Northern Ontario distilleries, breweries, say tax increase puts strain on their businesses

Small breweries and distilleries in northern Ontario say an upcoming federal tax increase will put more strain on their already small margins.

On April 1 the federal excise tax on alcohol will increase by 6.3 per cent. The tax is tied to Canada's inflation rate, and the increase in April will be the biggest one since it was introduced.

Shane Prodan, owner of Crosscut Distillery in Sudbury, said he currently makes $10.63 on every $40 bottle of vodka he sells. The bulk of his revenue goes to provincial taxes, and a smaller portion goes to the federal excise tax.

There's not a lot of money in the spirits industry.- Shane Prodan, owner, Crosscut Distillery

Prodan said the revenues he makes on each bottle sold pay for staff, deliveries, ingredients like grains and insurance costs.

On April 1, Prodan said those revenues will decrease by another $0.25 for each bottle sold .

"It's a struggle," he said.

"There's not a lot of money in the spirits industry. Our taxation is already high and it's difficult to recover taxes like this."

Prodan said losing an additional $0.25 per bottle sold may not sound like much, but it's in addition to rising costs for ingredients like wheat, which he said have shot up by 20 per cent, and for his bottles, which are up 30 per cent.

Small distilleries that haven't increased their prices yet will probably have to do so in response to the tax hike, he said.

But it's difficult for independent distilleries to compete on price with major corporations that produce spirits.

Looking for tax relief

Mireille Morin, co-owner of Rheault Distillery in the small northern Ontario town of Hearst, said she will probably have to increase her prices due to the excise tax increase.

On a $45 bottle of their vodka, Morin said the provincial government receives around $28 in taxes, and another $3.75 goes to the federal government. 

Despite the higher provincial taxes, Morin said small distilleries like Rheault get tax subsidies if they produce less than a certain amount of alcohol per year.

"If I could suggest the federal government go into that type of avenue, that would be great," Morin said.

"When you're a small craft distillery or small craft brewer, your back is not as solid as if you were a big [company] like Molson or Bacardi."

Morin said before the COVID-19 pandemic she explored opportunities to sell her spirits in China, but those plans fell through due to trade disputes between China and Canada.

The distillery continues to focus on the Ontario market.

Benjie Potvin, co-owner of Full Beard Brewing in Timmins, said craft brewers pay between 40 and 50 per cent taxes on their beer sales.

"We're passionate about the business but, you know, the taxes are more passionate," he said.

"I think at this point it's making it very difficult for anybody to survive or be able to grow a business."

Like small distilleries, Potvin said he has also had to deal with a steep 30 per cent price increase for the grains he uses to brew his beer.

To adjust to higher costs, Potvin said they might have to change their brewing schedule to reduce staff hours.

He said Full Beard Brewing has also been in talks with other craft breweries in Ontario to combine resources to save on costs.

"Teaming up to maybe, you know, consolidate purchases," he said.

"Maybe that's a good thing anyway but it kind of takes you out of feeling like you're your own little business that creates their own little product."

Small proportion of costs

In an email to CBC News, Adrienne Vaupshas, press secretary for Minister of Finance Chrystia Freeland, said the excise tax amounts to a very small proportion of the total cost for alcohol producers.

"The April 2023 adjustment of 6.3 per cent would be equivalent to approximately three quarters of a cent ($0.0078) per 355 mL can of beer," the email said.

Because the tax is adjusted for inflation it generally doesn't represent an increase in real dollar terms.