Backgrounder: Supporting Canadian businesses with alcohol excise duty relief


Backgrounder


On March 9, 2024, the federal government announced a two-year extension of the two per cent cap on the annual alcohol excise duty inflation adjustment, and a 50 per cent reduction for two years on excise duty rates for the first 15,000 hectolitres of beer brewed in Canada.

Cap on the Annual Inflation Adjustment Mechanism

In Budget 2023, the government announced a temporary cap on the inflation adjustment for excise duties on beer, spirits, and wine at two per cent, for one year only, as of April 1, 2023. The government first implemented the cap to provide tax relief for small businesses, given the Excise Act and the Excise Act, 2001 require alcohol excise duties to be automatically indexed to total Consumer Price Index (CPI) inflation at the beginning of each fiscal year (i.e., on April 1st).

The proposed two-year extension of the two per cent cap recognizes the significant contribution that Canadian wineries, breweries, cideries, and distilleries make to the national economy by creating good jobs and high-quality products—and the temporarily increased production costs faced by small craft brewers in particular.

The two per cent cap on the inflation adjustment for excise duties on beer, spirits, and wine would be extended for two additional years starting on April 1, 2024. The proposed capped excise duty rates on all alcoholic beverage products are presented in the table below.











Table 1

Alcohol Excise Duty Rates as of April 1, 20241
  Rate for Fiscal Year 2023-24 Rate for Fiscal Year 2024-25 (had no cap been applied) Rate for Fiscal Year 2024-25 (proposed 2% adjustment) Rate for Fiscal Year 2025-26 (proposed 2% adjustment)
Spirits2 $13.303 $13.928 $13.569 $13.840
Wine3 $0.702 $0.735 $0.716 $0.730
Beer4 $35.52 $37.19 $36.23 $36.95

1 No excise duty is imposed on alcoholic products containing not more than 0.5 per cent alcohol by volume.
2 Rates per litre of absolute ethyl alcohol. Reduced rates apply to spirits containing not more than 7 per cent alcohol by volume.
3 Rates per litre of wine. Reduced rates apply to wine containing not more than 7 per cent alcohol by volume.
4 Rates per hectolitre of beer. Reduced rates apply for the first 75,000 hectolitres of beer brewed in Canada each calendar year.

50 per cent Reduction in Excise Duty Rates for Breweries

The government is proposing to reduce by 50 per cent for two years the excise duty rates on the first 15,000 hectolitres (hL) of beer brewed in Canada (1 hL equals 100 L). This would lower excise duties on all beer brewed in Canada below the 15,000 hL threshold, and would benefit a broad range of producers, with 94 per cent of Canadian brewers having total production below 15,000 hL.

Canadian brewers currently benefit from lower excise duty rates on the first 75,000 hL of beer produced per year, which in fiscal year 2023-24, would have provided relief of up to $868,464 for each brewer. The proposed reduced rates would provide additional tax relief of up to $86,952 for each brewer in 2024-25.

The following table sets out the proposed excise duty relief for beer brewed in Canada.










Table 2

Reduced Rates for Beer Brewed in Canada as of April 1, 2024
Production Volume (hL)

Reduced Rate Percentage

Proposed Fiscal Year 2024-25 Rates

Halving Reduced Rates up to 15,000hL

0 to 2,000

-90%

$3.623

1.812 (-95% rate)

2,000 to 5,000

-80%

$7.246

3.623 (-90% rate)

5,000 to 15,000

-60%

$14.492

7.246 (-80% rate)

15,000 to 50,000

-30%

$25.361

 

Unchanged

50,000 to 75,000

-15%

$30.796

75,000 and above

Regular rate

$36.23

 



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