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Canadian Tax Lawyer’s Guide to Alcohol Taxes and Duties – Tax Authorities

What are the duties and taxes on alcohol?

Canada has some of the highest alcohol taxes in the world. Canadians pay about $20 billion a year in alcohol taxes and duties. Alcoholic beverages, including beer, wine and spirits, are taxed at the provincial and federal levels. As a rule, alcoholic beverages are also subject to excise duty during the production or import process.

At the federal level, alcohol taxes are levied under Part IV of the Excise Act, 2001. Each province sets its own rules for the taxation of beer, wine and spirits, most of which impose a flat rate on the purchase price of alcohol. Ontario, however, has a rather unusually complex regime for taxing different types of alcoholic beverages, which will be discussed in more detail in this article.

Definition of beer, wine and spirits

In accordance with 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, cereals or any sugary material without distillation and which has an alcoholic strength not exceeding 11.9% absolute ethyl alcohol by volume.

The definition of wine is more precise, which limits the alcoholic strength between 0.5% and 22.9% of absolute ethyl alcohol by volume and includes sake and beverage resulting from the alcoholic fermentation of an agricultural product other than cereals, a plant or a plant product that is not an agricultural product or a product derived from an agricultural product.

Spirits means any material or substance containing more than 0.5% absolute ethyl alcohol by volume other than wine, beer, vinegar, denatured alcohol, waste products resulting from the distillation process, a formulation approved or anything that is not consumable as a drink. .

Tax rate: spirits

Unlike Ontario, which has varying tax rates for different types of alcohol and manufactured goods, New Brunswick, Prince Edward Island, Saskatchewan, British Columbia and the Yukon impose simply a uniform tax rate on the purchase price of alcohol, with the actual tax rate varying from 5% to 25%, whether on beer, wine or spirits.

In Ontario, spirits taxes include the basic spirits tax, the volume tax and the applicable environmental tax. The basic spirits tax is calculated at 61.5% of the retail price of 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 drink below. The spirits volume tax is calculated based on the volume of spirits purchased, which is set at 28 cents per liter for cooler spirits and 38 cents per liter for spirits. The environmental tax is 8.93 cents for each non-refillable container in which the purchased spirits are packaged.

At the federal level, there is an excise duty and a special duty on spirits. The special duty on spirits imposes a surcharge of $0.12 per liter of absolute ethyl alcohol on spirits delivered to or imported by a licensed user. With respect to regular excise duty, spirits containing not more than 7% absolute ethyl alcohol by volume are taxed at $0.330 per liter of spirits and spirits containing more than 7% absolute ethyl alcohol by volume are taxed at $13.042 per liter of absolute ethyl alcohol.

Tax rate: beer and wine

Unlike the regular rates for spirits, the tax rates for beer and wine are more complex, especially in Ontario. The tax rate that applies to beer in Ontario depends on the type of beer it is and the producer of the beer. Draft beer is subject to a lower basic tax rate than non-draft beer. Beer manufacturers must pay more tax per liter than microbrewers and breweries in Ontario. Meanwhile, the basic tax on wine varies depending on whether it is Ontario or non-Ontario wine, whether it is purchased from a winery’s retail store or whether it is made by one owner and bought from a wine shop. A wine volume tax also applies based on the volume of wine or wine cooler, which is currently set at 29 cents per liter for wine and 28 cents per liter for wine cooler. Additionally, there is an environmental levy of 8.93 cents per non-reusable container in which the purchased beer, wine or cooler is packaged, with some exceptions.

At the federal level, reduced beer excise duty rates may be offered to domestic brewers based on their annual production volume. Regular rates of excise duty on packaged beer 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. An exception is non-alcoholic beer produced on or after July 1st2022, is not subject to 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 excise duty. Excise duty rates on wine vary from $0.022 per liter of wine containing not more than 1.2% absolute ethyl alcohol by volume to $0.688 per liter of wine containing more than 7% absolute ethyl alcohol by volume. volume.

Excise duty return filing

The due date for a federal excise duty return is the last day of a licensee’s fiscal month. The Licensee must complete and file the B263 Excise Duty Return – Licensed User by the due date, either by email or electronically. Failure to submit a completed excise duty return by the filing deadline may result in a penalty. A person who fails to comply with a summons to file an excise duty return is subject to a penalty of $250 and may be required to pay a penalty of 1% of the amount owing and unpaid for the reporting period plus 0.25% of the amount owing and unpaid multiplied by the number of full months the return has not been filed, up to a maximum of 12 months.

Pro tax tips: file your tax return on time to avoid penalties and interest!

The federal excise duty return is due on the last day of a licensee’s fiscal month and payments must be made with the return filed. When filing the B263 excise duty return, it is important to have the correct calculation and records for the tax due. Failure to file on time or accurately can result in severe penalties. If you are unsure about your excise duty return or want more advice on alcohol taxes and duties that you may be liable for the sale of alcohol, or if you have subject to excise tax penalties, contact our expert Canadian tax lawyers for help or advice.

FAQs

How much are taxes and duties on alcohol?

At the federal level, depending on the type of alcohol and subject to potentially reduced rates, the applicable basic tax and duties vary from $2,890 per hectolitre of beer containing no more than 1.2% absolute ethyl alcohol by volume to $13.042 per liter of absolute ethyl alcohol in spirits containing more than 7% absolute ethyl alcohol by volume. Each province has additional taxes on alcohol which can also vary depending on the type of vendors and the type of alcoholic beverages. In addition, alcohol packaged or imported on different dates is subject to different rates of excise duty.

If you have any questions regarding your tax obligations as a licensed liquor seller, please contact our expert Toronto tax attorneys for legal tax advice.

What types of alcoholic beverages are subject to liquor tax and duty?

Beer, wine, and spirits are subject to the alcohol taxes described in this article, which can be broken down into subcategories and often include more items than their ordinary definitions. For example, the term spirits includes both spirits and spirit 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 on the subject. Specialist advice should be sought regarding your particular situation.