Ontario's craft brewers, distillers rejoice at new alcohol tax cuts. But consumers may not see much in savings
Taxes on spirits and beer by local microbrewers have decreased by 50 per cent from Aug. 1
Ontario craft brewers and distillers say they're sighing in relief after new provincial alcohol tax cuts came into effect on Aug. 1, reducing taxes and markups for spirits, ready-to-drink (RTD) beverages and local beer.
The changes come as Premier Doug Ford's government works "to support a modernized and competitive alcohol marketplace," according to a notice from the province detailing the cuts.
The tax relief is much-needed for local businesses surviving on tight margins, said Steve Himel, co-founder of Henderson Brewing Company in Toronto.
"It makes such a huge difference," he said.
"There's a lot more cost that goes into making craft beer and the last few years have been a challenge. So this tax cut is so well-timed. It really helps us to be competitive again."
While Himel and other Ontario alcohol producers say the changes will help their businesses invest in future growth, he says the cuts might not result in price drops for consumers.
"We have the opportunity to either choose to be more competitive or to reinvest in our business," Himel said, adding his business will likely do a combination of both. "It's a bit of wait-and-see."
The province's tax cuts include the following changes:
- Spirits: basic tax reduced by half to 30.75 per cent
- Beer: basic tax rates reduced by half for Ontario microbreweries to 17.98 cents per litre for draft beer and to 19.88 cents per litre for non-draft beer
- LCBO basic markup rate for cider reduced to 32 per cent
- LCBO markup rates for wine and spirit-based RTDs with an alcohol content lower than 7.1 per cent will be reduced to 48 per cent
Cuts will help offset tariff costs, says distillery owner
The tax relief will likely help offset the tariff costs on aluminum cans that Reid's Distillery uses for spirit-based RTDs, says owner Graham Reid.
He says while their RTDs have become 15 cents cheaper in-store and at LCBO locations, the business will not yet be reducing the price of its spirits.
From a $50 bottle of gin, almost $38 went to taxes before the cuts, says Reid. He says the company would earn about $4 in profit after taking out costs for materials and labour.
But now, Reid says the company plans to keep prices the same to increase their profit margins for further growth.
"Previous to the tax cuts, it was more affordable to import your product than to produce it here in Ontario," said Reid. "That shouldn't be the way it is."
The new cuts not only serve as a gentle reminder for Ontarians to buy local, he says, but have also started a conversation about how much local alcohol producers are being taxed.
"There's a reason there's only a handful of distilleries still thriving here in Toronto and Ontario, and it is really tough," Reid said.
The move to buy local and support Canadian businesses has been a tremendous shift for the industry and the tax cuts on top of that are "hugely beneficial" for Ontario producers, says Shehan De Silva, founder of Craft 360 Beverages.
He says the cuts will help keep breweries across the province in business after a tough few years and allow them to review prices for consumers.
"It was definitely a sigh of relief and after a lot of tough news over [the COVID-19 pandemic], this is definitely welcome," he said. "Certainly we're going in and reviewing all pricing now with full understanding of the impact of these changes."
The cuts are "a game changer" and one of the biggest decisions to impact Ontario's craft beer industry in a generation, said Scott Simmons, president of the Ontario Craft Brewers, in a written statement.
"[The] tax changes have put it on a path that will see breweries grow, create even more jobs, invest in their communities, and get more local beer on store shelves — I think that's something we can all cheers," he said.
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With files from Britnei Bilhete and Gabriela Silva Ponte