Canada outlines new tax regime for cannabis edibles

Taxation will be based on quantity of THC, not on retail price

New tax regime for edibles is not expected to change government revenue forecasts for the product | Budget.gc.ca

The Canadian government on March 19 revealed that when cannabis edibles become legal later this year, those products will be taxed based on the quantity of THC (tetrahydrocannabinol) that they contain instead of on the total price of the product.

The plan was contained in federal budget documents.

The excise tax regime for fresh and dried cannabis, seeds and seedlings will not change, as those products will continue to be taxed at a 10% rate, or $1 per gram – whichever is higher. Provinces will continue to get 75% of the tax revenue with the federal government getting the  rest.

For edibles, including oils, the future tax regime will be $0.01 per milligram of total THC.

“The new proposed rate is not expected to materially change the overall projected excise duty revenues from these products under the combined federal-provincial-territorial $1 per gram rate presented in Budget 2018,” the government said in its budget.

Not everyone was happy with the announcement that the more THC a product contains, the higher the tax will be. 

Independent cannabis consultant Deepak Anand said on Twitter after the budget was released that taxing cannabis based on its THC content instead of its price "unfairly punishes those medical #cannabis patients that rely on high THC products to manage their symptoms."

Regardless, the government explained that its proposed THC-based rate is intended to help simplify the excise duty calculation for specific cannabis products and ease compliance issues that producers have encountered with respect to cannabis oils.

“Certain low-THC products (e.g., cannabis oils) will also generally be subject to lower excise duties than before, providing further tax relief for cannabis products typically used by individuals for medical purposes,” the government said.

The proposed measure will come into effect on May 1, 2019, and will not affect the revenue-sharing agreements with provinces.

Medical marijuana tax credit

Budget 2019 also proposes to amend the Income Tax Act to reflect the current regulations for accessing cannabis for medical purposes. This measure will apply to expenses incurred on or after October 17, 2018, the government announced.

The federal government said in its budget that the medical-expense tax credit is a 15% non-refundable tax credit that recognizes the effect of above-average medical or disability-related expenses on an individual’s ability to pay tax.

For 2019, the medical expense tax credit is available for qualifying medical expenses in excess of the lesser of $2,352 and 3% of the individual’s net income, according to the government.

Amounts paid for cannabis products may have previously been eligible for a medical-expense tax credit, where such products are purchased for a patient for medical purposes in accordance with the Access to Cannabis for Medical Purposes Regulations, under the Controlled Drugs and Substances Act.

However, cannabis is no longer regulated under this Act. Instead, as of October 17, 2018, access to cannabis is subject to the cannabis regulations under the Cannabis Act.

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 government said. 

For a larger look at all of Budget 2019, click here.

gkorstrom@biv.com

@GlenKorstrom