Wine and taxes

Ontario Craft Wineries petition Ontario government

On an early August day, the hanging fruit show signs of ripening during what has been a hot, dry summer. As the heat of the scorching sun turns the soil to dust, there’s no question this year has been a challenging growing season for Prince Edward County wine growers. “Vines aren’t sensitive to drought generally as other crops, however, we are starting to see early signs of drought stress in vineyards across the County,” says winemaker Caroline Granger, owner of The Grange of Prince Edward Vineyards and Estate Winery.

What began as a long cool spring saw the novel coronavirus hit, which brought the added challenge of finding workers to work the fields. “Spring was very chaotic,” says Granger, who adds her farm is down over 3,000 man-hours this growing season. “It’s hard to make that up,” she says. While Granger admits it has been a stressful growing season and the crop may be lighter because of the cool spring and challenges with labour, the heat is now moving the plants along. “We may be looking at an early harvest,” she says optimistically, “Things are looking pretty darn good and there may be some very beautiful fruit out there now.”

Along with many local businesses and industries, each with its own unique circumstances, wineries were hit hard due to COVID-19. While LCBO stores remained open, and many take-out food options were permitted to sell alcohol with purchases, without foot traffic and tasting rooms open, most Prince Edward County wineries suffered, especially the smaller operations. “It becomes particularly poignant when you bump up to something like this [COVID-19] where we now have a dramatic and profound disruption to the main season that all Ontario wineries rely on to get through the year,” explains Granger, who has been involved in the industry for about 20 years. She is active locally as Chair of PECWA (Prince Edward County Winegrowers Association), and at the provincial level as a board member with Ontario Craft Wineries. “We all run vineyards, we are all farmers, we are all connected to the land and that work doesn’t care if there is a pandemic or not,” she says. “We still must run those vineyards; we must protect the crop where the effect will be over multiple years if we fail to harvest.”

What folks who visit a County winery to buy County-made wine may not be aware of are the taxes every winery has to pay on each bottle of wine they sell. Along with HST (if applicable), wineries must pay the government several other taxes, including environmental taxes (because wine is bottled in glass). What the wine-buying public may not know about is the 6.1 per cent Ontario wine tax all wineries must also pay on each bottle of vino they sell. “The wineries, regardless of what their revenue might be from farm gate, always pay the 6.1 per cent as well as the other taxes,” says Granger. She says when the bottle deposit was introduced it should have rescinded the environmental levies. “Interestingly, instead, they just magically turned into environmental taxes.”

Granger explains that the sale of product that for all intents and purposes was grown, vinified, labelled, and then shelf-ready to be sold to the public on farm, is subject to the tax. “Essentially, what it amounts to is a 6.1 per cent sin tax,” says Granger.

“There is a lot of invisible tax in a bottle of wine and it’s very troubling that this authentic, completely vertically integrated Ontario farm product is taxed so cumulatively. It’s the idea that Ontario-grown grapes being made into Ontario-made wine and sold at the farm gate really should not inappropriately be taxed additionally.”

Ontario Craft Wineries, a non-profit trade organization representing over 100 wineries across Ontario, including Prince Edward County, currently have an active petition online (search ‘support Ontario’s family farm wineries’ and Change.org) requesting the Ontario government eliminate the 6.1 per cent tax all wineries are forced to pay. It’s not the first time Ontario wineries have worked to address the unfairness of taxation in Ontario, but Granger says there has never been a petition before. “The petition speaks to how desperate the situation is now.”

She says over the almost two decades she has been working with industry associations, the message in order for the Ontario wine industry to thrive, requires fair access to market and fair taxation. “You can obviously infer how successful we have been so far in our plea to be treated in a way that allows wineries, in particular the small wineries, to invest in their future and have enough left at the end of the day to keep going,” says Granger.

What the general public may not know is just how much tax must be paid by individual familyrun wineries in Ontario on each bottle of wine they sell at farm gate, something Granger hopes the petition will highlight, as well as provide for public engagement and education, but also catch the attention of politicians. “It’s a challenge because all those taxes are hidden in the price, so when someone complains about a $20 bottle of wine at the winery when they get a bottle of Chilean wine at the LCBO for $8, what they don’t realize is that is largely due to taxes,” explains Duarte Da Silva, Executive Director of the Prince Edward County Winegrowers Association. “In the case of the 6.1 per cent tax, that it is not because the wine is going to the LCBO, this is a tax that is paid directly to the Minister of Finance that is charged specifically to the winery in the tasting room that no one else gets charged. That 6.1 per cent is unique and detrimental to wineries and our wine industry.”

While Granger says all wineries rely largely, if not exclusively, on farm gate sales, larger wineries do have access to the LCBO and other outlets, and are not so reliant on one single channel. “To a small winery, that 6.1 per cent could be the margin between making money and losing money,” explains Da Silva. “Whereas a larger winery can swallow that and have other lines of business and other channels to absorb that, but for a small winery that can be the difference between making it and breaking it.”

To understand what was happening on the ground in the early days of COVID-19, PECWA surveyed its members to establish the impact the outbreak was having on County wineries. It won’t come as a surprise that 100 per cent of survey participants said COVID had impacted them. “Thirty-five per cent said their sales are down 65 per cent or more; 25 per cent said they are down 50 to 75 per cent,” says Da Silva, who noted those numbers are very significant and impact a number of things, such as hiring practices. Seventy-three per cent are only expecting to partially recover post-COVID; 55 per cent think it is going to take a year, if not two years, to recover from COVID.

“There’s a threat that we may lose somewhere in the region of 20 per cent of our wineries if things do not improve,” says Da Silva. “When we talk about losing the wineries, we are talking about losing local employment, loss of agricultural land and produce as well; it is not a one-off thing, it is a ripple effect.” Da Silva explained that wineries are very different from other producers and they must continue to harvest. “We can’t just say we just won’t plant this year and we will wait and we’ll plant something else next year, or we aren’t going to take care of it this year; it is a multi-year impact if we don’t do it.”

Whether a local wine drinker or not, the fact is local wineries—neighbours, friends and families, and the very people who contribute significantly to the local economy—are hurting, some more than others. “The impact to the wineries here is real in terms of jobs, in terms of a tax base, in terms of revenue, in terms of farmland,” Da Silva says. “Something like eliminating a 6.1 per cent tax goes a long way and immediately assists winemakers in maintaining the vineyards and hiring back staff and keeping the cellar door open.” However, he stresses the industry is not saying they don’t want to pay any taxes. “We want to be taxed fairly by the province and not have unfair taxes placed upon us like a 6.1 per cent that no one else pays, and a 6.1 per cent farm gate tax does not do that,” he says.

Granger makes the comparison to the new cannabis industry, which she says is taxed far more fairly than wine is. “Cannabis isn’t carrying sin taxes, and we continue this notion that somehow a bottle of wine is some kind of luxury item that needs additional punitive taxation on it, even if it is coming from an Ontario farm, made by an Ontario farming family. It is archaic thinking,” she says. “We need to acknowledge, if we believe that cannabis is something that does not require special taxation, then why does wine at farm gate?”

Da Silva acknowledges the industry is in unprecedented times right now. “The government is encouraging everyone to shop local, support local, support your friends and family, and the most effective way for them to do that in terms of the wine industry is to eliminate this 6.1 per cent tax,” he says. “It is immediately impactful.” He says they have been very encouraged by the loosening of guidelines and distribution that has been made temporarily during COVID by allowing restaurants to sell bottles, along with other minor changes. “But nothing will have as big an impact on the industry and the wineries directly than by eliminating the 6.1 per cent which immediately supports local: local wine, local farms, local jobs. It almost seems like a no-brainer to do.”

In a region such as Prince Edward County that has an important wine industry, it really is incumbent on the province to look at supporting it, says Da Silva. “There’s no better way to do that than by eliminating the 6.1 per cent.” Representing largely all the wineries in Prince Edward County, he says he can’t think of a better industry. “People are part of this community and support this community that puts money back into this community and supports our tourism sector, as well as all the spin-offs from it, so it’s critical that we get support from the province and one of the ways to do that is eliminate the 6.1 per cent tax.”

Out of a necessity of being located in a rural region, wineries uniquely (cideries too) do a lot of interesting things, says Granger. “It creates jobs and a dynamic rural economic environment, but it’s challenging for these agricultural vertically integrated businesses because there are long periods where they have to sustain themselves with very little visitor activity,” she says. “We all know how quiet it is in the County between November and April. That means those farm gate sales and the winery’s ability to put a little bit away for the long cold winter is critical, and having 6.1 per cent of every bottle going to the province simply by virtue, simply because it’s wine, is a hard nut to swallow for small Ontario wineries.”

“They [the provincial government] will see the benefit of the elimination of the tax in job retention, in business retention as being a valuable investment in an industry in Ontario that has tremendous potential industry to grow,” explains Granger. “This industry can become strong and it can become a vibrant part of Ontario’s economy, and so this is an early investment in future growth, and arguably at this point, the retention of all those small businesses.”