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The CEO of a North Bay craft brewery says the industry is at a crossroads when it comes to growth and it will take a shift in government taxation policy to attain new heights for not only his company but hundreds of others across Ontario.
"Ontario’s beer sector pays the highest taxes in the country, there is no doubt," New Ontario Brewing's Mike Harrison tells BayToday. "It doesn’t only hamper our ability to create jobs, but our ability to unleash our piece of Ontario’s economic might on the world stage. There is a world-class industry trying to emerge in Ontario. This industry is being strangled by taxes, antiquated policies, and prohibitive regulations that suppress the natural might of manufacturing in Ontario."
Alberta and B.C., have migrated to a tiered tax structure dependent upon the capacity and output of the brewery while Ontario's tax structure accounts for neither size nor production volume — leading to a discrepancy of hundreds of thousands of dollars, according to this CBC report, in taxes paid.
Ontario craft breweries face a basic beer tax (39.5 cents per litre), a beer volume tax (17.6 cents per litre), and, if applicable, an environmental tax (8.9 cents for each non-refillable container used to package beer).
"Imagine being innovative, and creative, and having explosive growth potential but being starved of what you need to grow: profit," Harrison continues. "That’s the current scenario in Ontario’s brewing industry. On one hand, the government helped through investments to get us all going then they capped our success by continuing the over-taxation policies that stem back to prohibition and are vastly out of line with other markets' taxation."
There have been some concessions. Due in large part to the advocacy efforts of Ontario Craft Brewers (OCB), the Ontario Ministry of Finance paused scheduled tax increases for brewers and has pushed annual increases to March 2024 but Harrison says this still leaves Ontario companies far behind international competition in tax structure.
"When you compare our tax rates to those of our largest trading partners in the U.S. it gets even more crazy," Harrison notes. "For instance, Michigan's state tax is around $0.05/L ($0.20/gal). In comparison, Ontario's Ministry of Finance currently charges a rate of over $0.60 per litre and charges an additional fee of $0.60/L to sell beer through the LCBO — that's $1.20/L to the tax man.
"I love this province and believe that it is a great place to do business and grow. The government just needs to help make that belief a reality by fixing prohibition-era tax schemes on alcohol and realizing that we have a booming industry that is ready to export Ontario-made products around the world. Is Ontario a Place to Grow and Open for Business or should Industry look elsewhere?"
By bringing Ontario’s tax scheme more on par with the U.S. model, Harrison maintains it would allow producers to use the savings to invest in growth, jobs, equipment, and automation.
"These are all of the things we need to compete around the world. Ontario has a long tradition of making things. We are the industrial heart of Canada. Ontarians make awesome beer! The world needs to drink it! Government, will you lower our taxes to unleash a piece of Ontario’s industrial might or continue the prohibition-era policies that suppress our ability to compete?"
The OCB continues its advocacy efforts in search of tax reform by recommending "the government begin work on a restructured and more progressive Basic Beer Tax that incentivizes growth for brick-and-mortar craft brewers of all sizes."
The OCB is urging the provincial government to reform Ontario’s beer tax system to:
- Reduce Red Tape: Today brewers pay a multitude of taxes and tax rates, including a Beer Can Tax, Basic Beer Tax and Volume Tax in a confusing and complex system that drains the resources of small businesses and often leads to errors that cost brewers hundreds of thousands of dollars.
- Incentivize Growth: The current regressive tax structure punishes brewers who grow and produce more beer. In many cases, it makes more financial sense for brewers to produce less. In Ontario, the smallest brewers pay $77.97 in tax on their first hectolitre (hL) of beer compared to just $10 under Alberta’s progressive tax structure.
- Allow Industry Consolidation to Stay in Ontario: Low production thresholds in the current system make it extremely difficult for Ontario brewers to merge or acquire other Ontario brewers without a punitive tax increase. As a result, breweries are being bought up by international companies and economic benefits are leaving Ontario.
- Encourage Capital Investment: Ontario’s current beer tax structure was intended to recognize the capital-intensive nature of opening a brewery, however, brewery-less producers who do not own or operate their own brewery can claim the lowest tax rates. This gives brewery-less producers an unfair advantage in the market and disincentivizes brick-and-mortar breweries from investing to increase their capacity.
- Treat All Brewers Fairly When Adjusting Rates: Over the past decade, the tax rate for Ontario-made craft beer has increased almost three times faster than the rate for internationally-owned brewing companies and has cost small businesses like ours $68 million over the last 10 years.
Harrison concludes, "When you take into account the percentage of ancillary taxes — HST, Carbon, fuel, etc. — the only real winner in our tax scheme is the tax man. With over half of the cost of beer being taxes, the consumer ultimately pays the price while domestic brewers try and scrounge what’s left after the government fills its coffers. It’s lose-lose-lose for consumers, producers, and worst of all, the Ontario economy. We have factories ready for new investment and international growth, we just need the breathing room from taxes to grow our businesses."
