Proceedings of the Standing Senate Committee on
Banking, Trade and Commerce
Issue 46 - Evidence
OTTAWA, Thursday, June 6, 2002
The Standing Senate Committee on Banking, Trade and Commerce, to which was referred Bill C-47, respecting the taxation of spirits, wine and tobacco and the treatment of ships' stores, met this day at 11:00 a.m. to give consideration to the bill.
Senator E. Leo Kolber (Chairman) in the Chair.
[English]
The Chairman: Honourable senators, we are here today to examine Bill C-47. We have one witness from the Canadian Vintners Association, Mr. Ross.
Welcome to the committee. Please proceed.
Mr. C. William Ross, President, Canadian Vintners Association: Mr. Chairman, on behalf of the Canadian Vintners Association and Canada's wine industry, I thank you for the opportunity to appear before you with respect to Bill C- 47.
The Canadian Vintners Association is Canada's national association of wine makers. The membership of the Canadian Vintners Association encompasses the Wine Council of Ontario, the British Columbia Wine Institute and their members, and most major wine producers in Canada, representing over 90 per cent of Canada's wine production and over 95 per cent of Canada's Vintners Quality Alliance, VQA, wine production and sales.
The CVA and its predecessor, the Canadian Wine Institute, has watched developments on this bill with interest and has consulted closely with, and been consulted by, the Department of Finance and CCRA. We appreciate that close consultation.
Broadly, the new Excise Act has the support of Canada's wine sector, as it will address and, hopefully, reduce the production and sale of contraband wine and will place domestic and imported wine on a more equitable footing in terms of federal taxes and duties.
We have been assured by Finance and CCRA consistently that for Canada's wine sector the new act and its regulations will be, in the end, less burdensome, better for the wine industry than the current regime and, from a tax payment and cash flow perspective, will be preferable to the current regime.
While it appears that this more favourable regime may indeed eventuate, the devil is always in the detail and further consultation and analysis over the last 48 hours has indicated this may not be fully the case, hence my appearance before you at this late date.
Our concerns centre primarily, although not exclusively, on our smaller winery members, especially those in British Columbia. These wineries produce exclusively high quality, 100 per cent Canadian wine, having VQA approval, and represent considerable growth and value-added potential to Canada's agriculture and beverage industries, as well as to its tourism industry.
The concerns centre on the new taxation and tax payment procedures, the definition, licensing and operation of excise warehouses and the operation of VQA retail stores in British Columbia. The new system may be administratively burdensome, more costly and may have a serious detrimental effect on the cash flow of these smaller wineries, the potential impact of which for some smaller wineries could threaten their viability. We know this is not the intent of the new act.
Let me explain, Mr. Chairman, using the situation in British Columbia. As you will appreciate, each provincial and territorial liquor jurisdiction is unique. Today, excise tax is due upon the sale of wine. Under the new act, excise tax will be assessed at the time of packaging or bottling of the wine but would not be payable until the last day of the month following which the wine is removed from an excise warehouse. Many of these small wineries depend upon 12 VQA retail stores owned and operated by the British Columbia Wine Institute for a significant portion of their sales. Sales through these stores are on a consignment basis. Today, sales are not reported until the wine is sold to the consumer, at which time excise tax becomes due and is so reported and paid by the wineries.
These VQA stores are becoming increasingly important to the business plans of smaller wineries in British Columbia. Negotiations are underway to open nine more such stores based on old licences.
Under the new regime, the excise tax would become payable an average of 45 days after wine is removed from a winery's excise warehouse. The problem is much of this wine may remain unsold at VQA stores, where they are on consignment. Indeed, some of this wine is at the stores for up to six months or even a year. The cash flow implications on a small winery of paying federal taxes prior to receiving any income from that wine could be serious.
The second issue is that of excise warehouses. These wineries maintain warehouses off-site of the winery and most maintain warehouses in major urban centres, such as Vancouver or Victoria. If a winery is to defer payment of the excise tax, all of these warehouses would need to become excise warehouses, which we gather from CCRA can occur, but the current draft act does not specify this. As the designation of the warehouses as excise warehouses is an important means of delaying the payment of excise tax and, hence, minimizing the negative impact on winery cash flow, we would ask that reference to such multiple excise warehouses be explicit in the act.
It is our understanding that a basic policy foundation of the new act is that there be no tax-paid alcohol at the retail level, and to the extent this is deemed to be necessary to address the production and sale of contraband wine and alcohol, we fully support this position. However, it does not address the problem of the B.C. VQA stores and portends to be threatening and costly for our smaller members.
On behalf of the Canadian Vintners Association and its members, I ask this committee to consider making amendments to the proposed act that would ameliorate the cash flow problem for our smaller members — especially those in British Columbia — and that would specify the right of a winery to maintain excise warehouses in several locations as needed and as meets the terms and intent of the act. Specifically, we would ask that a small winery category be established under the bill.
The bill already establishes two categories of winery, those with sales below $50,000 and those with sales above that figure. This would provide for eased excise tax payment terms. This might take the form of an extension of the date at which the tax is payable, beyond the end of the month following which the wine is removed from the excise warehouse, a provision for instalment payments for wineries having sales of less than a specific volume or dollar figure, or other such measure that would be acceptable to the government and that would address the financial burdens on small wineries. The CVA by-laws, for example, define a small winery as one having annual sales of less than 250,000 litres. This definition could be the basis for a small winery category under the new Excise Act.
Second, we ask that the bill specify that an excise warehouse licensee may have more than one such warehouse, and in various locations. This would provide an important comfort level to the wine sector as opposed to having it addressed only in the regulations.
I would ask honourable senators to consider seriously these proposed amendments in support of Canada's growing quality wine sector.
Senator Tkachuk: What is the difference between the VQA store and the ordinary government liquor store?
Mr. Ross: As honourable senators will appreciate, there are as many liquor jurisdictions and regimes as there are provinces.
Senator Tkachuk: Let us focus on British Columbia.
Mr. Ross: In British Columbia, the B.C. Liquor Distribution Board allows 12 retail stores based on consignment. They are exclusive to VQA quality wine. The stores are owned by the British Columbia Wine Institute, which is owned and controlled by the wineries — though they do have B.C. liquor board members on the board.
Senator Tkachuk: What would happen if a bottle of wine went from a small winery, to a regular warehouse, to the VQA store. That seems to be your concern. Where would the excise tax take effect? What it is now? What do you fear may happen if this bill is passed?
Mr. Ross: Today, when the small winery ships wine to one of the 12 VQA stores, the wine is on consignment. Only when the VQA store in B.C. reports the sale of that wine does the winery, in its monthly report, report and pay the tax.
Under the proposed regime, 45 days after the wine is shipped out of the wineries excise warehouse to the VQA stores — which are in Victoria, Penticton and Vancouver — that tax would be due. They would be paying tax on an average of 45 days, where the wine might not be sold for an average of six months. Many of these are new, high quality and boutique wineries. They do not have a lot of marketing and brand equity. It is way of getting them out. The B.C. Liquor Board allows this because the B.C. Liquor Distribution Branch cannot substantiate buying only a few cases of a wine.
The B.C. VQA stores are becoming increasingly important for the smaller wineries. The British Columbia Wine Institute, in cooperation with the B.C. government, is hopeful of opening nine more.
Senator Tkachuk: You have focused on British Columbia. Does this part of the bill that worries you in reference to B.C. have any consequences to other parts of Canada?
Mr. Ross: There is a potential impact on some provinces. In Ontario for example, the regime does not allow warehouses other than at the wineries or LCBO. Ontario does not allow wine retail stores other than Vin Corp., Wine Rack or through the LCBO. You do not have a situation where an independent retail store is blessed by the liquor control board not owned by a winery. That is unique in B.C. as far as I know. There could be some implications in Quebec, but I am unaware of them. Alberta has a fairly free system. Manitoba has some independent stores under the Manitoba Liquor Board.
When a B.C. winery ships to Alberta, even though it may be going out to a range of different private stores, it actually goes into the liquor jurisdiction and the excise responsibility is transferred to the Alberta liquor jurisdiction. I believe that is the same situation in Manitoba. The situation in British Columbia is fairly unique.
Senator Stratton: These boutique wineries in Ontario and British Columbia sell their product on-site. If they sell their product on-site, they will do a batch of wine. Do they warehouse it first? Does it go right to the shelf after maturation? If so, will they be faced with the implication that they will have to build warehouses for bonding as an impact of this?
Mr. Ross: I do not believe so. There are representatives from finance and CCRA here who could explain that better. However, my understanding is that the wine must be stored somewhere. Some of these warehouses are at the winery; some are off-site. There are warehouses in urban centres such as Vancouver and Victoria. They already exist. The challenge would be to designate these as excise warehouses. We are safe in terms of the winery. You produce the wine and move it into a designated warehouse that may be on your property or down the road. As you use the wine you move it into your retail stores. However, if you move the wine to a VQA store, it will take a while.
If you designate the warehouses in Vancouver or Victoria as excise warehouses, the wine could remain there and be payable on an average of 45 days upon removal.
Senator Stratton: What will happen with respect to the warehouses once they become bonded? How is the government assured that the wine does not take a walk? Do they have inspectors? Are the vintners required to submit documentation? How will this be managed to your knowledge?
Mr. Ross: I would defer to CCRA. My understanding is that each winery would be licensed not only as a winery, but also as an operator of an excise warehouse. Our concern is that these excise warehouses can have a number of locations.
In terms of wine being lost or unaccounted for, under the current system both the provincial and federal governments are watching closely. Indeed, our own wineries must watch very closely because there is loss of wine; there is theft. On any of that theft, the tax becomes immediately due, I understand.
There are some security implications here. I must admit that some of our members are concerned about the administrative burden and cost implications of all this.
Senator Stratton: That is what my concern would be, and additional inspectors.
Senator Meighen: If you had your preference, would you rather have this bill as it stands now, or no bill?
Mr. Ross: I report to a board of directors. None of them are happy that there is an excise tax at all.
If you ask me whether this is a stand or fall situation, the bulk of my industry would go with the situation as it is. As a former bureaucrat, I do not think it is the intent of this committee or the Department of Finance bureaucrats to bring some new, prospective good wineries to their knees.
My members and others tell me in British Columbia and that this will put some of them on the edge. They are hopeful that accommodation can be found. I am talking about some of the smaller vintners who are just building a future. They make a tremendous contribution to wine tourism that is burgeoning in the Okanagan, Niagara and Lake Erie areas.
Senator Meighen: I am sure you are right. I am sure all members of this committee would not like to put a stamp of approval on something that will drive entrepreneurs out of the marketplace. Surely you must have made representations to the bureaucrats. What happened? What did they say?
Mr. Ross: I have only been here 18 months. I have managed to catch this VQA problem. I had two recommendations, one of which related to warehouses. It would give us comfort to have a phrase or sentence in clause 19 of the act. Right now it says ``an excise warehouse.'' CCRA informs me that it can be covered under regulations.
Senator Meighen: If we were to get an undertaking that that would be proposed, would that give you some comfort?
Mr. Ross: Yes.
Senator Meighen: That regulation would be an act.
Mr. Ross: Second, with respect to the VQA, I said at the beginning of my comments that there was extensive consultation in the late 1990s. However, this did not come up. It did not come up when I addressed it over the last six months. It came up yesterday. It fell through the cracks, and I do apologize.
Senator Meighen: In clause 19, what would you propose by way of deletion? In the first paragraph, it says the minister ``may issue an excise warehouse licence.''
Senator Angus: What would you propose to add or delete?
Mr. Ross: It would be acceptable if you had a phrase that says the licensee can maintain excise warehouses at a number of locations.
Senator Meighen: Is there anything wrong with having more than one licence? I understand your preference is for one licence to cover a number of warehouses.
Mr. Ross: My understanding is they licence the vintner, not the warehouse. The wording suggests that the vintner is licensed for an excise warehouse. To my reading, that means one. CCRA may argue that it is acceptable because it does not say you cannot have more than one. We could probably work it out in the regulations.
However, if the wording read that such an excise warehouse could have multiple locations that would cover, for example, the warehouses in Vancouver and Victoria and the rented space. A lot of this wine is actually aged in bottles, so you need the space to age it.
Senator Meighen: If you had ``an excise warehouse licence at one or more locations'' to ``a person who is not a retailer.''
Mr. Ross: Yes, something to that effect would work.
The Chairman: Could the officials from finance come back for a moment?
The Chairman: Ms Malone, you heard the representation. Can you tell us whether we can do something about it? If so, what?
Ms Patricia Malone, Chief, Excise Act Review, Sales Tax Division, Tax Policy Branch, Department of Finance: As Mr. Ross mentioned, this issue was raised with us for the first time yesterday. We have had very extensive consultations with the wine industry and it never arose. Clearly, it is not our intention to affect the financial viability of small vintners. In fact, this proposal is intended to assist the industry and have an improved taxation structure.
We would propose to get more information from the industry to find out what the impact of the proposals may be and look at their proposal for different terms of remittance for small vintners. That would be the first issue.
With regard to the second issue, the draft regulations respecting excise licences and registrations, which were released in December when the bill was introduced in the House, indicate that the minister may issue a licence or registration to any person who submits to the minister a completed application in the form authorized by the minister, accompanied by a list of the premises to be designated by the minister for the purposes of the licence.
It has always been contemplated — and this applies to producers' licences, users' licences and excise warehouse licences — that there would be one licence, but that the licensee would be able to operate at different premises. They would not be confined to one premise, as is currently the case. The legislation throughout is drafted that way.
An amendment such as the one Mr. Ross proposes would be inconsistent with the approach taken in the legislation and would raise doubt as to the ability of producers to produce at various premises. We would have difficulty supporting the second amendment.
The Chairman: You can support the first amendment?
Ms Malone: At this point we would appreciate more information from the industry to assess the impact. We will look at their proposals to see what we could do.
Senator Furey: Could that particular problem be addressed through regulation?
Ms Malone: I would have to look at it more closely. I suspect it would require an amendment to the legislation. At this point I could not suggest what that amendment would be. Further study would be required.
Senator Meighen: Am I hearing you say that you could not support the amendments suggested by Mr. Ross because it would throw a monkey wrench into the whole flow of the legislation — the bill as it now exists — but that the intent, in your view, is for the minister to have the ability to issue a licence covering multiple locations?
Ms Malone: In relation to the second proposal, that is correct. We would have difficulty supporting the second proposal relating to the legislation specifying that an excise warehouse licensee may operate at more than one premise. The legislation already contemplates this.
Senator Meighen: You are on the record as saying so.
Mr. Ross, how do you feel about that?
Mr. Ross: As I said, we were hoping to get the comfort level in the act, but the regulations seem to accommodate that. We hope that will work for us with respect to the warehouses.
Senator Meighen: Judging by what has been said this morning, it sounds like it will be. You will let us know if that is not the case.
The Chairman: It is on the record as to what the department will undertake to do.
Mr. Ross, I suggest that by the fall, if you are still unhappy, we will be happy to hear you for 15 minutes or a half- hour to see what we can do to rectify it.
Mr. Ross: Thank you very much. With the assurances that finance will look at our first recommendation and that the draft regulations accommodate us under the second one, we are quite happy. I have refrained from suggesting a reduction in excise tax altogether.
Senator Tkachuk: One thing at a time.
The Chairman: Thank you for being with us.
Senators, is it agreed that we have a clause-by-clause consideration of Bill C-47?
Some Hon. Senators: Agreed.
The Chairman: Bill C-47, an act respecting the taxation of spirits, wine and tobacco and the treatment of ships' stores. Is it the intention of any honourable senator to propose an amendment?
Senator Tkachuk: We have three, the third one being contingent on the support of the committee for the first two. Therefore, the way we would like to proceed is to move two amendments and then, if they are passed, we will move amendment three. If they are not, it makes no sense to consider amendment three.
Senator Angus: Just so the record is clear. At yesterday's session, Mr. Remo Mancini was the witness at the end, and I had asked him to elaborate on the amendments he was seeking. It is my information that he then sent a letter dated June 6 to the clerk, Mr. Denis Robert, outlining the amendments he proposed. I would like to have these formally put on the record if Mr. Mancini is not here.
The Chairman: I do not see him.
Senator Angus: I understand unofficially from the clerk that Mr. Mancini said, ``Is it okay if I do not show up if I give a letter?'' He has given a letter to the clerk, and this is the first I knew of this. I would like it to form part of his evidence. I think that is the normal procedure.
The Chairman: Sure.
Senator Angus: Could it be formally introduced as being part of the record of this session?
The Chairman: The clerk is nodding his head yes.
Senator Tkachuk: I do not know how you want to proceed. I have the amendments in both official languages.
The Chairman: Any way you want is fine with me. I had thought originally you were going to do this on third reading. However, if you want to do it now, that is fine.
Senator Tkachuk: I will hand these amendments out.
Senator Angus: Does everyone have the letter?
The Chairman: It has been distributed.
Hon. Senators: Yes.
Senator Furey: Are we going through this process again in January?
Senator Angus: It depends on what happens here. The witness made his case pretty well.
Senator Stratton: When we see the deputy and the whip, we know you are nervous.
The Chairman: Senator Tkachuk, would you like to present the amendments? Do you want to do them one at a time?
Senator Tkachuk: It is up to you. The first one would remove clause 53 from the bill. The purpose is to eliminate the special duty on imported tobacco delivered to duty-free stores.
Senator Angus: That is at pages 31 and 32 of the bill.
Senator Tkachuk: The second motion is also on page 32. The last motion is contingent on the first two passing.
The first motion seeks to remove the special duty on imported tobacco delivered to duty-free stores.
The second motion amends clause 54(4) by striking the words ``if it was manufactured in Canada and is stamped.'' That would mean that the special duty is not imposed on traveller's tobacco imported by an individual for their personal use. This restores the exemption that used to exist for traveller's tobacco.
The third motion is contingent on the first two to make it consistent with other amendments.
The Chairman: Senator Tkachuk, I am informed that the first motion legally is not admissible because you delete a clause. The clerk says you cannot have a motion deleting a clause.
Mr. Denis Robert, Clerk of the Committee: You can vote against a clause.
Senator Tkachuk: We could vote against that clause.
The Clerk: You cannot move an amendment to delete a clause; you have to vote against it. That is the technicality here.
The Chairman: It is only the wording.
The Clerk: It comes out to the same thing. You just vote against the clause.
Senator Tkachuk: All right. The second motion is to amend clause 54 replacing lines 32 and 33 ``for their personal use.''
The Clerk: You are replacing a line; you are not deleting a clause. I am saying that, when we come to clause 53, we can highlight it and ask for a vote on it.
Senator Tkachuk: We will vote against it, which would mean we delete it.
The Clerk: Exactly.
Senator Tkachuk: Then we would have to move a motion to renumber, if it was passed; is that right?
The Clerk: That would be done automatically.
Senator Tkachuk: Clerk, when you get to that, will you stop at that part and then do the same on the next one?
The Clerk: Yes.
Senator Tkachuk: Just a procedural point, I believe our side would be opposed to the bill as it stands.
Senator Stratton: Yes.
Senator Tkachuk: Unless the amendments are passed, we are obviously not in favour of the bill.
The Chairman: When we come to ``shall the bill carry'' you vote against it.
Senator Tkachuk: That is at the end?
The Chairman: Yes.
Senator Day: That is assuming that you lose the motions.
Senator Tkachuk: I am sure we will not.
Senator Angus: If you had heard the evidence, how could you in good conscience vote against the motions?
The Clerk: You vote against clause 53 and at the end of the bill you vote against ``shall the bill carry.''
Senator Tkachuk: Okay.
Senator Furey: If you so choose. He may have had second thoughts.
Senator Meighen: We are waiting for your eloquence to convince us.
The Chairman: Is it agreed, honourable senators, that we move to clause-by-clause consideration of Bill C-47?
Hon. Senators: Agreed.
The Chairman: Is it the intention of any honourable senator to propose an amendment?
Senator Tkachuk: Yes.
The Chairman: We will come to that when it is appropriate. Shall the title stand postponed?
Hon. Senators: Agreed.
The Chairman: Shall clause 1, the short title, stand postponed?
Hon. Senators: Agreed.
The Chairman: Shall clauses 2 to 6 carry?
Hon. Senators: Agreed.
The Chairman: Carried. Shall part 1, clauses 7 to 13, carry?
Hon. Senators: Agreed.
The Chairman: Carried. Shall part 2, clauses 14 to 24 carry?
Hon. Senators: Agreed.
The Chairman: Carried. Shall part 3, clauses 25 to 52 carry?
Hon. Senators: Agreed.
The Chairman: Carried. Shall clause 53 carry?
Some Hon. Senators: No.
The Chairman: Now propose your amendment.
Senator Tkachuk: No, we do not have to. Just ask for the motion on clause 53 and record that we all vote and are opposed to it.
The Chairman: All those in favour of clause 53?
Some Hon. Senators: Yea.
The Chairman: All those against?
Some Hon. Senators: Nay.
The Chairman: Clause 53 is carried. Shall clause 54 carry?
Some Hon. Senators: No.
The Chairman: You have an amendment. Please read it out.
Senator Tkachuk: The motion reads:
That Bill C-47 be amended in clause 54, on page 32, by replacing lines 32 and 33 with the following:
``for their personal use.''
The Chairman: All those in favour of the amendment to clause 54?
Some Hon. Senators: Yea.
The Chairman: All those against the amendment?
Some Hon. Senators: Nay.
The Chairman: The amendment is defeated. Shall clause 54 carry?
Some Hon. Senators: Agreed.
Some Hon. Senators: No.
The Chairman: Carried on division. Shall part 3, clauses 55 to 58, carry?
Hon. Senators: Agreed.
The Chairman: Carried. Shall part 4, clauses 59 to 158 carry?
Hon. Senators: Agreed.
The Chairman: Carried. Shall part 5, clauses 159 to 213, carry?
Hon. Senators: Agreed.
The Chairman: Carried. Shall part 6, clauses 214 to 303, carry?
Hon. Senators: Agreed.
The Chairman: Carried. Shall part 7, clause 304, carry?
Hon. Senators: Agreed.
The Chairman: Carried. Shall part 8, clauses 305 to 411 carry?
Hon. Senators: Agreed.
The Chairman: Carried. Shall part 9, clauses 412 to 421 carry? I withdraw that. Do you have an amendment to 414?
Senator Tkachuk: It is consistent with the other amendments. The other amendments have fallen, so we withdraw that amendment.
The Chairman: Shall part 9, clauses 412 to 421 carry?
Hon. Senators: Agreed.
The Chairman: Carried. Shall part 10, clauses 422 to 432, carry?
Hon. Senators: Agreed.
The Chairman: Carried. Shall part 11, clause 433, carry?
Hon. Senators: Agreed.
The Chairman: Carried. Shall schedules 1 to 7 carry?
Hon. Senators: Agreed.
The Chairman: Carried. Shall clause 1, the short title, carry?
Hon. Senators: Agreed.
The Chairman: Carried. Shall the title carry?
Hon. Senators: Agreed.
The Chairman: Carried. Shall the bill carry?
Some Hon. Senators: No.
Some Hon. Senators: Agreed.
The Chairman: Carried on division. Shall I report the bill?
Some Hon. Senators: No.
Some Hon. Senators: Agreed.
The Chairman: On division.
The committee is adjourned.