What you need to know about Alberta’s new wine tax

Alberta’s upcoming wine tax changes could be devastating for small producers, warns Rick Barr, owner of Barr Estate Winery Inc.

Under the Markup Rate Schedule, which went into effect Feb. 28, the standard markup for wine with more than 16 per cent alcohol by volume (ABV) will be subject to a standard markup of $6.88 per litre, while wine at 16 per cent ABV or less will see a markup of $4.11 per litre. Small manufacturers qualify for reduced rates ranging from $0.74 to $5.35 per liter, depending on alcohol content and production volume.

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However, a new tax on high-value wines, set to take effect Apr. 1, introduces an additional ad valorem tax on wines that wholesale for $15 per litre ($11.25 per 750 milliliters bottle) or more. This is on top of the existing flat tax of $3.08 per 750 millilitres bottle. An extra five per cent tax will soon be applied on the portion of the price above $15 but below $20 per litre, a 10 per cent tax on the portion above $20 but below $25 per litre, and a 15 per cent tax on the portion above $25 per litre.

Wine tax changes could devastate small producers

This means the price of some wines could increase by as much as $4 to $6 per bottle for wines over $20 per litre, Barr said.

“If the cost of a wine is anywhere from $20 per litre and above, and one of our wines … for a normal-sized bottle, about 750 millilitres, ours costs (would be) around $19 and change when I sell it to the liquor store, which would bring it over $20 per liter,” he explained. “It’s going to add another $4 to $6 per bottle. And it’s just, I can’t eat that, and the liquor store can’t pay for it, so it basically puts me out of the business of selling to liquor stores.”

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While Barr’s winery falls below the production threshold for major impacts, he said others wouldn’t be as lucky.

“They’ve decided that now they’re not so small, and they’re going to basically charge them full rate for the tax, which could be quite devastating to some businesses,” he said, adding the increased cost will not be absorbed by consumers but will instead threaten small wineries’ ability to sell in liquor stores.

“If I was subject to those increases, the liquor stores can’t absorb those costs, so it has to be absorbed by me… for some wineries, it’s gonna affect them greatly, and it may even eliminate them.”

Barr said he considers the move as a government “cash grab” designed to capitalize on an industry that has spent decades growing in Alberta.

“They think that it’s become a cash cow, and they can go in and take whatever funds they want in the form of taxes, and it’s going to devastate some wineries. There’s no question.”

Sudden changes shock wine sellers

Al Drinkle, a partner at Metrovino Fine Wines in Calgary, agrees the sudden implementation of these new tax changes has sent “shockwaves” through the industry, describing his reaction as “absolute shock” and said the lack of consultation or warning has caused stress and sleepless nights for many in the industry.

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“There was no consultation with what the AGLC calls stakeholders, namely, importers, retailers and restaurateurs – no warning whatsoever,” Drinkle said. “My first thought was absolute shock, and consequently, eight nights of stress and insomnia and just wondering how this deleterious attack on our industry, especially in terms of independent importers, retailers and operators, including restaurants.”

Drinkle is critical of how the government has framed this tax, especially its label as a “high-value” wine tax.

“This would be like applying an ad valorem tax to ‘high-end’ cheese and defining that as anything that exceeds the price of Cheez Whiz,” he said. “What is being penalized here are authentic wine growers, those who are independently owned and farm their own vineyards and make wine on a small scale,” he said.

Drinkle used the example of his best-selling wine, the 2023 Ameztoi Txakoli from northern Spain, which currently sells for $28. With the new tax and rising shipping costs, he said its price could jump to $30 or more, making it difficult for restaurants to continue offering it by the glass.

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The wine tax does not favour domestic wines, either, he said. It applies across the board, hitting imported wines particularly hard due to already high shipping costs. Drinkle said that getting wine from Europe, South America, Australia, and New Zealand has become significantly more expensive since the pandemic, and now this new tax compounds the problem.

Government defends tax for sustainability

Brandon Aboultaif, press secretary to Hon. Dale Nally, minister of Service Alberta and Red Tape Reduction, said in an email to Postmedia that these changes were designed to balance industry viability with government revenue.

“Our liquor markup system needs to support the long-term viability of the province’s liquor industry and serve the interests of all Albertans,” he said. “We’ve engaged with Alberta-based alcohol manufacturers and their representatives in the summer of 2024 for feedback on amendments to Alberta’s liquor markup system that will support overall viability of Alberta’s liquor manufacturing industry and the long-term sustainability of government revenues.”

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Aboultaif added that the new ad valorem markup is designed to “help to capture more of the value from higher-priced products”, while also “minimizing the overall impact for Alberta consumers and support social responsibility.” The government estimates that about 16 per cent of all wines sold in Alberta will be affected.

He also provided examples of how the new taxes will translate into price increases, explaining “a 750 ml bottle of wine that previously sold for $25 would see an increase of between 20 and 40 cents, while a 750 ml bottle of wine that previously sold for $50 would see a $2.80 to $3.25 increase.”

“In response, we’re adjusting markup rates to better reflect the amount of actual alcohol in a product, versus the product type.”

Together, all of the changes noted are projected to result in a revenue increase of between $22 million to $23 million each year, he added.

Is $25 wine “high-value”?

However, both Drinkle and Barr dispute the government’s characterization of a $25 bottle of wine as “high-value.” Drinkle called the idea “absolutely fatuous,” pointing to inflation, shipping costs, and a weak Canadian dollar as factors that make a $25 bottle far from luxurious.

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Barr said a $25 bottle of wine “is not a cheap bottle of wine, depending on how you talk to,” but others may argue a premium bottle would be closer to $50 or $60.

Both also agreed that the new ad valorem markup amounts to a double tax.

“Well, it essentially is a double tax, yes, because there was already one in place, and that tax is not being replaced by this tax. It’s just being compounded by this tax,” Drinkle said.

cnguyen@postmedia.com

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