Ontario’s proposed booze tax saps spirits of craft distilleries
Smaller players acknowledge new tax would be improvement, but not what they had hoped for
When it comes to Ontario’s new plan to overhaul taxation on spirit distilleries, the province’s booze makers either see the glass half full — or pretty much empty.
A rift has appeared in the historic spirits industry amid planned legislation expected to go to a final vote Thursday that would replace a longtime, unpopular LCBO bottle markup with a 61.5-per-cent tax per bottle of alcohol sold in independent distillery stores.
While craft distillers have made plain their disgust with what the government has proposed for them in Bill 70, industry experts including Spirits Canada — the association that represents established giants like Crown Royal, Wiser’s and Canadian Club — called it “a win” for which the up-and-comers should actually be grateful.
“Guys, this is a benefit — take it and work with it,” Spirits Canada president Jan Westcott advised.
Finance Minister Charles Sousa says a distiller’s share of the revenue from a $39.95 bottle of spirits sold at their on-site store is currently about 39 per cent. Changes proposed in the budget bill would increase their share of the revenue to about 45 per cent — which the small players acknowledge is an improvement, just not near what they anticipated.
“This tax is a major blow to the sustainability of distilleries working to provide Ontario farm-to-table, grain-to-glass spirits and ignores the lessons of what works and what doesn’t from Ontario’s own wine and beer tax policy, as well as the successful spirits tax policies in places like British Columbia,” Rocco Panacci, co-founder of Toronto’s Yongehurst Distillery, said.
The tax rate would be 10 times what Ontario wineries pay for on-site sales, he noted.
“Although this change does improve the situation by a buck or so per bottle, it isn’t anywhere close to where it needs be in order to see distilleries of our size growing, hiring employees, innovating,” Panacci said. “Essentially we’ll just continue surviving,”
Craft distillers say they are particularly upset after they had lobbied for years for a graduated tax system by volume, as is done in B.C., and similar to the current taxation of craft beer and wine in Ontario that has helped spur the explosive growth of those industries in recent years.
The number of small distillers in the province has jumped from two in 2011, to 16 now, and a boom was expected in craft whisky, vodka and rum distilleries earlier this year when the government signalled changes were coming to ease the tax burden on these small businesses.
“For three years, we were led to believe that the government heard us on the importance of a graduated tax. Bill 70 proves otherwise, and guarantees that Ontario misses out on the craft distilling renaissance happening throughout the rest of North America,” Charles Benoit, president of the Ontario Craft Distillers Association, said.
“We all know the government treats spirits differently than beer and wine.” JAN WESTCOTT PRESIDENT, SPIRITS CANADA
In fact, Benoit, co-founder of the Toronto Distillery Company, warns he will have to shut down his distillery in the Junction, which makes single-grain whiskies, dry organic gin and beet spirits, in the new year — if the bill passes.
NDP Finance Critic Catherine Fife said Tuesday that Ontario’s craft distillers “were blindsided by Bill 70. It will force many of them to sell their products abroad instead of in Ontario, change their business models entirely, or simply just shut down,” she said in the legislature.
But Canadian whisky expert and author Davin de Kergommeaux said he doesn’t buy it, considering there have been many success stories among the independents under the current system.
“John Hall of Forty Creek took a tiny copper pot still and turned it into a very profitable business that he then sold for over $180 million,” said de Kergommeaux, who is the author of the award-winning Canadian Whisky: The Portable Expert and chairman of the prestigious Canadian Whisky Awards.
“Similarly, Barry Stein and Barry Bernstein made a careful assessment of expenses and revenues, and have turned their Still Waters distillery in North Toronto into a booming success,” he said of the makers of pop- ular Stalk & Barrel whisky. “And this was under the current, less generous tax regimen,” he pointed out.
He said with the tax overhaul, dis- tilleries “will not only survive, they will thrive.
Hobbyists and triflers who jumped in without doing the math won’t last, no matter how much the government does for them,” he added.
However, de Kergommeaux says the new legislation is not everything he had hoped for either, favouring a taxation model by volume similar to the way wine and beer are taxed.
Westcott says this is at least a first step, and as a lifelong lobbyist, he knows the government tends to make incremental changes rather than risking a backlash, in this case from Mothers Against Drunk Driving and others. “We all know the government treats spirits differently than beer and wine. The fact that Ontario allows them for sale in farmer’s markets and now in grocery stores but excluded spirits, confirms that,” Westcott noted.
In a letter to individual craft distillers in November, Sousa said: “I acknowledge that some would have preferred our government to move to a graduated, per-litre tax rate and to adopt policies used in other provinces. Proposed changes in Bill 70 are an important step forward and we are committed to continuing to work with you to develop an approach that is appropriate for Ontario.”