Legalization Creates Tax Ambiguity for Marijuana Users

Today is the day that marijuana officially becomes legal in Canada. Yet grey areas remain, leaving Canadians uncertain and concerned about consequences: from personal and excise tax rules, to medical expense claims, to cross-border and insurance underwriting changes.

The personal tax implications of marijuana legalization can be an important trigger at year-end. The link between marijuana and tax issues are the tax deductions offered to Canadians using the drug for medicinal purposes, with a prescription.

The February 27, 2018, Budget, assented to on June 21, 2018, implemented a new federal excise duty framework for cannabis products, as follows:

• requiring that cannabis cultivators and manufacturers obtain a cannabis licence from the Canada Revenue Agency;
• requiring that all cannabis products that are removed from the premises of a cannabis licensee to be entered into the Canadian market for retail sale be affixed with an excise stamp;
• imposing excise duties on cannabis products to be paid by cannabis licensees;
• providing for administration and enforcement rules related to the excise duty framework;
• providing the Governor in Council with authority to provide for an additional excise duty in respect of provinces and territories that enter into a coordinated cannabis taxation agreement with Canada; and
• making related amendments to other legislative texts, including ensuring that any sales of cannabis products that would otherwise be considered as basic groceries are subject to the GST/HST in the same way as sales of other types of cannabis products.

As Evelyn Jacks outlined in a recent article, medical marijuana, and seeds for growing it, are among the more unusual allowable medical expense claims that can reduce your tax burden, provided these items are obtained through Health Canada, or with a prescription under the Medical Marijuana Access Regulations (MMAR).

Will marijuana continue to be an allowable medical expense now that marijuana is legal? That’s unclear long-term, but the system won’t change in the immediate future. At least, not according to Health Canada, who promises to maintain a distinct system to provide patients with reasonable access.

Health Canada has also indicated that adjustments to the system may need to occur in light of legalization in order to “create consistency with roles for non-medical use, improve patient access, and reduce the risk of abuse in the system.”

Plus, The Canadian Medical Association (CMA) hopes to eliminate medical marijuana programs entirely. Their premise is that physicians no longer need to serve the gatekeeper role when Canadians can access marijuana legally themselves.

Physicians and licensed medical producers advocating for the medical marijuana program say that it’s not just about access; education on the therapeutic benefits, and consultation on the use of marijuana for comprehensive medical treatment (with focus on drug interaction, correct use etc.), are still required. According to reports, medical users are also suggesting that greater enforcement by Health Canada is needed in the existing program, as licensed producers have reduced their offerings due to legalization.

Marijuana Legalization and Leadership. In a series of articles, lawyer Phillippe Richer outlined some of the legal and employment-related challenges that Canadian business owners face with legalization. To date, very little additional clarification has been provided by the government on the key issues – namely how employers can ban and define use and impairment, and the requirements for disability accommodation (relating to addiction).

Cross-Border Challenges. As marijuana remains a banned substance nationally in the U.S. (despite legalization in some states), the U.S. has opted to prohibit the entry of Canadian marijuana users or those involved in the legal marijuana industry (working or investing). This could impact those with cross-border businesses negatively. Disclosure requirements at the border, and privacy protection for those affected, remain fundamentally unclear.

Additional educational resources:

Some of these issues will be addressed by expert speakers at the Distinguished Advisor Conference, Nov. 11-14 in Quebec City. Registration is still possible, but only until October 31.

The important insurance issues affected by legalization will be addressed by Helene Chatelain, Chief Underwriter at ivari. Insuring a younger generation, in particular, is a new and different niche. Not only are there challenges in engaging Gen X and Gen Y in insurance planning, but there are new stress issues including those that surround marijuana legalization.

For advisors, the challenge with all these potential client profiles has a common thread: because they don’t see the need for insurance, it’s tough to get to them. The trick is to have these discussions as soon as possible. Attend this pre-eminent educational event to learn more.

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