Okanagan wineries rattled by return of federal tax

Big blow to local wineries

Casey Richardson

At the end of June, Canadian winemakers will have to start paying an excise tax to the federal government at the time they bottle their wine, an additional cost that local wineries are saying could be a big blow to the industry.

The repeal of excise duty exemption for 100 per cent Canadian wine has been on its way since 2020, after Australia and Canada partially settled a dispute at the World Trade Organization.

In that dispute, Australia alleged Canada and its provinces have various policies and practices that discriminated against Australian wines, and violate the General Agreement on Tariffs and Trade (GATT) rules.

The Canadian government announced plans to phase out the tax exemption in two years following the agreement, and that date is now upon an industry that has been battered by the pandemic and supply chain issues.

“It's got a significant impact on the BC wine producer, it's about an extra 50 cents in cost per bottle for that winery,” said Miles Prodan, president and CEO of Wine Growers British Columbia.

“You compound that with the increased costs in the supply chain challenges we’re all facing with bottles and caps and all the rest of it, it is just a very unfortunate piling on of cost increases to BC wineries. We fear here in BC that we're going to lose a number of them.”

Darryl Brooker, CEO of Okanagan Crush Pad Winery in Summerland, said the new tax will hurt.

“We're not happy about it, the whole industry isn't happy about it, but that doesn't seem to matter. Preparing for it and making the changes is what's required now,” he said.

“But it's going to hurt us and every other winery because we've taken a lot of hits, as every industry has through COVID, and this is just another hit that we weren't expecting from our government.”

The competitive market of the wine industry means that Brooker’s winery will be absorbing the cost.

“Changing our prices is not really an option. So we'll have to absorb this price change, which doesn't sound like a lot, but it adds up. It's a couple hundred thousand dollars for a business our size, which means that's a couple hundred thousand less that we have to reinvest back into employment into growing our business."

"It's a cyclical effect, and it'll hurt our business. And overall, it hurts the economy.”

A Keremeos-based winemaker said the implementation has unfortunate timing for the industry.

“It's a point in time where we are extremely squeezed by increasing costs, both with supply chain disruptions because wineries like ours require a number of different products that we have to import from around the world,” said Michael Clark, managing director and winemaker of Clos Du Soleil Winery.

“I think most wineries will end up having to pass that cost on to end consumers, which is going to make wines more expensive in the market.”

Each winery will have to make its own decision on how the increased costs will play out.

South Okanagan-West Kootenay MP Richard Cannings has long been vocal about challenges placed against local grape growers and viticulturists in parliament, noting the agriculture industry, in general, is a “risky business.”

Cannings said he and other wine country MPs have been working to try to come up with trade legal support for the wine industry.

“Many of our wineries, especially obviously, the newer ones, which are often the smaller ones, have never operated under a regime where they had to pay the excise tax,” he said. “It's a significant amount of money that they would have to pay.”

Brooker has been in the wine industry since 2003 and had a bit of experience in paying the excise tax until it was repealed in 2006.

“It's moved us towards a more competitive nature. You gotta remember, we compete against much lower cost countries where minimum wages are a lot lower and there are lower costs of production, with easier to grow with warmer, broad acreage,” he said.

“Not having to pay the tax or being ‘excise exempt’ for being a 100 per cent Canadian winery was a huge benefit for us, because we can invest that back into our business, whether that be purchasing more land to grow a business or hiring more staff.”

Prodan agreed that the lack of tax has been extremely beneficial to the industry.

“Here in BC, for instance, the number of planted acres of grape vineyards here in BC in 2006, was about 6,600. Today, it's 11,000. Probably, more importantly, the number of wineries here in BC in 2006 was 135. And today it's almost 350,” he said.

“Not having the excise tax, it was argued would allow Canadian wineries in British Columbia ways to reinvest into the industry.”

The wine industry averages billions of dollars nationally, with a significant percentage coming from British Columbia alone.

“It's a really important part of our economy and we want to make sure that none of these wineries go under because some of them are working on pretty tight margins and this is a significant impact on their bottom line,” Cannings said.

While the federal government did come up with an assistance program that will run for about 18 months, or two fiscal years, that will allow wineries across the country to access around $101 million in funding, it hasn’t been made clear how that money will be allocated.

“The big question is, when are those monies going to flow?" Cannings asked. "Will they, you know, happen at a time that will help the winemakers, especially the small wineries, and what will happen after the end of the next fiscal year?"

Clark said the lack of clarity on government support is difficult for a small business. “The wine industry is a very important industry for British Columbia. We generate a lot of money for the province, we employ a lot of people and we are a crucial part of the tourism sector in the province."

Prodan, meanwhile, said wine producers are farmers first and foremost that deal with the changing environment.

“You can't have a winery license in this province unless you own land … with all the climate change, heat domes, and forest fires and all that Mother Nature throws at us that impacts industry, all the inflationary pressures that we're seeing and cost increases, and this is just yet another thing that that's been added to us.”

BC producers will need support this summer, in their wine rooms, the liquor stores and restaurants.

“Purchase directly from the winery where possible, that way the winery keeps the money and they can reinvest it back into employment,” Brooker urged.

More Penticton News