Proposed Ontario liquor tax will drown us, small distillers argue
The good news for Charles Benoit, the scrappy young lawyer and co-founder of the Toronto Distillery Co., is that he won his constitutional crusade against the Ontario government. The bad news is that it will probably put him out of business.
Ontario regulations currently force distillers that sell through stores on their premises to hand over more than two-thirds of their revenue in tax, mostly to the province. In court earlier this year, Benoit called the tax unconstitutional because it had not been passed by the legislature.
A judge ruled for the province; even so, Ontario conceded the principle, and promised legislation.
Last week, Ontario tab led the new bill, and it’s bad news if it passes. Bill 70 will impose a 61.5-per-cent sales tax — a slight improvement on the existing rate — for spirits sold at distillery shops. Distillers also have to pay excise tax and HST, plus a bottle levy, container deposit and environmental fee.
“If this tax passes, we’ll close down Jan. 31,” said Benoit, whose distillery turns local juniper berries into gin, uses local beets to make spirits and ferments local grain for whisky.
It’s perhaps even more unfair because favourable Ontario tax rules in recent years have helped create a thriving industry in craft beer and startup wineries.
Microbrewers pay 33 cents per litre in tax, compared with 80 cents for large brewers, and wineries pay just a 6.1-per-cent tax on bottles they sell at vineyard shops. Ontario now has more than 100 wineries and 70 craft breweries.
Meanwhile, the province’s 15 craft distillers pay the same tax rates as big distillers, which has left them struggling to get a toehold.
For instance, Marcel Rheault, a craft distiller in Hearst, Ont., who has had an international hit with his Loon Vodka — he cooks Ontario wheat and distils it four times, the fourth time in a mixture with milk to remove impurities — still has to distil out of his home, about 1,000 kilometres north of Toronto.
He can’t afford to open a distillery, since he remits most of his revenue in tax.
“I pay $500,000 in taxes and get $200,000 in my pocket,” he said. “And from that, I have to make payments on a $500,000 still. It’s ridiculous. I’m in my fourth year and I haven’t even taken a salary.
“They gave me a premier’s award for innovation of $25,000,” he added. “I said, ‘Thanks. It’s the first time I’ve made any money.’ ”
To pay less tax, Rheault has decided to export to China and the U.S., and stop most sales in Canada.
Kelsey Ingram, a spokeswoman for Charles Sousa, Ontario’s finance minister, insisted via email that the new law will help distillers by increasing their sales commission from 13 per cent to about 20 per cent. She added, “We are also proposing to help distillers by giving them a tax exemption on up to 1,250 litres of spirits for promotional purposes.”
Craft distillers want Ontario to adopt the same model found in B.C., which changed its rules in 2013. There, craft distilleries do not pay a provincial markup on the first 50,000 litres they sell in their own shops, at private liquor stores or at farmers’ markets, provided they distil the spirits from B.C. grain or fruit.
“It took 10 years of lobbying,” said Tyler Dyck, owner of Okanagan Spirits, B.C.’s biggest craft distillery, and head of the Craft Distillers’ Guild of B.C.
“Finally, we were able to get rules that line up with wineries.”
In the three years since B.C.’s changes, 30 craft distilleries have opened in the province, attracting tourists, employing skilled workers and processing lots of local fruit and grain.
“The B.C. government said, ‘We’ve tried taxing the hell out of this industry and it hasn’t worked,’ ” Dyck said.
“Now they are quite happy to take a smaller piece of the pie, but the pie has grown. In the end, the Ontario government is going to look out at B.C. and say, ‘We’re missing out on something.’ ”