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Home Grown: What you Need to Know to Start Your Own Winery

01/04/2008


B.C’s wine industry had only 17 wineries in 1990; today, it boasts more than 130 wineries, 411 grape growers and sales exceeding $131 million annually. The presence of five distinct wine regions, combined with some of the best soil conditions in Canada, have been key drivers behind the industry’s impressive growth.

While aspiring entrepreneurs continue to open their own wineries, there’s more to opening a new business than deciding whether to grow organically. Besides figuring out your licensing requirements, you need to know which taxes and duties to pay - and what recording and reporting you are responsible for - to ensure your winery operation is as fecund as the vine fruit you choose to grow. By putting the proper systems in place at the onset of your new operation, you can greatly increase your chances for success.

What types of licensing do I need?
Two branches of the B.C provincial government are responsible for liquor licensing and sales: The Liquor Control and Licensing Branch (LCLB) issues the different classes of licenses (each has its own eligibility requirements), while the Liquor Distribution Branch (LDB) is responsible for the importation, distribution and retailing of beverage alcohol. The Liquor Control and Licensing Act controls all production and sale of wine in B.C. The LCLB is the government agency that administers the Act.

To produce and/or sell wine at your winery, you must first obtain a winery licence. The key requirement for this licence is that you manufacture your own product and have enough equipment to produce at least 4,500 litres each year. The license entitles you to:

  • Sell the product to restaurants, other licensed wineries, licensee retail stores and any other stores designated by the LDB;
  • Operate an on-site retail wine shop (a separate on-site operating agreement with the LDB is required); and
  • Offer customers samples of the product in designated areas of the winery.

Licensing requirements for wine growers/producers vary depending on which type of operation you are planning to open. You may choose to apply separately for licensing to offer patrons a variety of options, including:

  • Holding special events at the winery under a special events endorsement or special occasion licence;
  • A licensed picnic area or lounge where patrons can enjoy the wine purchased at your winery or received from a sample room; or
  • Offer tours of your winery and serve or sell samples of B.C. wines, coolers or ciders.

Keep in mind that regardless of which options you offer, all products must be made and bottled in B.C.

If you intend to market and sell your products yourself off-site, you must obtain an agent’s licence through the LCLB. Licensing is not, however, renewed automatically and must be done by March 31 every year.

For more details on licensing, refer to the LCLB’s publication, Winery Licence: Terms and Conditions, which can be found on the provincial government website (www.gov.bc.ca/pssg) under Liquor Licensing. To apply for a license, contact the LCLB Licensing Administrator.

What taxes will I have to pay?
While B.C.’s provincial sales tax isn’t the most popular aspect of owning a business, a number of special winery provisions may help save you money:

  • Remittance
    You must collect and remit 10 per cent on the sale of your wine. You are also required to pay PST on the purchase of office supplies and equipment, services to repair equipment, returnable bottles, winemaking supplies and equipment
  • PST exemptions for wineries

    • You don’t have to charge PST to other retailers if they provide you with their PST registration number.
    • You don’t pay PST on the purchase of non-returnable containers and packaging, grapes, direct agents, catalysts or other items directly incorporated into your wine.
    • You may also qualify for the exemption from PST on equipment you purchase to make wine. While this exemption does not apply to the purchase of equipment used in growing grapes, depending on how your land is owned or leased, you may qualify for a different exemption on equipment as a bona fide farmer.

Information about tax credits related to wineries is available on the B.C. government website (www.sbr.gov.bc.ca/ctb/Liquor.htm) in the Social Service Tax (SST) bulletins section. Bulletins of particular interest to winemakers include:

  • Wine and beer makers (SST 132);
  • Agriculture (SST 023); and
  • Machinery and equipment exemptions (SST 054).

Canada Excise Duty
The provincial government isn’t the only tax collector for wineries. The federal government levies an excise duty on wine that is imposed at the time the wine is packaged by a wine licensee. Fortunately, effective July 1, 2006, wine composed wholly of agricultural or plant product grown in Canada is exempt from duty.

To qualify, you must meet the following stipulations:

  • The old rate of duty still applies on Canadian wine eligible for the exemption if it was bottled prior to July 1, 2006.
  • All wine producers must obtain a wine licence from the Canada Revenue Agency, even if all their production consists of wine eligible for the exemption.
  • Wine licensees must file a monthly return accounting for all additions to, and reductions from, their bulk wine inventory.

For more information on excise duty exemptions and other federal tax requirements, visit the Canada Revenue Agency website at www.cra-arc.gc.ca.

What record keeping and reporting am I responsible for?
As a winery licence holder, you are responsible for maintaining records of your business operations and submitting reports to the LCLB. Documents and records that must be maintained include, but are not limited to:

Record Keeping

  • Source documents including business structure documents, invoices, receipts and bank statements;
  • Records of tonnage of grapes or fruits harvested;
  • Production records for bulk and bottled wines; and
  • Records of the disposition of wine by spillage, sampling and tasting.

Reporting
Wineries must monitor their monthly activities and submit reports twice annually to the LCLB. The reports are:

  • A semi annual report (covers Sept. 1 to Feb. 28); and
  • An annual report (covers March 1 to Aug. 31 and includes full-year totals).

Do I need expert advice?
Depending on the size and complexity of your wine operation, understanding and meeting the operation requirements set out by the federal and provincial government can be a complex undertaking. Throughout all the steps involved with starting your own winery operation, sound counsel from a qualified business advisor can ensure you take advantage of all the opportunities available to you and that no violations occur. Initiating sound accounting and business practices under the counsel of an experienced business advisor – one who knows the technical aspects of your industry - can ensure your winery has all the systems in place to succeed.

By Ryan Mackiewich, Tax Specialist. For more information, please contact your local MNP advisor or Ryan at 1.877.766.9735.