August 2020

The information included in this publication is for reference purposes only and does not replace the Excise Act, 2001 or its regulations. Should there be any discrepancy between the information in this publication and that contained in the Act or its regulations, the legislative provisions apply. If the information in this publication does not completely address your particular situation, you may wish to refer to the Act or its regulations, or contact any Canada Revenue Agency (CRA) regional excise office for additional information. These offices are listed at Contact Information – Excise Duties, Excise Taxes, Fuel Charge and Air Travellers Security Charge.

In this publication, all legislative references to the Act are to the Excise Act, 2001, unless otherwise specified.

Background

Paragraph 135(2)(a) of the Act provides an exemption from excise duty for wine that is produced in Canada and composed wholly of agricultural or plant product grown in Canada (100% Canadian wine). It has been the Canada Revenue Agency’s (CRA) position, as it appears in Excise Duty Notice EDN15, Additional Information Relating to the Excise Duty Exemption on 100% Canadian Wine, that all agricultural and plant-based ingredients that are added in the winemaking process at any time prior to packaging must be grown in Canada in order to qualify for this exemption.

Summary of court decision

On June 17, 2019, the Federal Court of Appeal (FCA) decided in Canada v The Mark Anthony Group Inc. (2019 FCA 183) that the test for determining whether wine produced in Canada qualifies for the exemption should be applied at the fermentation stage rather than at the point of packaging. The definition of produce in the Act, with respect to wine, means to bring into existence by fermentation. Therefore, in order to qualify for the exemption, all of the agricultural or plant-based ingredients included in the production process up to the time that wine is brought into existence by fermentation must be grown in Canada.

The FCA decision made a distinction between wine and fortified wine. In the production of fortified wine, although spirits are added after fermentation, the FCA decided that spirits used to fortify wine must also have been distilled using agricultural or plant products grown in Canada.

CRA revised administrative position

The CRA has revised its position with respect to the excise duty exemption on 100% Canadian wine. In keeping with the FCA decision, wine that is produced in Canada qualifies for the exemption from excise duty under paragraph 135(2)(a) of the Act provided that:

• all of the raw materials that are fermented (including grapes, berries, other fruits, honey and dandelions) must have been grown in Canada;
• if juice is fermented, the raw material used to make that juice (for example, grapes, berries) must have been grown in Canada; and
• any wine, beer or spirits added, including brandy or fruit spirits, must have been made (fermented or distilled) in Canada wholly from grains, fruits and other agricultural products that have been grown in Canada.

The origin of ingredients, other than wine, beer or spirits, added after fermentation is no longer considered for purposes of eligibility for the exemption.

Generally, sugar and yeast are not required to be made wholly from Canadian-grown agricultural or plant product. This position has not changed.

Claiming a refund

Any person that paid an amount as excise duty, interest or other amount payable under the Act for wine that qualifies for the 100% Canadian wine exemption as set out in the revised administrative position may apply for a refund for payment made in error under section 176 of the Act. To claim a refund, Form B256, Excise Act, 2001 – Application for Refund, must be submitted to the CRA within two years after the amount was paid.

Further information