high hopes, the 2019 Budget failed to revoke excise tax on medical cannabis. However, it has proposed Income Tax Act amendments reflecting the current regulations of accessing cannabis specifically for medical reasons. The qualifying medical expenses will be eligible for 15% tax credit which “recognizes the effect of above-average medical or disability-related expenses on an individual’s ability to pay tax.”
Furthermore, “Eligible expenses for the medical expense tax credit will also include expenses for other classes of cannabis products purchased for a patient for medical purposes, once they become permitted for legal sale under the Cannabis Act.”
The existing tax exemptions are currently applicable on cannabis flower having marginal amount of THC and even THC pharmaceutical cannabis products which are obtained through a prescription containing a Drug Identification Number.
The Coordinated Cannabis Taxation Agreements (CCTAs) allow the government to redirect 25% of tax generated out of cannabis sales ranging up to $100 million towards its exchequer. The remaining 75% is retained by the territories and provinces. Additional revenue over $100 million gets redistributed at the provincial level. According to the budget, all the proposed changes shall come into effect from 1st May 2019.
The Canadians for Fair Access to Medical Marijuana (CFAMM) tweeted in response to the 2019 budget that they were disappointed about the retention of both excise and sales tax on medical cannabis in its entirety.