Feigenbaum Law

Ottawa Announces Tax Proposal on Marijuana Sales

Corporate Tax Planning
October 6, 2017

With legal sales of marijuana in Canada being only months away, the federal government announced a plan this week to impose a 10% tax on marijuana sales to be evenly split with the provinces.

The proposal was quickly criticized by a number of Premiers who want a bigger cut, arguing that provinces are bearing the majority of the costs of implementing legalization.

Pending Legalization

Effective July 1, 2018, Canada plans on legalizing marijuana by permitting adults to possess up to 30 grams of legal marijuana in public, and to grow up to four plants per household. Each province will be responsible for the distribution and sale of cannabis.

The Proposed Tax Plan

The Federal Liberal’s proposal was announced this past Tuesday at a meeting of provincial and territorial Premiers.

Under the plan, each gram of marijuana would have a tax of $1 on sales of up to $10, as well as a 10% sales tax on amounts worth more than $10.

Reactions from Premiers

Nailing the pricing of marijuana is key to the federal government’s strategy to use legalization to eliminate illegal dispensaries.

Canadian Premiers are generally concerned about the proposed plan, who worry about the costs provinces will bear to both set up the retail systems needed to sell pot, and to police laws such as impaired driving.

B.C. Premier John Horgan noted:

I think many Canadians believe if we can tax this product, we’re going to be swimming in cash but that’s just not been the experience in the United States. It’s not likely to be the experience here.

His concerns were echoed by Manitoba Premier Brian Pallister, who is concerned that this will be a historic change and that the provinces are headed into “uncharted territory” without a true understanding of the real costs.

Ontario’s Premier Kathleen Wynne hopes that the federal proposal is simply the beginning of a discussion, and notes that Ontario’s municipalities are as concerned as the provinces about pending enforcement costs.

The Federal Government’s Response

Prime Minister Trudeau pledged that the federal government wants to act “in a cooperative manner” with the provinces, noting:

We recognize that this is something that still requires much discussion with the provinces on levels of excise tax, on revenue sharing but mostly on the work we need to do to make sure this gets done right…I would like to reassure you. The objective around the table is not to want to make lots of money by legalizing marijuana.

Other Reactions

Some industry analysts believe the proposed tax plan is a “relief” for an industry that was generally bracing itself for a higher tax:

I think there was a fear out there in the market that the government might mess it up, they might kill the golden goose and it would be too much taxation… [w]e’ll have to see the details, [whether] HST is added on top or not, but overall it’s positive.

We will continue to follow developments in this matter. In the interim, if you, if you are in the marijuana industry and have questions about how these proposals may affect your business, contact us. Our unparalleled knowledge of Canadian tax makes us leaders in this field. We offer services to clients in the U.S., Canada, and around the world. Contact us to learn more about how we can help or call us at (905) 695-1269 or toll free at (877) 275-4792.


Tagged: legalization, marijuana, marijuana tax, tax reform