BC Approves The Cannabis Tax Act
October 10, 2018 Andrew AdolphPST,Cannabis,News
With just a week to go now before cannabis is legal in Canada, the government of British Columbia finally issued the Cannabis Tax Act. Keep reading to learn more about the new PST on cannabis policy.
What Is The Cannabis Tax Act?
On October 5, 2018, the BC government released the Cannabis Tax Act, its taxation policy for cannabis.
The policy is simple: 7% PST will apply to medical and non-medical cannabis products effective October 17, 2018. Edible hemp products containing no THC will keep their PST exempt status. That means businesses who sell or intend to sell these products must register to collect PST.
However, the bigger story is the complex new rules. Here is where things get murky: Business owners must have a Non-Medical Cannabis Retail Licence (issued Federally) before receiving a PST number. Yet the government requires that businesses have a PST number to charge PST on cannabis in the first place. But without a PST number, the government will still classify the company as registered for and collect PST on its sales.
These are so complicated that only two retailers can legally sell cannabis come October 17: a retail store in Kamloops and a government-run online service for people to order from.
How The Cannabis Tax Act Works
One of the primary motivations for legalization was removing incentives for organized criminals to provide cannabis services to the public. However, under the Cannabis Tax Act, the government charges nearly 30% in sales and excise taxes on product sales alone.
Here is how 1 g of dry cannabis bud with an MSP of $7.00 will be taxed:
As complicated as it is, BC levies less tax than the HST provinces (Ontario and East). Alberta, Saskatchewan, and Manitoba are charging their versions of an excise tax, paid at the manufacturing level. This may entice some producers to move their operations either to BC to escape the extra excise taxes or to one of the HST provinces, where they will be entitled to larger input tax credits.
Taxable Vs. Non-Taxable Sales
The following products are subject to 7% PST:
- Fresh or dried cannabis flowers, capsules, concentrates (such as oils and tinctures), or topical products
- Cannabis seedlings
- Cannabis goods for pets
- Soap or bath products containing cannabis
- Edible cannabis products (excluding edible hemp goods)
- Cannabis accessories and parts
- Cleaning tools and solutions for accessories
The following products are NOT subject to 7% PST:
- Cannabis seeds
- Schedule 1 drugs
- Food products made from hemp (i.e., hemp seeds, hemp hearts, hemp seed oil)
- Gift cards and certificates
For more information, you can contact the BC government directly by:
- Emailing CTBTaxQuestions@gov.bc.ca
- Calling 1-877-388-4440
- Visiting gov.bc.ca/pst.
Interested In Getting A License?
Anybody wishing to open a legal cannabis retail store must follow a complicated 11-step process, summarized here. Furthermore, one cannabis store license application costs $7,500, plus a $1,500 annual renewal fee.
To register, business owners can apply online, in-person at a local Service BC Centre, or mail the FIN 418 form to the BC Ministry Of Finance. If your business already collects PST on other products, you must submit proof of your federal Health Canada Producer license or cannabis retail store license.
On its website, the CRA states that “Only a CRA cannabis licensee may possess unpackaged, unstamped cannabis products. You are not eligible for a CRA licence if your business involves only storing unpackaged cannabis products.”
Make Sure Your Business Complies With The Cannabis Tax Act
Having been through a significant tax policy change myself (the inception of GST), it is normal for big government not to be ready on Day 1. Usually, there is a “honeymoon period” lasting at least six months where the government irons out the wrinkles. Then, once everything normalizes, they begin tightening the screws with more audits and enforcement activities.
If you sell cannabis products without a PST registration number after October 17, 2018, expect the province to backdate your approval to this date. This is because they will consider you to have collected the PST before you had your number during that interim period.
Tax laws are complicated enough, but cannabis adds another level of complexity that can be difficult for business owners to face alone. A sales tax expert can help you avoid potential penalties by helping you comply with the Cannabis Tax Act. Call 604-240-6173 to schedule a free appointment. We can chat about your business, where you’re at in the registration process, and set you up for success.
For more tax resources, visit the Blog.
Andrew Adolph is a CPA and former CRA auditor with 25 Years of experience. He helps businesses to not par any more in sales taxs than the law says they must and acts as an advocate for you if you are being audited, so you can fous on your business.