New tax could force small Ontario distilleries to seek fortunes elsewhere

Ontario distillers say a proposal for a new61.5 per cent tax on privately sold spirits could kill the province's distillery industry.

Bill 70, introduced by Finance Minister Charles Sousaearlier this month,includes a new sales tax for stores owned and operated by Ontario's small and independent distilleries.

The province says the amendments will enable private distillers and on-store sites to make more money per bottle, increasing operator's' profit margin from 13 per cent to 20 per cent.

Distillers in Ontario disagree and say the new taxmay kill their industry.

• Craft distillers say they face unfair conditions in Ontario

The Ontario Craft Distillers Association published the following explanationon itswebsite:

Ontario's craft beer boom was possible because Ontario's beer tax is both: (1)taxed by the litre, as opposed to the brewer's list price; and, (2)graduated, with a lower rate of 33 cents per-litre for micro-brewers and 80 cents for large brewers. These two taxation principals are what theOCDAadvocated for and what the government is rejecting with Bill 70. Taxing by-litre means that an expensive to brew barrel-aged barley-wine is taxed at the same rate as a straight forward lager. Products with high labour and ingredient costs aren't discriminated against with a by-the-litre tax. Graduated taxation is necessary for small producers who by definition lack economies of scale, and so depend on the revenue from their first offerings on a per unit basis to a much greater degree. Craft distilleries in British Columbia pay no provincial tax on their first 50,000 litres sold, with a phased in tax between 50,000 litres and 100,000 litres.

Over in Hearst, Ont., Marcel Rheault owns and operatesa distillery called Loon vodka. Although business is good, he saidthe province's proposed amendments have himconcentrating on other markets, like China, to make a profit.

"On a bottle [that costs] $40, we're [making]$17.45," Rheault said. "With what's proposed by the government, we'll be [making]$20.40."

"Three dollars extra will [not] help pay my salary."

Amendments treatdistilleries like craft brewers, wineries

According to the Ministry of Finance, the emerging craft distillers spirits sector in Ontario has been growing steadily over the past few years. There are eight times as many distillers authorized to sell spirits at their on-site stores today than there were in 2011.

In an email to CBC news, ministry spokesperson Kelsey Ingram said the proposed system is similar to the waybreweries and wineries sell products in their on-site stores.

"This is increased revenue that distilleries can use to reinvest in their business," Ingram said."The government is also proposing to allow distillers to distribute up to 1,250 litres of spirits for promotional purposes exempt of tax."

But Rheault said the changes aren't encouraging for small businesses. The cap on his profits don't allow him toreap the financial rewards of a small business owner.

"I think the government should push our stuff. Then they turn around and say that would be discrimination," Rheault said.

Out of the LCBO, into USA andChina?

The inability to make profits in Canada has Rheaultconsidering focusing his effort on China, where he says his vodka has already won awards.

"In China, the same bottle sells for $100 because it's the highest quality produced vodka in the world," Hebert said.

Justin Frape, owner of Thunder Bay's Frape and Sons Bitters, told CBC News he's considering an option to open a distillery in Minnesota, instead of Ontario, because of the high taxes in this province.

Frape said theprovincial proposals are a "kick in the teeth" to small producers.

Ontario currently has a graduated tax system that is lower for small wineries and brewers. But Frape saidright now there is no tax difference between small and large distillers.

"For every dollar a distiller sells, they give 78 cents off the top to both federal and provincial governments," he said.

"The comparative burden in Minnesota is 14 cents on the dollar," Frape said. "If I have to choose [between the two places],I think it's pretty clear."