What Is the Excise Tax Act?

by Clayton Browne; Updated September 26, 2017

The Excise Tax Act is a Canadian law mandating that businesses collect a five percent (as of 2010) Goods and Services Tax, or GST, on all household products and services bought by consumers, although most basic necessities are exempted. The GST is a type of sales tax or value-added tax that raises revenue for the Canadian national government.

History of ETA/GST

The Excise Tax Act, called the ETA, was passed by the Canadian parliament in 1985, but the GST did not officially begin until January 1991. There have been various changes to GST laws, policies and exemptions over the years (including the establishment of a new tax court in 1991), the most significant being changes coming into force in 2001 that made previously exempt smaller businesses have to start collecting the GST.

GST Exempt Items

Many basic necessities are exempt from the GST in Canada. Exempt items include most groceries, prescription drugs and medical services. Exempt items are often called "zero-rated supplies" as the tax rate on them is zero.

GST/HST

You will often see the acronym GST/HST in some parts of Canada as three provinces, Nova Scotia, New Brunswick and Newfoundland and Labrador, have adopted a "Harmonized Sales Tax" that includes a provincial sales tax as well as the GST.

Enforcement of GST

Enforcement of the GST is on a similar legal basis to enforcement of filing and payment of income taxes, except the business owners is the party responsible (and legally liable) for collecting, filing and paying the GST. In the case of a publicly held company it is the directors of the company that are legally liable.

Other Provisions of ETA

The ETA is actually divided into 12 parts, with Part IX being the part establishing the GST. Among other things, the remaining parts of the ETA also mandated separate excise taxes on air transportation, telecommunications services, cosmetics, jewelry, radios and some insurance premiums.

About the Author

Clayton Browne has been writing professionally since 1994. He has written and edited everything from science fiction to semiconductor patents to dissertations in linguistics, having worked for Holt, Rinehart & Winston, Steck-Vaughn and The Psychological Corp. Browne has a Master of Science in linguistic anthropology from the University of Wisconsin-Milwaukee.