Understanding the Ontario Beer and Wine Tax: A Complete Guide

The Ontario Beer and Wine Tax significantly shapes the alcohol retail marketplace in Canada’s most populous province. This complex taxation system profoundly influences beer prices, wine costs, and the overall landscape of alcohol consumption in Ontario. Understanding the intricacies of this tax structure is crucial for consumers, breweries, wineries, and tax collectors alike, as it affects everything from the price of a pint at local brew pubs to the tax remittance process for beer manufacturers.

This comprehensive guide delves into the various components of the Ontario Beer and Wine Tax, including beer introductory tax rates, wine volume tax, and special considerations for microbrewers. It examines how the tax is calculated, explores exemptions and promotional distribution allowances, and sheds light on these taxes’ impact on consumers and producers. By breaking down the complexities of Ontario’s alcohol tax system, this article aims to clarify a topic that affects millions of Ontarians and has far-reaching implications for the province’s thriving beer and wine industries.

Overview of Ontario’s Beer and Wine Tax

What is the beer and wine tax?

The Ontario Beer and Wine Tax is a comprehensive taxation system for alcoholic beverages sold within the province. This tax is included in the retail price of beer, wine, and wine coolers manufactured by Ontario producers. The tax structure consists of introductory tax rates, volume tax, and environmental tax.

For beer, the tax rates vary depending on whether the beer is draft or non-draft and whether a standard Ontario beer manufacturer or a microbrewer produces it. As of July 1, 2023, a single introductory tax rate of 12 percent applies to wine and wine coolers sold in off-site winery retail stores, provided the owner of the off-site store manufactures the products.

Who pays the tax?

While consumers ultimately bear the cost of the tax through the purchase price, the responsibility for collecting and remitting the tax falls on various entities within the alcohol retail marketplace:

1. Beer tax collectors:
   • The Beer Store
   • Licensed establishments (e.g., bars and restaurants)
   • Southern agency stores of the LCBO
   • Authorized beer manufacturers selling from their brewery retail stores
2. Wineries:
   • Ontario wineries selling from their on-site retail stores
   • Off-site winery retail stores, including standalone stores and wine boutiques in grocery stores

These entities are required to include all applicable taxes in their pricing. They must also make information about the tax amounts available to purchasers through approved methods, such as posting information sheets in prominent locations or providing them directly to customers.

When was it implemented?

The Ontario Beer and Wine Tax has been in place for several years, with periodic adjustments and updates to the tax rates and regulations. A recent notable change occurred in the 2023 Ontario Budget, which introduced the single introductory tax rate of 12 percent for specific wine and wine cooler sales effective July 1, 2023.

Additionally, an amendment to O. Reg 257/10 under the Liquor Tax Act, 1996, signed by the Minister of Finance, has delayed the subsequent scheduled adjustment of beer introductory tax rates. Initially set to increase on March 1, 2024, the current rates remain in effect until February 28, 2026.

It’s important to note that the tax system is subject to ongoing review and modification to align with government policies and economic conditions.

Beer manufacturers, microbrewers, and licensees of brewpubs are responsible for collecting and remitting the beer taxes every month. They must submit their tax returns and remittances to the Ministry of Finance by the 20th day of the following month.

Similarly, wineries collect and remit wine taxes on their sales from Ontario retail stores. They report every month or, if eligible and elected, every quarter. The deadline for submitting returns and remittances is the 20th day after the end of the reporting period.

This taxation system plays a crucial role in regulating the alcohol industry in Ontario, contributing to government revenue while influencing pricing and consumption patterns. As regulations and rates may change over time, industry participants and consumers should stay informed about the current tax structure and any upcoming adjustments.

Beer Tax Rates

The Ontario Beer and Wine Tax structure for beer has three main components: basic tax, volume tax, and environmental tax. Each element has its calculation method and rates, which vary based on factors such as the type of beer and the manufacturer.

Basic Tax Rates

The basic tax is the general tax applied to beer sales. It is calculated based on the total volume of beer in containers, and different rates are offered for draft and non-draft beer. As of March 1, 2018, and continuing until February 28, 2026, the following basic tax rates apply:

Notably, licensees with brewpub endorsements only report draft beer made at their brew pub. The Ministry of Finance maintains a list of beer manufacturers considered microbrewers for each sales year, found at ontario.ca/beerbrands. This list helps determine the applicable tax rate for different beer brands.

Volume Tax

The volume tax is applied based on the amount of beer in the container. Unlike the basic tax, the volume tax rate is consistent across different types of beer and manufacturers. The current rate stands at 17.6 cents per liter, regardless of whether the beer is draft or non-draft and whether a beer manufacturer or a microbrewer produced it.

However, there is a significant exception to the volume tax. Draft beer made and sold at a brew pub or a secondary location related to the brewpub is exempt from this tax component.

Environmental Tax

The environmental tax is a fixed rate applied to non-refillable containers in which beer is packaged. Currently, this tax is set at 8.93 cents per container. This component of the beer tax structure aims to address environmental concerns associated with disposable packaging.

Similar to the volume tax, there is an exemption for draft beer made and sold at a brew pub or its secondary location. This exemption applies to the environmental tax as well.

To ensure transparency, beer tax collectors must make information about these tax rates readily available to purchasers. This is typically done by posting an information sheet in a prominent location where beer is sold or by providing it directly to customers. The information sheet must specify the following:

1. The current beer tax rates (basic, volume, and environmental) applicable to draft and non-draft beer made by Ontario beer manufacturers and Ontario microbrewers.
2. A reference to the Ministry of Finance website (ontario.ca/finance) for further information, including the list of microbrewers for the sales year.

For establishments that also sell draft beer made at a brew pub, the information sheet must additionally specify the current beer tax rates applicable to such beer.

It’s worth noting that these tax rates are subject to periodic reviews and adjustments. The most recent change occurred in the 2023 Ontario Budget, which delayed the subsequent scheduled adjustment of beer introductory tax rates. Initially set to increase on March 1, 2024, the current rates remain in effect until February 28, 2026.

Wine Tax Rates

The Ontario Beer and Wine Tax structure for wine has three main components: basic tax, volume tax, and environmental tax. Each element has its calculation method and rates, which vary based on factors such as the origin of the wine and the point of purchase.

Basic Tax Rates

The basic tax is calculated as a percentage of the retail price of the wine. The LCBO or the winery sets the retail price if the LCBO has not set a price. This price excludes container deposits and taxes imposed under the Excise Tax Act (Canada) and the Liquor Tax Act, 1996.

The introductory tax rate varies depending on whether the wine is Ontario-produced and where it is purchased. For tax purposes, “Ontario” generally means that the wine is produced almost entirely from 100% Ontario-grown produce.

As of July 1, 2023, the introductory tax rates are:

It’s important to note that effective April 1, 2024, the basic tax will not apply to Ontario wine and wine coolers purchased from on-site winery retail stores.

Volume Tax

The volume tax is applied based on the amount of wine or wine cooler in the container. Due to their different rates, this tax component is reported separately for wine and wine coolers. The current volume tax rates are:

For example, a 750mL bottle of wine sold at a winery retail store would incur a volume tax of 0.750L × CAD 0.29/L = CAD 0.2175.

Environmental Tax

The environmental tax is a fixed rate applied to non-refillable containers in which wine and wine coolers are packaged. Currently, this tax is set at 8.93 cents per container. This component of the wine tax structure aims to address environmental concerns associated with disposable packaging.

It’s worth noting that these tax rates are subject to periodic reviews and adjustments. The wine tax structure in Ontario is designed to support local wineries while generating revenue for the province. The differentiated rates for Ontario and non-Ontario wines reflect this policy approach.

Wineries are responsible for collecting and remitting these taxes on their sales from Ontario retail stores. They report every month or, if eligible and elected, every quarter. The deadline for submitting returns and remittances is the 20th day after the end of the reporting period.

This taxation system plays a crucial role in regulating the wine industry in Ontario, contributing to government revenue while influencing pricing and consumption patterns. As regulations and rates may change over time, industry participants and consumers should stay informed about the current tax structure and any upcoming adjustments.

How the Tax is Calculated

Calculation method for beer

The Ontario Beer and Wine Tax for beer consists of three main components: basic tax, volume tax, and environmental tax. Each element has a specific calculation method.

The basic tax is determined by the volume of beer purchased. The applicable tax rate depends on two factors:

1. Type of beer: draft beer (from kegs 18 liters or larger) or non-draft beer (bottled beer)
2. Manufacturer: beer manufacturer, microbrewer, or brewpub

The basic tax for draft beer is reported separately from non-draft beer due to their different rates. It is calculated based on the total volume of beer in containers.

The volume tax is applied to the amount of beer in the container and is calculated on the total volume. However, draft beer made and sold at a brew pub or its secondary location is exempt from this tax.

The environmental tax is set at 8.93 cents for each non-refillable container in which the beer is packaged. This tax does not apply to draft beer made and sold at a brew pub or its secondary location.

Calculation method for wine

The wine tax calculation is similar to beer, comprising an essential, volume, and environmental tax. Each component is recorded separately on tax returns.

The basic tax is applied to the “retail price” of the wine or wine cooler. This price is determined by subtracting the following from the consumer price:

1. Container deposit required under the Ontario Deposit Return Program
2. HST (Harmonized Sales Tax)
3. All wine taxes imposed under the Liquor Tax Act, 1996

The introductory tax rate varies depending on whether the product is classified as “Ontario wine” or “Ontario wine cooler.” As of July 1, 2023, a single introductory tax rate of 12 percent applies to wine and wine coolers sold in off-site winery retail stores if manufactured by the store owner.

The volume tax is based on the amount of wine or wine cooler in the container. It is reported separately for wine and wine coolers due to different rates:

The environmental tax for wine is 8.93 cents per non-refillable container.

Examples

To illustrate the tax calculation process, let’s consider an example for spirits, which follows a similar principle:

For a 0.75L bottle of spirits with a final retail selling price of CAD 55.45:

1. Deduct container deposit: CAD 55.45 – CAD 0.28 = CAD 55.17
2. Deduct HST (13%): CAD 55.17 – CAD 6.34 = CAD 48.83 (introductory price)
3. Deduct environmental tax: CAD 48.83 – CAD 0.12 = CAD 48.71
4. Deduct volume tax: CAD 48.71 – CAD 0.40 = CAD 48.31
5. Calculate retail price (including basic tax): CAD 48.31 / 1.615 = CAD 29.91

The basic tax on this bottle would be CAD 29.91 × 0.615 = CAD 18.40.

It’s important to note that beer tax collectors, wineries, and grocery stores with wine boutiques must make information about included taxes available to purchasers. This can be done through posted information sheets or by providing invoice details. The Ministry of Finance maintains a list of microbrewers and their beer brands for each sales year at ontario.ca/beerbrands to assist in determining applicable tax rates.

Exemptions and Special Cases

The Ontario Beer and Wine Tax system includes several exemptions and exceptional cases that provide relief to manufacturers in specific circumstances. These provisions aim to support the industry and accommodate various distribution scenarios.

Promotional Distribution Exemption

Ontario beer manufacturers, brew pubs, and wineries licensees benefit from a limited exemption on beer and wine taxes for promotional distributions. This exemption applies to products distributed without charge in Ontario to promote their offerings.

For beer manufacturers and brew pubs:

• The exemption is limited to 10,000 liters of beer per “corporate family” for each sales year beginning March 1, 2011.
• It applies to beer made by the manufacturer or draft beer made at the brew pub.
• The exemption is available for promotional distributions made from July 1, 2010, onward.

For wineries:

• The exemption covers up to 10,000 liters of wine and wine coolers per “corporate family” every 12 months beginning July 1, with the first period starting July 1, 2010.
• It applies only to wine and wine coolers made by the winery.

To qualify for the exemption, the distribution must be:

1. Without charge
2. In Ontario
3. For promotional purposes

It’s important to note that distributions made with a charge (including nominal charges for sampling) or those not for promotional purposes do not qualify for the exemption. Manufacturers and licensees must keep detailed records of these distributions for seven years, including:

• Date of distribution
• Recipient’s name and address or event details
• Product particulars (type, brand, volume, container type)
• Affiliate information and their claimed exemptions

Claims for exemption must be made within four years of the distribution. Any promotional distributions exceeding the maximum exemption amount remain taxable.

Duty-Free Sales

Beer sold to duty-free stores in Ontario qualifies for tax exemption. These stores must be located in transportation hubs, and the purchaser must leave Ontario directly as part of their travel segment at the hub. Manufacturers report the amount, in liters, of beer sold to duty-free stores during the reporting period.

Exports

Beer sold and delivered outside Ontario is exempt from the Ontario Beer and Wine Tax. This exemption includes:

1. Purchases by the Government of Canada where the beer is warehoused in Ontario and subsequently exported for use by Canadian diplomatic or consular offices abroad.
2. Distributions to other nations’ embassies and consulates outside of Ontario.

It’s worth noting that distributions to foreign embassies and consulates within Ontario are taxable and typically reported on specific lines of Schedule A in tax returns.

Manufacturers must report the amount, in liters, of beer exported during the reporting period. This information helps ensure accurate tax calculations and compliance with the Ontario Beer and Wine Tax regulations.

These exemptions and exceptional cases support the Ontario beer and wine industry while maintaining a fair tax system. They provide opportunities for manufacturers to promote their products and expand their market reach without incurring additional tax burdens under specific circumstances.

Impact on Consumers

The Ontario Beer and Wine Tax significantly influences consumers’ purchasing habits and access to alcoholic beverages. Recent changes in the province’s alcohol retail landscape are set to transform the consumer experience in several ways.

Price increases

The Ontario Beer and Wine Tax is included in the retail price of beer, wine, and wine coolers manufactured by Ontario producers. This tax structure directly impacts the prices consumers pay for these products. For instance, the price includes all applicable taxes when purchasing beer from The Beer Store, licensed establishments, or on-site retail stores of beer manufacturers.

Similarly, wine and wine coolers bought from Ontario winery retail stores, on-site and off-site, have the wine tax incorporated into their pricing. This pricing structure ensures transparency for consumers, as they see the final price inclusive of all taxes.

However, consumers should be aware of potential price fluctuations. As of July 1, 2023, a single introductory tax rate of 12 percent applies to wine and wine coolers sold in off-site winery retail stores if manufactured by the store owner. This change may affect the pricing of certain wine products.

It’s worth noting that the Ontario government has taken steps to mitigate price increases. The scheduled 4.6 percent increase to the beer basic tax and LCBO mark-up rates for March 1, 2024, has been halted. This freeze, which will remain in place until March 1, 2026, provides approximately CAD 277.60 million in relief, potentially helping stabilize consumer prices.

Availability of products

One of the most significant changes impacting consumers is expanding alcohol retail options. The Ontario government has announced a revolutionary change in the marketplace, allowing beer, wine, cider, coolers, seltzers, and low-alcohol ready-to-drink beverages sold in convenience, grocery, and big box stores.

This expansion will introduce up to 8,500 new purchase points for these products, challenging the longstanding LCBO monopoly. By the end of October 2024, every convenience, grocery, and big-box store in Ontario can sell these alcoholic beverages.

The increased availability extends beyond just the number of retail outlets. Restrictions on pack sizes have been removed, allowing consumers to purchase various options, including 12-packs, 24-packs, or even 30-packs of beer, cider, and ready-to-drink alcohol beverages at these new retail locations.

Consumer behavior changes

The expanded marketplace is likely to have a profound impact on consumer behavior. With more convenient access to a broader range of alcoholic beverages, consumers may alter their purchasing patterns and preferences.

Introducing competitive pricing across all new points of sale, including The Beer Store, may lead to more price-conscious consumer decision-making. They can compare prices across various retailers, potentially leading to more informed purchasing choices.

Moreover, the ability to purchase alcoholic beverages alongside other grocery items may change shopping habits, making it more convenient for consumers to include these products in their regular shopping trips.

However, it’s important to note that the government remains committed to responsible consumption. Existing requirements related to staff training, minimum pricing, hours of sale, and warning signs will apply to all new retail outlets. Additionally, the government has allocated CAD 13.88 million over five years to the Ministry of Health to support public health efforts and ensure safe consumption in the expanded marketplace.

These changes reflect a growing demand for diverse and convenient shopping experiences. As consumers access a broader array of purchasing options, including convenience and grocery stores, their behavior may shift to take advantage of this increased flexibility and choice in the alcohol retail marketplace.

Impact on Breweries and Wineries

The Ontario Beer and Wine Tax has significant implications for breweries and wineries in the province, affecting their financial performance, production strategies, and market competitiveness.

Financial implications

The tax structure substantially impacts the financial health of Ontario’s breweries and wineries. A 2019 economic analysis by Vintners Quality Alliance and Deloitte revealed that 60 to 70 percent of wineries were not profitable even before the COVID-19 pandemic. The situation has worsened since then, with a recent survey by Ontario Craft Wineries (OCW) indicating that one-third of Ontario’s small wineries may not survive the year.

The pandemic has exacerbated financial challenges, with half of the surveyed wineries reporting a negative economic impact between CAD 70,788.01 and CAD 347,000.04. Tasting room sales, a significant profit generator, have declined by 56 percent, while export sales have plummeted by 79 percent. These financial pressures have led to the cancellation of capital projects, including winery expansions and agricultural improvements.

Production changes

The tax structure and market conditions have forced breweries and wineries to adapt their production strategies. Some wineries have had to halt wine production entirely, and they cannot purchase grapes due to financial constraints. Ontario wineries increased to 191 in 2021 from 161 in early 2016, indicating growth in the sector despite challenges. However, the current regressive tax structure punishes brewers who increase production, often making it more financially sensible to produce less.

The craft beer sector has grown significantly, with Ontario breweries rising to 360 in 2020 from 180 in 2015. However, domestic beer sales remained relatively flat, suggesting increased competition within the sector. The craft cider industry is also experiencing growth, with 70 craft cideries in the province in 2020, creating 240 direct and 104 indirect jobs.

Market competitiveness

The tax structure is crucial in shaping market competitiveness for Ontario’s breweries and wineries. The current system has been criticized for giving an unfair advantage to breweryless producers, who can claim the lowest tax rates without investing in capital-intensive brewing facilities. This disincentivizes brick-and-mortar breweries from investing to increase their capacity.

The Ontario Craft Brewers (OCB) has advocated for a restructured and more progressive Basic Beer Tax that incentivizes growth for brick-and-mortar craft brewers of all sizes. They argue that the current system makes it difficult for Ontario brewers to merge or acquire other local brewers without facing punitive tax increases. This leads international companies to buy up local breweries and economic benefits leave the province.

Despite these challenges, the Ontario wine and beer industries continue to make significant economic contributions. The wine industry contributed over CAD 5.55 billion in direct and indirect economic benefits to the Ontario economy 2015, supporting nearly 18,500 jobs. Similarly, the “beer economy” contributed over CAD 6.94 billion to Ontario’s GDP in 2016, supporting 52,435 jobs and generating CAD 1.80 billion in taxes for the Ontario government.

To address these challenges and support the growth of local producers, the Ontario government has announced several measures, including extending dedicated shelf space requirements for craft producers across all new retailers, enhancing the Vintners Quality Alliance (VQA) Wine Support Program, and introducing legislation to eliminate the 6.1 percent wine basic tax at on-site winery retail stores. These initiatives aim to create a more competitive environment for Ontario’s breweries and wineries while supporting their growth and sustainability in an evolving marketplace.

Conclusion

The Ontario Beer and Wine Tax significantly influences the alcohol retail landscape in the province. It shapes pricing structures, affects consumer behavior, and impacts the financial health of breweries and wineries. The recent changes in tax rates and the expansion of retail options are causing a revolution in the marketplace, giving consumers more choices and convenience while presenting challenges and opportunities for local producers.

As the industry evolves, consumers and producers must stay informed about the tax structure and its implications. The government’s efforts to support local producers while maintaining responsible consumption practices will play a key role in shaping the future of Ontario’s beer and wine industries. BOMCAS Canada is your accounting firm when you need support with accounting and tax return services. The Ontario Beer and Wine Tax remains a complex but essential component of the province’s alcohol regulatory framework, balancing economic interests with public health considerations.

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