The 2016 Ontario Budget received Royal Assent on April 19, 2016. Learn more about the increase to tobacco tax rates on cigarettes and other tobacco products (except cigars), effective at 12:01 a.m., February 26, 2016. Moving forward, the government is also increasing tobacco tax rates on cigarettes and other tobacco products (except cigars) by an amount based on inflation, each year for five years, beginning on June 1, 2017.
This overview provides general information on Ontario’s tobacco tax rules; it should not be considered as a substitute for the Tobacco Tax Act and Regulations.
The Ontario Ministry of Finance is responsible for administering the Tobacco Tax Act (the Act).
Generally, Ontario imposes a direct tax on tobacco products which is payable by consumers. This means that persons who purchase or receive delivery of tobacco products for their consumption (or for someone else at their expense) are responsible for paying the tobacco tax.
Tobacco products include:
As of 12:01 a.m., February 26, 2016, the current tax rates are:
Tobacco tax on a pack of 20 cigarettes equals $3.10, on a pack of 25 cigarettes equals $3.87 and on a carton of 200 cigarettes equals $30.95.
The tobacco tax rate on cigarettes and other tobacco products (except cigars) is increasing by an amount based on inflation, each year for five years, beginning on June 1, 2017.
Annual 2% increases are currently scheduled to reflect the Bank of Canada’s 2% inflation-control target.
All consumers of tobacco products in Ontario must pay the tax, except:
Under Ontario's First Nations Cigarette Allocation System, certain wholesalers may be authorized by the ministry to sell limited quantities of unmarked cigarettes and fine cut tobacco to authorized reserve retailers, for sale to First Nations.
In 2015, the government launched a formal review of the First Nations Cigarette Allocation System, led by independent co‑facilitators Kathleen Lickers and Peter Griffin.
The facilitators were tasked with engaging First Nation communities and leadership, as well as other key stakeholders such as the industry and public health experts to gather input and perspectives, and provide options to the government on ways to modernize and improve the allocation system, including alternative approaches that could be used.
The facilitators have provided their report to the government, which is available on the facilitators’ website at: allocationreview.ca.
The Ministry of Finance is currently reviewing the facilitators' final report and carefully considering each of the recommendations.
Consumers pay tobacco tax when they purchase tobacco products. To facilitate the collection of tax, wholesalers and retail dealers pay an amount equal to the tax when they purchase tobacco products from their suppliers. The suppliers remit the tobacco tax to the ministry every month. When wholesalers and retail dealers sell tobacco products to their customers, they will include the tobacco tax, effectively reimbursing themselves for the amount paid to their supplier.
You need to register with the ministry if you engage in any of these tobacco activities:
Any person who possesses or imports into Ontario, equipment for manufacturing cigarettes in Ontario must obtain a manufacturer’s registration certificate.
Before issuing permits, registrations or designations, the Minister of Finance (minister) may impose reasonable conditions, limitations and restrictions on those permits, registrations or designations.
Cigar wholesalers and manufacturers with direct sales to consumers must be designated as cigar tax collectors. Tobacco tax collectors and registered importers who deal in cigars must also become cigar tax collectors.
To help persons who engage in the tobacco business with identifying persons authorized by the minister to sell and distribute tobacco products, the ministry maintains a list of persons registered under the Act, other than retail dealers. Anyone can subscribe to email alerts to stay informed of changes to registrant status (e.g. authorized, suspended and cancelled registrations). View the registrant list.
To inquire about registering under the Act:
Before the minister issues you a permit, registration certificate or a designation, you may need to provide security through a surety bond or letter of credit.
In most cases, the amount of security required is equal to three months’ tax, subject to legislated minimums which range from $10,000 to $1,000,000 depending on registration type(s).
Acceptable forms of security include:
Following are links to approved forms:
To maintain tobacco tax accountability, the ministry requires registrants to file monthly tobacco tax returns. Fines and penalties may apply if returns and payments are not received by the due date, are incomplete or tax is not remitted in full.
Once you register with the Ministry of Finance the ministry will mail to you each month a personalized return. You must complete this return, even if you did not have any activity during the reporting period.
Didn’t get a return this month? Please call the Ministry of Finance at 1 866 ONT‑TAXS (1 866 668‑8297).
You can file your return:
If you use ONT‑TAXS online, you can elect to stop receiving paper returns by clicking the 'Change in Issuing Returns' link.
Retail dealers are not required to complete returns, however, retail dealers must keep, at their principal place of business, records and books of account for all tobacco product purchases and sales for seven years.
Completed tobacco tax returns, along with any tobacco tax collectable and payable, are to be delivered to the ministry by the 28th day of the month following the end of your reporting period.
There are a few exceptions, including:
All packages of cigarettes and packages of fine cut tobacco for sale to consumers who have to pay tobacco tax in Ontario must be marked with the Ontario-adapted federal stamp. Under the Act, 'marked tobacco product' means packages of cigarettes and packages of fine cut tobacco marked with the Ontario-adapted federal stamp.
The Ontario‑adapted federal stamp contains security features and has a yellow background with the letters ‘ON’ in white and in black letters, the words ‘DUTY PAID CANADA DROIT ACQUITTÉ’.
The Ontario‑adapted federal stamp indicates that the tobacco products have been purchased in the province through the legitimate wholesale‑retail‑consumer chain.
Packages of cigarettes and packages of fine cut tobacco for sale to First Nations under Ontario’s First Nation Cigarette Allocation System and diplomats must have the peach‑coloured federal stamp. For the purpose of the Act, packages of cigarettes and packages of fine cut tobacco with the peach‑coloured federal stamp are considered 'unmarked'.
To purchase, possess, store, or sell unmarked cigarettes or unmarked fine cut tobacco you must hold a Permit to Purchase and Sell Unmarked Cigarettes and/or a Permit to Purchase and Sell Unmarked Fine Cut Tobacco.
Unless otherwise permitted in the limited exceptions under the Act, it is illegal for anyone to purchase, possess or sell any quantity of cigarettes or package of fine cut tobacco not marked with the Ontario-adapted federal stamp.
The Canada Revenue Agency (CRA) distributes Ontario-adapted stamps and peach-coloured stamps to registered manufacturers and registered importers through a secure process. Records must be maintained to account for the stamps. Stamp denominations are available in the following units:
Fine Cut Tobacco Packages
Under Ontario’s First Nations Cigarette Allocation System, certain wholesalers may be authorized by the ministry to sell limited quantities of unmarked cigarettes and fine cut tobacco to authorized reserve retailers, for sale to First Nations.
To sell tobacco products to a consumer you need to hold a tobacco retail dealer’s permit issued under the Act. If you held a vendor's permit under the Retail Sales Tax Act that was valid on June 30, 2010, or are an authorized reserve retailer under Ontario's First Nations Cigarette Allocation System you are deemed to hold a retail dealer’s permit. As a retail dealer you must ensure you buy tobacco products from a ministry‑authorized wholesaler with a valid permit.
This permit must be displayed in a prominent position at the wholesaler’s principal place of business. In addition, you should:
You need to hold a wholesaler's permit under the Act if you sell tobacco products for resale.
As a wholesaler, before you sell or deliver tobacco products to a retailer, you must confirm that the retailer holds a retail dealer’s permit under the Act, a vendor’s permit under the Retail Sales Tax Act that was valid on June 30, 2010, or is an authorized reserve retailer under Ontario’s First Nations Cigarette Allocation System.
Both the Tobacco Tax Act and the Smoke-Free Ontario Act prohibit a wholesaler or distributor from delivering tobacco products to a location that has been issued a notice of prohibition against the sale, storage and delivery of tobacco products. The Ministry of Health and Long‑Term Care notifies wholesalers and distributors in writing of all tobacco retail locations that are subject to an Automatic Prohibition. Through an email alert, the Ministry of Finance notifies wholesalers of tobacco retail locations that are temporarily prohibited from selling, offering for sale or storing tobacco products. Subscribe to the email alert here.
Cigar tax is calculated as:
The taxable price of a cigar is the price for which the cigar was purchased by the retail dealer, inclusive of all consideration given by the retail dealer of the cigar as well as federal excise duty and all costs and charges relating to mailing, delivery and transportation, plus a prescribed percentage of 22% of the sum of these amounts. HST is not included when calculating the taxable price of a cigar.
The exception is where the importer or manufacturer of a cigar is also its retail dealer. Then, the taxable price of the cigar is the price for which the cigar was purchased by the consumer, inclusive of all consideration given by the consumer for the cigar as well as federal excise duty and all costs and charges relating to mailing, delivery and transportation. HST is not included when calculating the taxable price. However, HST applies to the retail price of the cigar and is payable by the consumer at the point of sale.
Wholesalers are required to provide invoices or receipts at the time of the purchase, containing the following information:
Retail dealers have a duty to supply every cigar customer certain information by way of an invoice or 'another reasonable means'. The information must include:
The ministry has approved the following as 'another reasonable means':
Retail dealers who want to use 'another reasonable means' not listed above may provide their request in writing to the ministry detailing 'another reasonable means' by which they propose to specify the tax payable and give the consumer that information. Submissions do not need to be formal, but should be well detailed. The ministry will respond to each submission.
If you collect tobacco tax or you purchase tobacco products for resale, you may be eligible to apply for a refund of tax paid on tobacco products that have been:
In the case of a refund claim resulting from bad debt, the applicant and debtor must be dealing at arm’s length in the meaning of section 251 of the Income Tax Act (Canada) at the time of the sale of the tobacco to which the debt related.
There is a four year limitation for refund applications.
If the refund applicant is a collector, the application may be delivered with the monthly tax return. The collector may deduct the amount of the refund claimed from the remittance amount. It is not necessary to attach the required documentation; however, it must be retained for subsequent verification by the minister.
Registered exporters may apply for a refund of Ontario tobacco tax paid on cigars and other tobacco products exported from Ontario. A refund is not available on Ontario marked cigarettes and Ontario marked fine cut tobacco.
Ontario’s enforcement program includes a range of audit, investigation and inspection activities.
The Act provides for numerous fines and penalties for persons who are involved in tobacco activities without authorization. You can also be sent to jail, have your tobacco products seized, your vehicle impounded and, if you are a retail dealer, prohibited from selling tobacco products for up to 180 days.
Please see the Contraband Tobacco web page.