Beer stuff in the Federal Budget

[tupalev]

I'm interested to hear from those in the know if this is a meaningful break for our micro-brewers:

(From the federal budget):

Excise Duty on Beer
Excise duty is imposed under the Excise Act on beer produced in Canada. The duty is payable at the time of packaging. Exports are exempt. In the case of imported beer, the duty is levied under the Customs Tariff on the beer at the time of importation.

Budget 2006 proposes excise duty relief for beer produced by small and mid-sized brewers as set out in the following table:

Table A3.15
Excise Duty Relief for Beer Produced by Small and Mid-Sized Brewers


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Annual Production Volume (hectolitres)
Excise Duty Reduction Proposed Rates as of July 1, 2006 for Regular Beer1

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First 2,000 -90 % $3.122/hl
Next 3,000
(2,001 – 5,000) -80 % $6.244/hl
Next 10,000
(5,001 – 15,000) -60 % $12.488/hl
Next 35,000
(15,001 – 50,000) -30 % $21.854/hl
Next 25,000
(50,001 – 75,000) -15 % $26.537/hl
Over 75,000 Regular rate $31.220/hl

--------------------------------------------------------------------------------

1 Greater than 2.5% alcohol by volume.

Reduced rates of excise duty will apply to licensed Canadian brewers who have produced and packaged no more than 300,000 hectolitres (hl) of beer in the previous calendar year and do not exceed that limit in the current calendar year. Any brewer that exceeds the threshold or otherwise does not qualify for the duty relief in any calendar year will be required to pay the full rate of excise duty on all beer produced and packaged in that calendar year. Any excise duty relief already claimed during that calendar year will be required to be repaid with interest, starting from the first day that the amount should have been paid.

The 300,000 hl threshold calculation includes all beer produced and packaged by a licensed Canadian brewer in a calendar year, including exported beer. If a beer licensee packages beer produced by a different brewer, that quantity of beer is applied against the threshold of the licensee who is ultimately responsible for paying the duty.

For 2006, licensed Canadian brewers will be eligible for relief only in respect of beer they package on or after July 1, 2006. To qualify for the reduced rates in 2006, these producers must have produced and packaged no more than 300,000 hl in 2005 and not exceed that level in all of 2006.

To maintain the integrity of the excise duty system, associated company and related person rules similar to those in the Income Tax Act will be applicable. Licensed Canadian brewers will be responsible for maintaining adequate books and records to substantiate any relief claimed. Additional compliance and administrative mechanisms will also be introduced.

The proposed excise duty relief will apply to qualifying beer packaged on or after July 1, 2006.

[esprit]

At the moment, excise amounts to no more than 5-10 cents retail per bottle at the maximum so these moves won't do much to affect either the retail price of beer nor margins that micros might make.

[esprit]

In terms of the impact on wines and spirits, our agents' association has already issued a briefing which suggests retail prices as a whole will go up as a result of the various GST-Excise moves they've made...don't ever think that any level of government will every do anything to reduce the cost of alcohol...it's a cash cow to be milked until it's dry...problem is that it never runs dry.

[JerCraigs]

At the moment, excise amounts to no more than 5-10 cents retail per bottle at the maximum so these moves won't do much to affect either the retail price of beer nor margins that micros might make.

I expect many of the small brewers would disagree with that assessment. An extra $0.60 cents a six pack could make a significant difference to breweries that are struggling financially. Many of those brewers are the ones in the smallest categories and thus stand to receive the biggest reductions.

The old rate was $27.98 / hectolitre (http://www.cra-arc.gc.ca/E/pub/ed/edrates/edrates-e.pdf) vs the new rate of $3.12 posted by Jeff. For a brewery producing around 2000 hectolitres thats $55,960 vs. $6240. Assuming I have not bunged up the math, that's a fair chunk of change - enough to hire an employee and/or pay themselves a decent salary for a change.

I do agree that there are unlikely to be many price reductions. As far as government incentives to reduce the cost of alcohol, that is a separate argument from the idea of reducing costs for small businesses, which I believe is the central aim here. I believe one of the arguments in favour of these reductions is the observation that many micro breweries have a substantially higher ratio of employees to volume of beer produced than do the larger more automated breweries.

What is the rationale for suggesting that wine costs will increase?

[Rob Creighton]

Your math is correct and an unbelievable tribute to the folks in the OCB.
A job well done guys...very well done!

[downtown drinker]

You might think that such a release as esprit talks about would be posted on the http://www.oiwsba.com website, but no. The "News" link is under construction...

[tupalev]

From CBC:

Small beer brewers say 'cheers' to tax cut
Last Updated Wed, 03 May 2006 17:12:15 EDT
CBC News
Canada's small beer makers expect to create 1,500 new jobs over 10 years as a result of the the federal government's promise to cut the excise duty on their suds.

In their first budget revealed Tuesday, the Conservatives said they will cut excise rates on beer by anywhere from 15 per cent to 90 per cent for brewers producing up to 75,000 hectolitres a year.

The Canadian Association of Small Brewers, which represents over 90 brewers across the country, applauded the move.

The brewers currently employ about 2,000 people, but they expect the tax cut will let them create about 1,500 new jobs in the next decade.

"The tax reduction will allow Canadian craft brewers to achieve important tax parity with small brewers in the U.S. and around the world, who enjoy significant tax advantages in their home markets," John Hay, director of the brewers association, said.

"This will give us room to grow and compete in the highly competitive beer market," Hay said.

The association expects that about 45 per cent of the money saved from the excise tax cut will be invested in production and sales jobs.

Small brewers are defined as those producing less than 300,000 hectolitres of beer. They account for about five per cent of the Canadian beer market.



So I guess some do view it as significant!

[esprit]

In terms of the impact on wines and spirits, our agents' association has already issued a briefing which suggests retail prices as a whole will go up as a result of the various GST-Excise moves they've made...don't ever think that any level of government will every do anything to reduce the cost of alcohol...it's a cash cow to be milked until it's dry...problem is that it never runs dry.

[tupalev]

Uhh, did you mean to copy and paste your post from yesterday Peter ?

[John Aitken]

In terms of the impact on wines and spirits, our agents' association has already issued a briefing which suggests retail prices as a whole will go up as a result of the various GST-Excise moves they've made.

Too bad for wines and spirits

YAH! for beer

[Bobbyok]

Further support from brewers for the cuts from today's Halifax Herald - with quotes from Propeller's Chris Ludlow, AKA Propeller here on the Bar Towel:

http://www.herald.ns.ca/Search/501328.html

From the article:

"It certainly helps us and gives us the opportunity to do more things," said Chris Ludlow, spokesman for the brewery, adding it could look at expansion, debt reduction and increased sales thanks to the cost savings possible from the budget.

[PRMason]

The impact for those brewers producing 2000hl or less is very significant and welcomed. It means that many of the smallest producers (who make up the bulk of the OCBA) may see some black ink on the balance sheet for the first time. Any small company that can realise a savings of $30,000.00 is going to be thrilled. The fact that it get this savings without having to sacrifice anything is amazing.

[JerCraigs]

"...propose an increase of nearly six per cent in excise duties on Canadian spirits such as whisky and rum effective July 1, a plan that may especially hurt the profits of the province’s smaller distilleries.

"It’ll put our backs up against the wall again," Lauchie MacLean, president of Glenora Inn and Distillery in Cape Breton, said Wednesday. "Overall, if they’re increasing it six per cent, with the appreciation of the dollar, it’s getting hard to compete."

That's interesting. Why not impose a similar system where small producers pay based on volume produced?

[Bobbyok]

"...propose an increase of nearly six per cent in excise duties on Canadian spirits such as whisky and rum effective July 1, a plan that may especially hurt the profits of the province’s smaller distilleries.

"It’ll put our backs up against the wall again," Lauchie MacLean, president of Glenora Inn and Distillery in Cape Breton, said Wednesday. "Overall, if they’re increasing it six per cent, with the appreciation of the dollar, it’s getting hard to compete."

That's interesting. Why not impose a similar system where small producers pay based on volume produced?

Probably ignorance of the fact that small distillers exist, or that it's an issue for them. The government likely only got input from the large distillers who could absord the 6% easily. Had the Canadian Small Brewers Association, and probably more importantly the more visible Ontario Small Brewers Association not been pushing for this and making the little guys visible it wouldn't have happened. Had such an association existed when the excise taxes were put in place, they probably wouldn't have had to fight to get it lowered.