On May 6, 2024, the CRA released a circular that explains the requirement, as per the Excise Tax Act, that manufacturers of beer or malt liquor, wort, yeast or malt products provide financial security.
An Introduction to Providing Financial Security
Someone who manufactures beer or malt liquor, wort, yeast or malt products is required to provide financial security for each of their physical business locations. The reason why this requirement exists is to ensure that the manufacturer meets their obligations, including paying duties.
A person is required to provide financial security in Canadian funds in the form of an original surety bond that is issued by a company that is authorized to do so. A surety bond is a contract between the brewer or manufacturer (a principal), the CRA (an obligee), and the company issuing the surety bond (a surety). This contract is legally binding.
Determining the Amount of Financial Security Required
The CRA indicates that the necessary amount of financial security is dependent on the activity. For a licensed brewer, the required amount of financial security can range from $5,000 to $1,000,000. The amount of financial security needs to be adequate for the purposes of ensuring payment of gross duty payable on one's Form K50B, Excise Duty Return – Brewer, for any calendar month. For new applicants, the necessary amount of financial security is based on the applicant's projections found within their business plan.
For manufacturers of wort, yeast, or malt products, the required amount of financial security is $5,000.
Keeping Financial Security
Along with ensuring possession of the required financial security, it is also the responsibility of licensed brewers and manufacturers of wort, yeast or malt products to ensure that the financial security they have provided stays valid.
Additionally, licensed brewers must see to it that the financial security they provide is sufficient for their license's term. In the event that the financial security amount increases, the licensed brewer is required to provide the extra amount. However, in the event that the financial security amount decreases, the licensed brewer can make a request that the surplus be returned to them by the CRA.
If a person's legal entity changes (for example, if a proprietorship were to incorporate, and therefore become a corporation) or if the surety bond has been voided, then a new surety bond is necessary.
If there is a change to a person's legal name, the brewery's physical business location, the surety bond amount, or the surety's name, then an original rider or endorsement to an existing surety bond is permitted.
If one fails to keep sufficient financial security, their license could be suspended, cancelled, or revoked.
Release of Financial Security
If a person is no longer conducting the activity for which they provided the financial security, then the CRA will release the financial security to them, as long as all obligations have been satisfied. If there is an unpaid balance, the CRA will withhold an amount of financial security that will cover it.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.