Taxing times

Ontario winemakers looking for tax relief

It’s hard to grow grapes. It’s backbreaking work day in and day out. You’re at the mercy of Mother Nature and to become a success story, you have to put more hours into a day than are physically possible. And yet, people love this profession.

Harvesting from the land is one of the most rewarding feelings one can get. The work put in is equal to the love taken out of grape farming, but for Ontario winemakers, taxes and red tape are making their life increasingly difficult. One tax in particular from the LCBO has local winery owners scratching their heads. It’s an import tax that was put onto Ontario wines being distributed through Ontario when free trade was established in the mid ’80s. Yes, you read that correctly. Ontario wines made and packaged in the province are charged a tax equivalent to 35 per cent even when they are shipping within the province. What’s even more confusing is that the wineries get a rebate on this tax, but have to wait—sometimes more than a year—to get the money back from the government, and to get the full percentage of the import tax back, your paperwork trail must be meticulous.

Having 35 per cent of your business constantly tied up in taxes makes it incredibly difficult for local winemakers. The money is given regularly to the government by the wineries, but the government is not so courteous when returning the rebates. The result is tighter margins, and tough decisions at the winery on what gets fixed this year and what doesn’t.

The import tax is not the only one causing grief. Recently, a 6.1 per cent retail tax was put on all Ontario farms and wineries selling products at their establishment. The tax is meant to capture some of the business generated by tourism in the area, but has severely cut into the profits of the smaller wineries without deep pockets. So, wine that is grown, harvested, aged, bottled, and packaged onsite at the farm is still charged this retail tax, which is on top of the taxed total of the product. Essentially a tax-on-tax situation.

Constantly accruing new taxes, while all the time having 35 per cent of your business tied up is incredibly frustrating for owner/operators like Caroline Granger from Grange of Prince Edward Winery, who pride themselves in making 100 per cent estate grown and made wines.

“In other parts of the world, this just isn’t the case. In home markets, domestic products are treated preferentially and are purchased preferentially. What we are seeing in Ontario is that authentic Ontario wine has a less than 10 per cent market share currently. My winery is not that big. I don’t need to figure out how to sell wine to the world, I have such a finite amount that Ontario is all that I need to worry about,” says Granger.

There are traditionally three tiers to this type of tax system. The import tax if a product is imported, a distribution tax and a retailing tax. Granger and her fellow winemakers have no issue with the distribution and retail tiers, but the import tax and the way it is currently being handled feels disrespectful to the time and dedication these small business owners put into their craft. To spend an exorbitant amount of time every year chasing money that wasn’t supposed to be taken from you in the first place could make a bookkeeper for a small company go mad. Yet these are the hoops that every winemaker in the province must jump through to make and sell wine in Ontario.

Granger also points to the newly released cannabis tax structure, which is considered modern and keeping pace with 21st century tax modes.

“The new cannabis structure is so streamlined and ours is so bound up in legislation and taxation that some would argue is still kicking around from the early twentieth century,” says Granger.

Granger also states that another issue with the LCBO is that domestic wines are competing for shelf space with international blend style wines that take wine or juice from another country and blend it with a Canadian wine to make a more price-friendly product.

Granger is optimistic about the future and does think that Ontario is starting to understand the value of artisanal products and being proud of what’s in our backyard.

Caroline Granger is preparing herself for another busy season at Grange of Prince Edward Winery.

“Ontario is beginning to discover the beauty of its wine, and Lord knows we have all been trying really hard to give the people access to great Ontario wine,” says Granger.

Granger’s winery was the first in this region to have wine in the LCBO and she said it was a tough decision, but having people see a County wine in the LCBO immediately gave the region some validity and she knows it was the right move.

Over the hill and down the road at Rosehall Run, owner and winemaker Dan Sullivan agrees with Granger on the state of affairs when it comes Ontario and its wacky taxes.

“For small wineries that don’t have administrative staff, it’s just another huge job that goes onto the plate of an owner/operator, it eventually becomes onerous for them and they throw up their hands in defeat. It’s not a great feeling at all, especially when all of this doesn’t need to happen,” says Sullivan.

Sullivan says the whole process could be as simple as a monthly line item that gets deducted every month. Even that inconvenience he can deal with and regulate. The fact the winery owners never really know when their next rebate cheque is coming is the real issue at hand. Sullivan also reiterates Granger’s statement that there is no other place in the world where the domestic producers aren’t a significant portion of the marketplace.

The end goal for winemakers like Granger and Sullivan would be to either eliminate the import tax completely on domestic products or make the rebate available instantly instead of waiting 12-14 months.

“It’s challenging because the smallest of us, myself included, don’t have a lot of spare cash anyway. It makes an already tight situation all the tighter for no reason. Who knows how much I could really do with that additional cash monthly? Maybe something extravagant like employee benefits,” says Granger.

With the first budget of the Ford government coming soon, it is a critical time for Ontario’s craft wineries. Economic studies show that every bottle of Ontario VQA wine sold generates nearly $100 in economic activity. However, taxation and retail policies around wine are restricting growth in the sector and hindering economic growth not only in Ontario’s wine regions, but across the province.