Law Times

April 1, 2019

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LAW TIMES COVERING ONTARIO'S LEGAL SCENE | APRIL 1, 2019 3 BY ANITA BAL AKRISHNAN Law Times LAWYERS say new tax rules in the recently released federal budget provide clarification around some of the uncertainty faced by new cannabis busi- nesses and medical cannabis users. Finance Minister Bill Mor- neau tabled the 2019 budget plan on March 19, which includ- ed a section adjusting the rules of cannabis taxation. Whitney Abrams, an asso- ciate at Minden Gross LLP in Toronto, says the 2019 budget contained two main changes that will impact lawyers work- ing with clients in the cannabis industry or personal tax advi- sors. Firstly, she says, the budget changes the way excise tax is cal- culated now: the greater of either a f lat rate tax based on a canna- bis product's weight or quantity in its packaging or a rate calcu- lated based on the cannabis product's sale price. The government will deter- mine federal tax "on the quan- tity of tetrahydrocannabinol — or THC — contained in a final product" for cannabis products to be legalized later this year (ed- ible cannabis, cannabis extracts and cannabis topicals,) as well as already-legal cannabis oils, the budget plan said. The goal of the new rules, scheduled to take effect May 1, is to "simplify the excise duty calculation for specific cannabis products and ease compliance issues," according to the budget plan. "Cannabis oils are treated slightly differently under the current regime, where the f lat- rate tax is based on the amount of cannabis material used in the production process," said Abrams. "Lawyers who are advising licensed producers or anyone looking to get into the cannabis edible, topical or extract market, once available, should be aware of these changes and know how to advise their clients accord- ingly on this aspect." Zvi Halpern-Shavim, a part- ner at Blake Cassels & Graydon LLP in Toronto, says the excise tax change could come as a sur- prise for clients that have built existing tax schemes into prices in contracts, especially for prod- ucts that are high in THC. "If you have locked into a certain price for a product over the next X number of years, that could really affect your bottom line," says Halpern-Shavim. "So, one takeaway for our clients, I know, and I think other people's as well, is it's definitely time to go back and look at contracts and see what prices they have in place. When you do price contracts, make sure there's a change in law concept that if the taxes go up or down, there's an ability to adjust prices." Halpern-Shavim says anoth- er area for lawyers to keep an eye on is disputes with the Canada Revenue Agency, where a future audit could question which tax should have been charged. Abrams says the change is the federal government's response to some of the difficulties that licensed producers have been having in terms of taxation of cannabis oil products. "It can be difficult to calcu- late the amount of oil in certain products, so, rolling those oil products into the definition of 'extract,' which will also include topicals, and edibles, should, in the government's eyes, stream- line the process," she said in an emailed statement. While the calculations may become simpler, Halpern-Shavim says the government also missed an opportunity to bring clarity to the issue of when stamps are at- tached to products. "Different provinces have different tax rates . . . The stamps are supposed to be at- tached when the product is packaged, which is when the tax is payable, all at the same moment. You may not know at that time who your ultimate customer is going to be," says Halpern-Shavim. Montreal lawyer Antoine Desroches, a partner at Norton Rose Fulbright Canada LLP, says the new excise tax change is also an additional piece of work for lawyers in the sense that you have two parallel regimes de- pending on the class of cannabis product. Desroches and other lawyers at Norton Rose Fulbright Cana- da wrote in a summary that the budget also brings "helpful cer- tainty," particularly in regards to medical cannabis, as users of medical cannabis can claim a Medical Expense Tax Credit that was previously in question after recreational use was legal- ized in October 2018. "It's just a legal clarification," says Desroches. "The takeaway is a person who is otherwise entitled to the medical tax credit can claim an expense for medical cannabis whether it was purchased before or after Oct. 17." Desroches says the changes in the budget should be of interest to "any lawyer advising a busi- ness involved in either produc- tion or distribution of cannabis products or helping with com- plying with regulatory and tax environments and, to a lesser ex- tent, any lawyer helping patients with claiming the medical tax credit." LT Whitney Abrams says excise tax changes are in response to difficulties licensed producers have had with the taxation of cannabis oil products. NEWS Government missed an opportunity? Budget 2019 clears the air on cannabis taxes "When you do price contracts, make sure there's a change in law concept that if the taxes go up or down, there's an ability to adjust prices." Zvi Halpern-Shavim Should scope change for family law? Continued from page 1 LawSocietyOntario_LT_Feb25_19.indd 1 2019-02-20 3:38 PM

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