Excise Tax on Watches

January 18, 2006

18 January 2006

Excise Tax on Watches

One of our members kindly provided the CSCB with a copy of a letter they received from the Canada Revenue Agency regarding excise tax on watches. With their generous permission, we are sharing the contents of this letter with members. The text of the letter follows.

Information Provided

1. Your firm is a customs broker for importers of expensive watches.

2. You have provided examples of expensive watches. Typically, they are made with precious metals, such as 14k or 18k gold and may be adorned with various precious or semi-precious stones, such as diamonds, mother-of-pearl dials, etc.

Question

You seek confirmation that excise tax was eliminated on watches, regardless of value, with the passage into law of Bill C-259 on November 25, 2005.

Answer

General Rules

Pursuant to subsection 23(1) of the Excise Tax Act (ETA) there is an excise tax on the manufacture or production in Canada or importation into Canada of goods listed in Schedule I of the ETA. Goods listed in Schedule I include clocks having a sale price or duty paid value of $50 or more, articles made of semi-precious stones, jewellery, precious and semi-precious stones and goldsmiths' and silversmiths' products. (This last category excludes gold-plated and silver-plated ware for the preparation or serving of food or drink.

In 2005, the ETA was amended by Bill C-43 and Bill C-259, with the following results:

- between February 24, 2005 and November 24, 2005, the excise tax rate on clocks (with a sale price or duty paid value of $50 or more) was 8% but effective November 25, 2005, the excise tax is raised to 10% until March, 2009, when excise tax on clocks is eliminated.

- between February 24, 2005 and November 24, 2005, the excise tax on watches was 8%, but effective November 25, 2005., the excise tax on watches is eliminated.

- effective February 24, 2005, the excise tax on articles made of semi-precious stones,jewellery, precious and semi-precious stones and goldsmiths' and silversmiths' products drops to 8% and continue to drop by 2% every March 1 thereafter, until March 1, 2009, when the excise tax on these goods will be eliminated.

Excise Tax on Watches

The Canada Revenue Agency (CRA) will administer the amendments to the ETA as described above. Accordingly, effective November 25, 2005, the excise tax on watches is eliminated, whether they are manufactured in Canada or imported into Canada. They CRA views a watch as follows: a portable timepiece that has a movement driven in any of several ways (as by a spring or a battery) and is designed to be worn (as on the wrist) or carried in a pocket.

Where the material composition of a watch is such that it may qualify as another type of taxable good, if the good can be reasonably viewed as only a watch, as defined above, the CRA will treat it as a watch, with the result that no tax will apply to it, effective November 25, 2005.

For example, one of the watches described in your submission had a mother-of-pearl dial. Such an item is taxable, pursuant to section 5.1 of the ETA, being "an article made in whole or in part of ivory, jet..... mother-of pearl.... or other semi-precious stones." However, because this item is also clearly a watch, the CRA will treat it as such, and there is no excise tax on it, effective November 25, 2005.

The foregoing comments represent our views with respect to the subject matter of your letter. Proposed amendments to the ETA, if enacted, could have an effect on the interpretation provided herein. These comment are not rulings, and in accordance with guidelines set out in section 1.5 of Chapter 1 of the GST/HST Memorandum series do not bind the CRA with respect to a particular situation.

Note: The increase in excise tax from 8% to 10% for clocks will not be subject to the annual rate reductions. The full 10% excise tax on clocks applies until March 1, 2009.


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