Excise Tax in Canada: Frameworks, Rates, and Licences

An excise tax in Canada is a federal, per-unit charge built into the price of specific goods rather than applied broadly like the GST or HST. It targets items such as fuel, alcohol, tobacco, cannabis, vaping products, fuel-inefficient vehicles, and certain luxury purchases. The system runs on two parallel statutes: the Excise Tax Act, which covers excise taxes on petroleum products, fuel-inefficient vehicles, and automobile air conditioners; and the Excise Act along with the Excise Act, 2001, which impose excise duties on beer, spirits, wine, tobacco, cannabis, and vaping products.

Two Frameworks: Excise Taxes and Excise Duties

The split between “excise taxes” and “excise duties” matters more to producers and importers than to shoppers, but it shapes the whole system. Excise taxes under the Excise Tax Act apply to fuel, fuel-inefficient vehicles, and automobile air conditioning units. Excise duties under the Excise Act (beer) and the Excise Act, 2001 (spirits, wine, tobacco, cannabis, vaping) apply to the regulated goods listed in each statute.¹

Both are typically charged at a specific rate, meaning a fixed dollar amount per litre, gram, or unit, rather than as a percentage of the sale price. For the consumer the result is the same either way: the charge is embedded in the shelf price.

What’s Taxed and at What Rate

Alcohol

Spirits, wine, and beer each carry excise duties at different rates. Spirits face the steepest: $14.117 per litre of absolute ethyl alcohol as of April 1, 2026. Wine is tiered by alcohol content, ranging from $0.022 per litre for wine at 1.2% alcohol or less up to $0.745 per litre for wine above 7% alcohol.² Wine made entirely from Canadian honey or apples is exempt, and so is non-alcoholic wine at 0.5% alcohol or less. Beer duties sit under the older Excise Act and are also volume-based.³ Alcohol duties adjust annually for inflation.

Tobacco and Vaping

Tobacco carries some of the highest per-unit excise duties in the system. As of April 1, 2025, cigarettes are charged $0.95391 per five cigarettes (or fraction thereof) in a package, and manufactured tobacco other than cigarettes and tobacco sticks is charged $11.92379 per 50 grams.⁴ These rates adjust annually.

Vaping products use a tiered duty under the Excise Act, 2001. The federal rate is $1.12 per 2 mL (or fraction thereof) for the first 10 mL in the container, then $1.12 per 10 mL beyond that. Provinces that participate in the coordinated vaping framework add an identical duty on top, effectively doubling the charge where it applies.⁵

Cannabis

Cannabis uses a hybrid structure that depends on the product. For dried and fresh cannabis, the federal government imposes both a flat-rate duty (such as $0.25 per gram of flowering material) and an ad valorem duty of 2.5% of the product’s dutiable amount. Only the greater of the two is actually payable. Cannabis extracts, edibles, and topicals are charged a flat $0.0025 per milligram of total THC, with no ad valorem alternative.² Coordinating provinces collect an additional cannabis duty on top of the federal amount.

Fuel

The federal excise tax on unleaded gasoline is $0.10 per litre. Diesel and aviation fuel (other than aviation gasoline) are taxed at $0.04 per litre, and leaded gasoline and leaded aviation gasoline at $0.11 per litre.⁶ Those are federal figures only. Provincial fuel taxes add roughly $0.07 to $0.16 per litre on top, depending on where you fill up.

Fuel-Inefficient Vehicles

Passenger vehicles with poor fuel economy face a graduated excise tax based on a weighted fuel consumption rating that blends 55% city and 45% highway consumption in litres per 100 kilometres. The tax starts at 13 L/100 km and scales up:⁷

13 to under 14 L/100 km: $1,000
14 to under 15 L/100 km: $2,000
15 to under 16 L/100 km: $3,000
16 L/100 km or more: $4,000

Pickup trucks, vans seating 10 or more passengers, ambulances, and hearses are excluded. The charge targets SUVs, station wagons, and other passenger vehicles built for personal use.

Automobile Air Conditioners

Air conditioning units installed in taxable vehicles are subject to a separate federal excise tax under the Excise Tax Act, distinct from the fuel-inefficient vehicle charge.⁶

Air Travellers Security Charge

The Air Travellers Security Charge is a separate federal levy on airline tickets for flights departing Canadian airports, used to fund aviation security. Rates vary by destination: domestic flights carry roughly $9.46 to $18.92, flights to the continental United States run about $16.08 to $33.77, and other international flights are charged a flat $34.42.⁸ The exact amount depends on whether GST/HST applies and whether the ticket was purchased in Canada. A round-trip domestic itinerary with a stopover can trigger the charge twice.

Luxury Items Over $100,000

Since September 1, 2022, the Select Luxury Items Tax Act has applied to expensive vehicles, aircraft, and vessels.⁹ It kicks in only when the price exceeds $100,000 for a vehicle or aircraft, or $250,000 for a vessel.¹⁰

The tax is the lesser of two amounts: 10% of the full sale price, or 20% of the amount above the threshold.⁹ That formula softens the hit on purchases just over the line. A $120,000 vehicle, for example, owes the lesser of $12,000 or $4,000, so the tax is $4,000. The vendor or importer collects and remits.

Who Needs a Licence

Anyone who manufactures, produces, or imports excisable goods needs a licence from the Canada Revenue Agency before doing business. The right licence depends on the product.

Excise Tax Licences

Manufacturers of goods subject to excise tax (fuel, fuel-inefficient vehicles, air conditioning units) need a manufacturer’s “E” licence once annual sales of taxable goods exceed $50,000. Below that, you qualify as a small manufacturer and can operate without a licence.¹¹ The moment sales cross $50,000 in a calendar year, the tax obligation applies for the rest of that year.¹² Failing to apply for an E licence when required is an offence carrying a fine of up to $1,000, plus back taxes, penalty, and interest.

Wholesalers can apply for a “W” licence, which lets them buy or import excise-taxable goods without paying the tax upfront. The tax is then deferred until the goods are sold to a non-licensed buyer.¹¹

Excise Duty Licences

Producers under the excise duty regime need product-specific licences, including spirits, wine, tobacco, cannabis, and vaping product licences.¹³ Applications must describe your business structure, production location, and planned activities.¹⁴

Spirits and tobacco applicants also have to post financial security. The minimum is $5,000, scaling with your expected duty liability up to $2 million for spirits and $5 million for tobacco.¹⁵ Wine, cannabis, and vaping licences under the Excise Act, 2001 do not require security.¹³

Filing, Payment, and Records

Most excise levies use a specific rate, so you multiply the rate by the quantity produced or sold. Gasoline is per litre, cigarettes per five-count, spirits per litre of absolute alcohol. Cannabis is the main exception, with its greater-of calculation for dried and fresh product and its flat per-milligram THC rate for extracts, edibles, and topicals.²

The standard reporting period is a fiscal month. Returns and payment are due by the last day of the first month after the reporting period ends, so May liability is due by June 30.¹⁶ Filing is available through the CRA’s online portals or by mail, but mailed payments must arrive by the deadline; the postmark does not count.

Keep all records and supporting documents for at least six years from the end of the last tax year they relate to.¹⁷ Records tied to long-term asset acquisitions or disposals must be kept indefinitely. If you file an objection or appeal, hold everything until the matter is fully resolved and the usual six-year window has also passed.

Late Filing: Penalties and Interest

Missing a filing deadline triggers an automatic penalty of 1% of the unpaid amount, plus 0.25% for each complete month the return is late, up to a maximum of 12 months.¹⁸ A return 12 months late carries a total penalty of 4% on top of the tax owed. Interest also accrues on overdue amounts; for Q2 2026, the prescribed rate on overdue excise tax remittances is 7%.¹⁹ Interest compounds daily, and penalty and interest run at the same time, so filing on time is worth doing even when you cannot pay the full amount yet.

1
Canada Revenue Agency. Excise Duties Technical Information
2
Canada Revenue Agency. Excise Duty Rates
3
Department of Justice Canada. Excise Act, 2001 (S.C. 2002, c. 22)
4
Canada Revenue Agency. EDN101 Adjusted Rates of Excise Duty on Tobacco Products Effective April 1, 2025
5
Government of Canada. Calculating Excise Duty on Vaping Products
6
Canada Revenue Agency. Current Rates of Excise Taxes
7
Department of Justice Canada. Excise Tax Act (R.S.C., 1985, c. E-15) – Schedule I
8
Canada Revenue Agency. Air Travellers Security Charge (ATSC) Rates
9
Justice Laws Website. Select Luxury Items Tax Act
10
Canada Revenue Agency. LTN2 Subject Vehicles Under the Select Luxury Items Tax Act
11
Canada Revenue Agency. Excise Taxes and Special Levies Memoranda Series
12
Justice Laws Website. Small Manufacturers or Producers Exemption Regulations
13
Canada Revenue Agency. The Excise Duty Program
14
Canada Revenue Agency. EDM2-2-1 Obtaining and Renewing a Licence
15
Canada Revenue Agency. Financial Security Requirement for Producers or Packagers of Spirits, Manufacturers of Tobacco Products and Prescribed Persons That Import Tobacco Products
16
Canada Revenue Agency. X6-2 Returns and Payments
17
Canada Revenue Agency. Where to Keep Your Records, for How Long and How to Request the Permission to Destroy Them Early
18
Department of Justice Canada. Excise Tax Act (R.S.C., 1985, c. E-15)
19
Canada Revenue Agency. Interest Rates for the Second Calendar Quarter