Niagara winemakers worried about looming new alcohol tax

As federal taxes on alcohol are set to rise, some local winemakers are asking for reforms in the way their tipples are taxed.

On April 1, the federal alcohol tax will automatically rise 6.3 per cent. For William Roman, general manager of Rosewood Estates Winery in Beamsville, that increase is just another burden of tax weighing down on wineries.

“It’s another layer,” he said. “Thank you for making it harder to operate with everything else in the world increasing.”

Richard Linley, president of the Ontario Craft Wineries, which champions wineries that are VQA approved (a certification granted by the Ontario Wine Appellation Authority), said the tax hike should be stopped.

“This is not a good time to increase alcohol taxes on domestic wine producers,” he said. “The automatic escalator should either be frozen or repealed all together. Ontario already has some of the highest alcohol taxes in the world and the escalator, by its nature, is unresponsive to ongoing economic conditions. And new taxes simply mean less capital for wineries to invest in their operations, employees and products.”

The tax jump is the latest in a series of automatic “escalator” increases that kick in every year since it was introduced in 2017, which rise to account for inflation.

In an emailed statement from the federal Department of Finance sent by the department’s media relations team, an official said a $166-million Wine Sector Support Program was launched to help Canadian wineries.

“The growth of Canada’s wine sector is a major success story, providing business opportunities for grape growers and wine makers, while contributing to the economic vitality of rural communities,” they said.

But for winemakers, it’s not just the federal tax. Beneath that layer is the provincial tax. Roman said that, on top of the six per cent tax on sales at the shop, there’s an additional 10 per cent for selling to restaurants or other outlets. However, if the wine is not VQA, there’s an additional 30 per cent tax on top when he sells to restaurants.

Since that represents 30 to 40 per cent of the winery’s business, that’s significant. Of course, being an Ontario wine maker that uses Ontario grapes, Rosewood has many wines that are VQA approved and therefore exempt from that additional tax.

However, Roman believes the VQA is too strict in the awarding of the appellation, stifling creativity in winemaking.

Unlike most Rosewood wine, the 2017 Gewcci vintage isn’t VQA, meaning it was sold to restaurants without the tax exemption. Roman said because the wine was designed to be different to similar styles in Ontario, it failed the VQA taste test.

“Given the structure (of the VQA), there is a mechanism … that has the ability to strongly limit innovation,” he said.

To aid innovation in the Ontario wine industry, Roman suggested the province creates a new tax category.

“I want a new tax bracket,” he said. “A new tax category that just allows for wines to be made of 100 per cent Ontario origin and be taxed at the same rate as VQA wine when sold to a consumer or to a restaurant. Then I’m happy.”

Laurie Macdonald, executive director of the Ontario Wine Appellation Authority, which hands out the VQA status, said the appellation protects consumers and promotes the reputation of Niagara’s wines.

“The VQA appellation system is designed to serve consumers through label integrity and to provide a foundation to build confidence in Ontario’s wines of origin,” she said. “With these purposes in mind, the system is not administered with a view to impacting tax outcomes.”

And although she couldn’t comment on specific wines, she said that less than two per cent of wines were rejected in the taste test.

“The success rate at the panel is over 98 per cent,” she said, “reflecting both the quality of Ontario wines and that a very wide range of wine styles are approved.”

Niagara West MPP Sam Oosterhoff said the provincial government was committed to supporting the grape and wine industry, and increasing choice and convenience for consumers.

“To support… wineries to recover and grow, and to save consumers money, Ontario… cancelled the scheduled increase in wine tax rates put in place by the previous government," he said.

“As a result of the COVID-19 outbreak, increases in wine tax rates were cancelled which were legislated to occur on June 1, 2020. Additional planned increases to the LCBO wine and beer mark-up rates were also cancelled.

“These actions will keep more money in consumers' pockets and support our local beverage alcohol sector while the government continues to review how… wine is sold in Ontario.”

Chris Pickles is a Local Journalism Initiative (LJI) reporter for Niagara This Week. His reporting is funded by the Canadian government.