Excise tax
Learn what excise tax is, who pays it in Canada, what's taxed, and how it differs from GST/HST.
March 2024 | Published by Xero
Published Thursday 23 July 2026
Table of contents
Key takeaways
- Excise tax is a tax on specific goods and services, often applied to discourage their consumption.
- Businesses pay excise tax, but the cost is generally passed on to consumers through the price.
- In Canada, excise applies to goods like fuel, tobacco, alcohol, cannabis and vaping products.
- Excise tax is separate from GST/HST and is charged on top of it.
What is excise tax?
Excise tax is a tax on specific goods or services, often applied to discourage their consumption. The business pays the tax, but the cost is usually passed on to consumers through the price they pay.
Excise tax rates can be high, so businesses that face these taxes need to account for them carefully.
Common excise taxes
Governments tend to apply excise taxes to discourage consumption of certain goods, often for health, environmental or revenue reasons. In Canada, excise applies to goods and services such as:
- alcohol
- tobacco and vaping products
- cannabis products
- gasoline and other fuels
- air travel
Who pays excise tax?
Businesses generally pay excise tax, rather than consumers paying it directly. In Canada, the federal fuel excise tax is payable by the manufacturer or wholesaler and built into the price of the product.
From there, the cost passes down the supply chain, so consumers usually cover it in the final price they pay.
How excise tax is charged
Excise tax is usually charged per weight, volume or unit, and sometimes as a percentage of the price. It's separate from GST/HST and is paid on top of it.
Fuel is a clear example. According to the Department of Finance, the federal excise tax normally applies at 10 cents per litre on gasoline and 4 cents per litre on diesel. The government temporarily set these rates to 0 cents per litre from April 20, 2026 to September 7, 2026.
Excise tax vs excise duty
In Canada, excise tax and excise duty fall under different laws and cover different goods. Excise taxes are set out in the Excise Tax Act and apply to items such as fuel, while excise duties under the Excise Act 2001 apply to spirits, wine, beer, tobacco, cannabis and vaping products.
The terminology varies from country to country, so the two terms don't always map to the same goods elsewhere.
Excise tax in Canada
In Canada, the federal excise tax is set out in the Excise Tax Act and administered by the Canada Revenue Agency. Excise duties on alcohol, tobacco, cannabis and vaping products fall under the Excise Act 2001.
You can find more detail on which goods are covered on the Canada Revenue Agency website.
Why excise tax matters to your small business
Knowing which excise taxes apply to your industry helps you set the right prices and avoid surprises. Build these taxes into your price modelling so your margins reflect the true cost of what you sell.
It also helps to keep enough cash flow on hand to pay excise tax when it's due, so a tax bill doesn't strain your day-to-day finances.
Stay on top of excise tax with Xero
Keeping track of the taxes you owe and the cash you have available makes it easier to plan ahead. Xero accounting software brings your finances together in one place, so you can see your numbers in real time and stay ready for tax obligations.
Try Xero and you can get one month free.
FAQs on excise tax
Here are some frequently asked questions about excise tax for Canadian small businesses.
What is an example of excise tax?
Fuel is a common example, where a set amount applies per litre. The federal excise tax normally applies at 10 cents per litre on gasoline and 4 cents per litre on diesel.
What is the difference between excise tax and GST/HST?
Excise tax applies to specific goods like fuel and is charged per unit, volume or weight. GST/HST is a broad sales tax on most goods and services, and excise tax is charged on top of it.
Who pays excise tax in Canada?
The manufacturer or wholesaler is usually responsible for paying excise tax. The cost is then built into the price and passed down to consumers.
What is the Excise Tax Act?
The Excise Tax Act is the federal law that sets out Canada's excise taxes, such as the tax on fuel. It's administered by the Canada Revenue Agency.
Related terms
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Disclaimer
This glossary is for small business owners. The definitions are written with their requirements in mind. More detailed definitions can be found in accounting textbooks or from an accounting professional. Xero does not provide accounting, tax, business or legal advice.