Wineries fear return of federal tax will be 'devastating' to the industry

In the rural Ottawa community of Carp lies one of the most northerly plantings of Pinot Noir and Chardonnay grapes in Ontario.

"That makes it pretty special," said Lorraine Mastersmith with Kin Vineyards.  "We have to bury these vines for the winter and unbury them again in the spring and let them come back to life." 

The labour intensive operation is also a family-run business, producing one thousand cases of award-winning wines per year. 

But Mastersmith fears the return of a four per cent federal tax on domestic wines, which came into effect July 1, means they'll suffer a financial loss this year — and they're not alone in their concerns.

On June 30, the federal government repealed the excise duty exemption for 100 per cent Canadian wine, after Australia and Canada settled a dispute at the World Trade Organization. 

The government of Canada also launched a new support program for Canada's wine sector that will provide wineries with the "tools they need to stay innovative and competitive." 

There are around 800 licensed wineries in the country, with the majority operating in British Columbia, Ontario, Quebec and Nova Scotia.

Profit margins already tight

The tax on bulk wine stored and aging in barrels works out to about $0.51 per bottle, says Shaun McEwan, Mastersmith's husband.

Kin Vineyards sold more than $1 million worth of wine last year, but McEwan says they only made a profit of $6,000, largely because of the rising costs of materials. For example, while a case of bottles in 2021 went for $9, McEwan said one now goes for $27.

"If we do the same volume of business — 27,000 bottles in total sales this year—  that will add $13,500 of incremental tax," he said. 

"The reality is this will take us from a small profit to a fairly significant financial loss." 

Prices could go up

The repeal of the excise duty exemption "is going to kill our industry," said Sandor Johnson, owner of Potter Settlement Artisan Wines in Tweed, Ont.

"What this is doing is just adding another tax to the Santa Claus-list of taxes that we pay here in Ontario," Johnson said.

Johnson has worked in California as a winemaker in the Napa region, and said the state of California and the U.S. federal government charges wineries a combined seven per cent tax on their wine sales. 

But here in Ontario, between wine-specific taxes and HST, the province already has some of the highest taxes on wine in the world, Johnson said.

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"And this just makes us much more uncompetitive, because when foreign [wine] comes in that doesn't have that tax … it just prices us right out of the market." 

While small wineries that make less than $50,000 in sales per year are exempt, very few Canadian operations come in below that number because of the regulations they already face, Johnson said.

"To meet their $50,000 standard, I'd be charging [just over] two dollars for a bottle of wine. That doesn't cover the cost of the bottles, never mind the corks, the capsules, the labels [or] the wine." 

For Johnson's winery, he says, prices will unfortunately have to go up. 

"Our prices just get higher," he said. "Because we have to make a living."