What The BC Government “Hopportunities” Announcement Means to BC Craft Beer
On Friday, May 20th, the BC Government announced the reduction of red tape for BC Craft Breweries in their “B.C. increases “opportunities” for craft brewers media release”. In this release they outline changes to legislation that will improve the business environment for BC craft breweries. The changes discussed are set to take effect July 1, 2016.
Digging into the release we have tried to explain what this actually means for local businesses and for you at retail. You can read the original release at news.gov.bc.ca. You can also learn about the current tax rates here, and the upcoming reduced rates here.
Tax Break – Small Sized Breweries
BC craft breweries receive a tax break based on the scale in which they brew. Breweries that brew less than 15,000HL of beer per year were taxed at a rate $.55 per litre. Under the new markup schedule they will be taxed at $.40 per litre. This is a 27% reduction from previous levels.
A $.15 per litre tax break is quite significant. If this break was passed on to the consumer 100% it would result in a total reduction of $.37 per six pack. This is based on 2.13l of beer and the GST/PST being compounded on top of the tax savings.
On a greater scale, take a typical small BC craft brewery, let’s say brewing 5,000HL per year. If the brewery was to pocket the tax break it would result in an extra $75,000 in after-tax net income.
Tax Break – Medium Sized Breweries
For mid-sized breweries that brew between 15,000HL and 350,000 HL the original tax rate scaled from $.56 to $1.02 per litre. Under the new tax rules the rate will be from $.41 to $.99 per litre. For mid sized breweries, depending on their scale they will see a gradual reduction from 27% lower taxes down to 3% lower taxes as scale grows.
Even the largest craft breweries in BC are well below the 100,000HL levels of brewing so the tax savings for all parties involved are significant. For a brewery brewing at 15,000HL their annual savings will be $225,000 with prices staying constant. Even for a brewery at the top end of mid-sized brewers with 349,999 HL they will save approximately 1,050,000 in taxes throughout the year.
Tax Break – Large Sized Breweries
Nada, zilch, zero…
Large breweries producing 350,000HL of beer per year or greater play a flat rate of $1.08 per litre. This rate remains unchanged. There are no tax savings for large breweries in BC within this announcement.
The Big News is All About Cash Flow!
The big news when it comes to the Province of British Columbia’s news however comes down to how the taxes are collected. In the announcement you will find that, “Craft breweries will no longer be required to remit all of the revenue from the sale of their products to the Liquor Distribution Branch before the mark-up is applied.”
What does this mean? Well, under the former rules, all revenue from the sale of beer was collected by the Provincial Government. That means that the money went from your wallet, into the cash register and then straight to a government bank account. The funds would be held for two weeks then returned to the brewery with the mark-up taxes removed. Using data from the annual BCLDB financial statements we estimate the value of these payments being in excess of $5,000,000 of brewery income is being held at any given time.
The breweries eventually get the money back but the additional two weeks added to their cash cycle is not easy to deal with for a small business. As new breweries open this is a massive advantage over past legislation. Being able to keep the lion’s share of the money you make offers great relief to already cash-strapped entrepreneurs.
The Big Picture
What does this mean to the average beer drinker? The tax break will likely act as a stimulus for more breweries to open and add pressure to breweries to lower their prices. There will not likely be an immediate reduction in cost to the consumer but breweries that have been struggling can take a slight sigh of relief.
The reduction of taxes is crucial in developing an industry such as craft beer. More importantly though, the change in policy around income collection and taxation process shows a willingness to remove the prohibition-era laws that govern much of alcohol sales in BC. This is a great step forward for craft beer in British Columbia!
What do you think? Has the BC Provincial Government stuck to their word of improving the craft beer industry environment in British Columbia?