Blog: Are you subject to tax on packaging?

November 1st, 2016 US Federal Tax

2015-2016 returns are due before October 11

Many Quebec manufacturers and distributors are required to pay a tariff on containers, packaging materials and some printed material generated in the production of products/services destined for the Quebec market.

This “tax on packaging” was introduced in 2005 in the Regulation respecting compensation for municipal services provided to recover and reclaim residual materials. This regulation aims to finance recycling programs for products consumed in Quebec. Éco Entreprise Québec (“EEQ”) is the organization responsible for upholding and promoting this regulation.

Persons who are subject to the tax on packaging and who are not eligible for an exemption must calculate the tax to remit to EEQ for a one year period. This amount depends on the quantity and types of materials in the packaging generated throughout the previous year.

The tariffs for 2015 and 2016 were published recently. Therefore, persons who are subject to the tax and who are not eligible for an exemption from their 2015 payment (calculated on materials generated in 2014) and 2016 payment (calculated on materials generated in 2015) must file a return and pay the applicable fees before October 11, 2016.

Who is subject to tax on packaging?

There are two categories of persons who may be subject to the tax on packaging:

  1. A manufacturer that
    1. Has a place of business in Quebec OR sells its products in Quebec through e-commerce;
    2. Owns of a name, brand or distinguishing guise; and
    3. Generates containers, packaging and/or printed matter that is subject to a tariff and used for products/services destined for the Quebec market.
  1. A “first supplier” that
    1. Has a place of business in Quebec; and
    2. Is the first to take title, possession or control of goods in Quebec originating from a manufacturer that does not have a place of business in Quebec, but that would otherwise be subject to the tax as described above.

Therefore, these categories may include manufacturers, retailers, distributors, restaurants or even non-profit organizations that sell products or services in Quebec, generate material subject to the tariff and have a place of business in Quebec.

Every person who is subjected to the tax must register online at http://www.ecoentreprises.qc.ca/.

What are the applicable exemptions?

  1. Exemption for persons already subject to another recovery program: Persons who already have specific obligations for the recovery of certain containers or packaging in Quebec (consignment, etc.) are not required to pay the tax.
  1. Exemption for independent retailers: Retailers with a single point of sale of less than 10,000 square feet. Franchises, chains and other groups, even if each point of sale is under a distinct entity, are excluded from exemption.
  1. Minimum weight exemption (1 tonne): If packaging, containers and/or printed matter subject to a tariff generated by the person in the production of goods/services destined for the Quebec market does not exceed 1 metric tonne.
  1. Low revenue exemption ($1 M): If the person’s sales originating from products and services provided in Quebec do not exceed $1 M. Before 2014, this exemption depended on the person’s gross sales worldwide.

Note: The minimum weight (1 tonne) or low revenue ($1 M) exemption is calculated by taking into account all combined activities in Quebec from all retail points of sale that are supplied by or operate as part of the same franchise or chain of establishments, under the same banner or as part of the same affiliation or the same group of companies or establishments. In the case where the calculation encompasses several entities, the person responsible for remitting fees to EEQ remains the person subject to the tax, i.e. the entity that is the owner of the brand, name or distinguishing guise, or is the “first supplier” of goods.

How do you file a return and calculate the tax to be paid?

Every person who is subject to the tax and non-exempt must calculate the weight of their containers, packaging and/or printed matter generated for the Quebec market. To do so, the person must:

  1. Know the weight and type of material used for packaging/containers for each product or printed matter.
  2. Know the amount of product intended for the Quebec market. If the person is unable to obtain this information (for example, a manufacturer that does business with distributors with Canada-wide operations), it is possible to estimate this number by following certain criteria.

The person must then calculate the amount to pay by multiplying the weight of each subjected material generated on the Quebec market by the applicable tariff.

However, if the person earns less than $2 M in gross revenue in Quebec, or if the person generates less than 15 metric tonnes of material intended for the Quebec market, the person may pay a flat rate ranging between a few hundred to a few thousand dollars.

Are there any penalties?

In the event of a regulation violation, EEQ is authorized to charge interest and penalties of up to 20% of the amount owing pursuant to the Environment Quality Act.

In cases where taxes are collected by distributors

Some distributors pass on packaging taxes to manufacturers. Before paying an invoice, first verify whether you are subject to the tax. It may be your responsibility to pay EEQ directly and you may benefit from an exemption.

There are very few cases in which one person may pay the tax on packaging owed by another person who is subject to the tax.

If you have questions or would like assistance with managing the tax, please contact the indirect tax team at Crowe BGK.

About the Author:

Marie-Gabrielle Bronsard, M. Tax, is an Indirect Tax Manager at Crowe BGK.

Connect with her: mg.bronsard@crowebgk.com

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