What Are the Alcohol Taxes and Duties?
Canada has some of the highest alcohol taxes in the world. Canadians pay approximately $20 billion per year in alcohol taxes and duties. Alcoholic beverages, including beer, wine, and spirits, are taxed both at provincial and federal levels. Generally alcoholic beverages are also subject to excise duties during the production or importation process.
At the federal level, alcohol taxes are levied under Part IV of the Excise Act, 2001. Each province sets its own rule on taxing beer, wine, and spirits, most of which imposes a flat rate on the purchase price of alcohol. Ontario, however, has a rather unusually complex scheme for taxing different types of alcoholic beverages, which will be further discussed in this article.
Definition of Beer, Wine, And Spirits
Pursuant to the Excise Act, RSC 1985, c. E-14, beer or malt liquor means any product (other than wine) containing more than 0.5% absolute ethyl alcohol by volume that is either a beer concentrate, or a fermented liquor brewed from malt, grain or any saccharine matter without distillation and has an alcoholic strength not in excess of 11.9% absolute ethyl alcohol by volume.
The definition of wine is more specific, which limits the alcohol strength between 0.5% and 22.9% absolute ethyl alcohol by volume and includes sake and beverage produced by the alcoholic fermentation of an agricultural product other than grain, a plant or plant product that is not an agricultural product, or a derivative product from an agricultural product.
Spirits mean any material or substance containing more than 0.5% absolute ethyl alcohol by volume other than wine, beer, vinegar, denatured alcohol, refuse produced as a result of the distillation process, an approved formulation, or anything that is not consumable as a beverage.
Tax Rates: Spirits
In contrast to Ontario which has varying tax rates for different types of alcohol and manufactures, New Brunswick, Prince Edward Island, Saskatchewan, British Columbia, and Yukon simply imposes a flat tax rate on the purchase price of alcohol, with the actual tax rate ranging from 5% to 25%, whether it is beer, wine, or spirit.
In Ontario, the spirits taxes include spirits basic tax, volume tax and applicable environmental tax. The spirits basic tax is calculated at 61.5% of the retail price of the spirits. The retail price is the price set for the spirits by the Liquor Control Board of Ontario (LCBO) or the distillery, if the LCBO has not set a price, less the total of any deposit on the container and all taxes imposed on the purchase of the beverage under. The spirit volume tax is calculated based on the volume of spirits bought, which is set at 28 cents per litre for spirits cooler and 38 cents per litre for spirits. The environmental tax is 8.93 cents for each non refillable container in which the spirits bought is packaged.
At the federal level, there is an excise duty and a special duty on spirits. The special duty on spirit imposes an additional $0.12 per litre of absolute ethyl alcohol on spirits delivered to or imported by a licensed user. With regards to the regular excise duty, spirits containing not more than 7% absolute ethyl alcohol by volume is taxed at $0.330 per litre of spirits and spirits containing more than 7% absolute ethyl alcohol by volume is taxed at $13.042 per litre of absolute ethyl alcohol.
Tax Rates: Beer & Wine
Unlike the regular rates for Spirits, the applicable tax rates for beer and wine are more complex, especially in Ontario. The tax rate that applies to the beer in Ontario depends on what type of beer it is and who produced the beer. Draft beer is subject to a lower basic tax rate than non-draft beer. Beer manufacturers have to pay more tax per litre than microbrewers and brew pubs in Ontario. Meanwhile, the wine basic tax varies depending on whether it is an Ontario or non-Ontario wine, whether it is purchased at a winery retail store or whether it is manufactured by an owner of and purchased from a wine boutique. A wine volume tax also applies based on the volume of wine or wine coolers, which is currently set at 29 cents per litre for wine and 28 cents per litre for wine cooler. In addition, there is an environmental tax of 8.93 cent per non-refillable container in which the beer, wine, or wine cooler bought is packaged with certain exceptions.
At the federal level, reduced rates of excise duty on beer may be available to domestic brewers depending on their annual production volume. The regular rates of excise duty on beer packaged in Canada range from $2.890 per hectolitre of beer containing not more than 1.2% absolute ethyl alcohol by volume to $34.82 per hectolitre of beer containing more than 2.5% absolute ethyl alcohol by volume. One exception is that non-alcoholic beer produced on or after July 1st, 2022, is not subject to the excise duty.
100% Canadian wine made from honey or apples that is packaged on or after June 30, 2022, in Canada, is also not subject to the excise duty. The rates of excise duty on wine ranges from $0.022 per litre of wine containing not more than 1.2% absolute ethyl alcohol by volume to $0.688 per litre of wine containing more than 7% absolute ethyl alcohol by volume.
Filing Excise Duty Return
The due date of a federal excise duty return is the last day of the fiscal month of a licensee. The licensee must complete and file the B263 Excise Duty Return - Licensed User before the due date either via email or electronically. Failure to submit a completed excise duty return by the filing due date may result in a penalty. A person who fails to comply with a demand to file an excise duty return is liable to a penalty of $250 and may be required to pay a penalty of 1% of the amount due and not paid for the reporting period plus 0.25% of the amount due and not paid multiplied by the number of complete months that the return was not filed, to a maximum of 12 months.
Pro Tax Tips: File on Time to Avoid Penalty and Interest!
The federal excise duty return is due on the last day of a licensee's fiscal month and payments should be made together with the filed return. When filing the B263 Excise Duty Return, it is important to have the correct calculation and records for the owed tax. Failure to file on time or accurately may result in hefty penalties. If you are uncertain about your excise duty return filing or if you would like to obtain more advice on alcohol taxes and duties that you may be liable for the sale of alcohol, or have been assessed excise tax penalties, contact our expert Canadian tax lawyers for assistance or advice.
How Much Are the Alcohol Taxes and Duties?
At the federal level, depending on the types of alcohol and subject to potentially reduced rates, the applicable basic tax and duties vary from $2.890 per hectolitre of beer containing not more than 1.2% absolute ethyl alcohol by volume to $13.042 per litre of absolute ethyl alcohol in spirits containing more than 7% absolute ethyl alcohol by volume. Each province has additional alcohol taxes that may also vary depending on the type of vendors and the type of alcoholic beverages. Further, alcohol packaged or imported at different dates are subject to different rates of excise duty.
If you have questions concerning your tax obligations as a licensed alcohol vendor, please contact our expert Toronto tax lawyers for legal tax advice.
What Type of Alcoholic Beverages Are Subject to The Alcohol Tax and Duties?
Beer, Wine and Spirits are subject to the alcohol tax duties discussed in this article, which can be further divided into sub-categories and often include more items than their ordinary definitions. For example, the phrase Spirits include both spirits and spirits coolers and the definition of Beer includes beer, malt liquor, and beer concentrate.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.