Cannabis, Income Tax and Justin Trudeau

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Canadian flag with marijuana leaf in center

Question

Hi

I have a close friend that runs a cannabis dispensary in Vancouver and he’s doing quite well. He offered to help me open up my own dispensary with his help. I do have a few questions before I take him up on his offer and actually go through with the business.

It’s really a grey area whether these marijuana dispensaries are actually legal or not. Currently the police in Vancouver seem to be letting everyone slide. I also notice that many of these dispensaries are operating as not for profits. Is this something I should be considering? Or should I just incorporate?

I’m assuming I have to pay taxes on any profits I earn? Or is marijuana profits even subject to income tax?

Any information you could provide would be great.

Thanks

XXXXX

Answer

Note: The answer below was changed slightly from the original answer to take into account the new Liberal government win.

Hi XXXXX

Yes, even though Cannabis is currently not legal and we’re in a current government transition you would need to pay tax on any income earned from your new marijuana dispensary. Also it appears as though it’s also subject to GST. Other than the quasi legal aspect of these dispensaries the tax treatment seems very clear. You would be taxed as though you were running a regular business.

In that case you could choose to incorporate or stay as a sole proprietor. Given the inherent risk to the core business, incorporating would be a good option. Forming a not for profit may also be an option, but only to the extent that the establishment is truly organized for the good of the society and meets the definition of a not for profit.

Once Mr. Trudeau rolls out his plan to legalize marijuana across Canada (which could take some time) we’ll have a much better idea of the tax rules that will surround these types of businesses. Part of his plan may not even include individual private dispensaries and it’s anyone’s guess what legalization will actually look like.

If you want to discuss these issues in more detail please feel free to call me at 250-381-2400.

Cheers

Phil

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If you would like to reach me to discuss a tax or accounting matter please call 250-381-2400 or email me at phil@hutcheson.ca.

The accounting and tax information provided on this website is for informational purposes only and does not represent binding professional advice. Appropriate tax treatment and advice will depend on an individuals particular circumstances and set of facts.

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