Ontario's Micro-Distillers Feel Betrayed by Their Government

Making whisky is not unlike writing—you do it because you love the craft. You hope there's a big windfall, but in most cases you know that to simply be able to work on your craft and pay the bills is a win. Every person I've met that's in the whisky making business is passionate about what they do. The passion, the enthusiasm, that drive is shared among whisky makers from the smallest  to the largest distilleries.

Ontario's Bill 70 is a blow against many micro-distillers in Ontario. It's a philosophical reversal on a the province's successful microbrewery policy, wherein microbrewers receive tax breaks on low-volume production. Making alcohol is a volume business. The more you make, the cheaper it is. Products aimed at enthusiasts are expensive to produce. Giving tax breaks has been a wonderful boon for Ontario's microbrewers. Bill 70 goes against the trend Ontario already set, and goes further against the trend other provinces have shown by offering tax breaks to new distilleries. 

Proponents of the bill will point to micro-distilleries that have seen success under the old rules. Many of those endeavours are well-funded. That's not to take away from their success, but distilleries without deep pockets are hurting, and they're facing stiff competition from the rest of North America where it's far cheaper to get started. 

In the 1970s, the federal government increased the minimum age of Canadian whisky from two years, to three. That's three years a distillate must mature in a barrel before it could be sold as whisky. By comparison, in the United States distilleries can make bourbon after maturation for only a few months. Micro-distilleries often make gin, vodka or rum to keep the lights on. This isn't unusual. Big well-funded distilleries from Kentucky to Scotland do the same.

Some Ontario distillers are swearing off the Ontario market. It's cheaper for them to export whisky to other markets, and avoid the tax on sales of whisky in Ontario. This might work for some, but it's not a game plan for most. Local support is crucial in any craft. If an artist can't win over the heart of their local community, how will they fare in a global economy?

States like Kentucky have encouraged micro-distilleries. They contribute to tourism, wealth within the community, and jobs. Owners of Frape & Sons, makers of boutique bitters in Thunder Bay Ontario, have plans to distill spirits. They're considering moving to Minnesota, a short drive away, where they will be taxed at only 20%. 

I'm not a policy maker. Ultimately, the Ontario government can choose to support some businesses and not others. But I do have questions that seem unanswered (and yes, I have reached out to my Ontario Parliament representative):

  1. Why have microbrewers received a tax break, but not distillers? Ontario's microbrewers pay 33 cents per litre, compared to 80 cents for larger breweries.
  2. Why is wine taxed significantly less? Wineries pay only 6.1% in taxes when wine is sold at the winery. The proposed tax on spirits is 61.5%, while only have three to four times the alcohol content (on average).
  3. Why are the Ontario Liberals so scared of small-business private sector sales of alcohol? Much of Ontario's alcohol is sold through government run stores (LCBO). When they allowed the sales of beer at grocery stores, Ontario hand-picked locations from the largest grocery store operators.

As an example, BC doesn't charge additional taxes on the first 50,000 litres of spirits sold by micro-distilleries, so long as they use local grains or fruits. Ontario does not have a local farming issue—big distilleries predominantly use (when possible) Ontario local grains. Micro-distilleries, though, work on a smaller scale often directly with  just one or two farmers. 

Bill 70 does officially give distillers the ability to sell directly to consumers (It's been a bit of a grey area up to now). Distillers do receive a marginal few points advantage in pricing over going directly to the LCBO. Finance minister Charles Sousa estimates an increase margin on in-house store sales. Micro-distillers are saying it's not enough. Charles Sousa also notes the tremendous growth with new distilleries in Ontario, failing to realize that this growth is occurring in spite of Ontario's archaic laws around alcohol sales. 

Ontario isn't obligated to help small businesses with big tax breaks, but Ontario does have an obligation to keep its tax laws competitive with the rest of the world. Where many other regions are offering significant tax breaks for new distilleries, Ontario is is keeping to the status quo. 

Further reading: 

‘I haven’t even taken a salary’: Small distillers say new Ontario liquor tax will kill them
OCDA Statement
Ontario finance minister responds to distillers' complaints