As we questioned the tax and health policies of Canada’s regulations on vaping products here, we note the Department of Finance’s position on non-alcoholic beer, which has been duty-free from an excise tax perspective since July 2022.  This is an example of good tax policy, focussing on promoting the adoption of safer, healthier alternatives by reducing the tax burden on substitutable products.  It contrasts to the current approach to vaping products, which involves taxing them at high rates, almost comparable to those applied to smoking products.

Excise Duty on Alcoholic Beer

In Canada, excise duty is imposed under the Excise Act on all beer produced for commercial purposes, with rates dictated by alcohol strength, production volume, and whether the beer is brewed domestically or imported.

For example, the following Excise Duty rates apply to Canadian-brewed beer containing more than 2.5% alcohol by volume:

• 0 to 2,000 hectolitres                     $1.8115 per hectolitre
• 2,001 to 5,000 hectolitres              $3.623 per hectolitre
• 5,001 to 15,000 hectolitres            $7.246 per hectolitre
• 15,001 to 50,000 hectolitres          $25.361 per hectolitre
• 50,001 to 75,000 hectolitres          $30.796 per hectolitre
• More than 75,000 hectolitres         $36.23 per hectolitre

At first glance, this structure may appear straightforward.  However, its application becomes far more intricate when factoring in special rules, such as those for brewers producing beers of varying alcohol strengths or bulk beer transfers between breweries.

Non-Alcoholic Beer

In 2002, the Excise Act was amended to define “beer” or “malt liquor” as having a minimum alcohol content of 0.5%.  As a result, non-alcoholic beer, which has the alcoholic strength of less than 0.5%, would not be subject to the excise duty under the Excise Act.

While this exemption aligns with good fiscal policy to promote healthier alternatives, brewers of non-alcoholic beer are not entirely off the hook.  They remain subject to various obligations under the Excise Act, such as licensing, filing and reporting obligations.

Commentary

The excise duty exemption for non-alcoholic beer reflects a good approach to tax policy: using fiscal measures to promote safer/healthier consumption choices.  This stands in stark contrast to the taxation of vaping products, where high excise tax rates could disincentivize a potentially less harmful alternative to smoking.

However, the flipside is that excise duties on alcoholic products will likely remain high, driven by a combination of the need to offset lost tax revenue from non-alcoholic beer and public health considerations.  For producers and industry participants, navigating this complex legal framework requires a deep understanding of the rules and proactive monitoring of regulatory developments.

Takeaways

Taxation of wine, beer and spirit products is extremely high in Canada, driven by tax policy and potential health considerations. Understanding how these taxes and duties are applied often requires specialized legal advice.

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