Toronto Distillery Co.’s Constitutional Challenge: Losing a Battle, Winning the War? April 03 2016

Toronto, Ontario – April 2nd, 2016 – It’s been one hell of a ride for Toronto Distillery Co. this past year! In July 2015, TDC filed a constitutional challenge against the province’s revenue collection practices vis-à-vis Ontario distillery onsite retail stores. Currently, Ontario has no spirits tax, so instead the Alcohol and Gaming Commission (AGCO) requires distilleries sign a contract with the LCBO to give the LCBO almost half of the money the distillery collects from each and every bottle sold. Unlike with wine and beer, there’s no consideration for smaller producers.

This tax arrangement isn’t the result of deliberation of our elected legislators; it’s a crushing bureaucratic hangover from before the AGCO existed. It’s also precisely the type of thing section 53 of the Constitution Act, 1867, is designed to protect us from. To quote the Supreme Court of Canada, section 53 is central to the principle of no taxation without representation. We stated from the outset our intention in bringing this challenge was to have the good folks we send to Queen’s Park debate and implement a sensible spirits tax, much as had been done back in 2010 for wine and beer.

To this end, we seem to be close to victory! The 2016 Ontario Budget stated:

“The government also proposes to introduce legislation to replace the current mark-up and commission structure at on-site distillery retail stores with a tax on purchasers of spirits.”

And:

The government will support Ontario’s growing craft spirits industry by allowing direct delivery to bars and restaurants, and for on-site distillery stores, reducing charges and allowing an exemption for promotional distribution.

We’re very grateful to our elected representatives on both sides of the aisle in Queen’s Park! Special shout out to MPP Arthur Potts for his tireless support for small and independent craft producers, and to MPP Tim Hudak for #FreeMyRye and getting issues like direct delivery for distilleries to the floor of our legislature. And thanks to the hundreds of people who've written us with your messages of support!

We’re confident we’re in the last miles of changes that will see here in Ontario the same kind of craft spirits renaissance that British Columbia has enjoyed. The support of our legislators helped mightily cushion the disappointment yesterday as we read Justice Akhtar’s reasons for judgment. His opinion declined to examine the “pith and substance” of the LCBO contract, and decided that the monthly returns and cheques distilleries send to the LCBO aren’t a tax. Justice Akhtar wrote:

“It is unclear to me how the method of acquisition is relevant when determining whether the province or any of its delegated bodies can impose a charge over merchandise that it owns. The fact that the product remains on the applicant’s premises after distillation does not change the fact that the spirits have become the property of the LCBO.”

Not considering the difference between the LCBO’s unilateral revenue collection from distillery retail stores versus the LCBO’s genuine commercial business – where it buys and sells alcohol on its own dime in stores it pays for – is a fundamental error of law because it excludes the application of the pith and substance test mandated by the Supreme Court of Canada when conducting a section 53 analysis. For this reason, we’ll be appealing his decision to the Ontario Court of Appeal.

Furthermore, the decision also included a prejudicial misstatement of fact stating that TDC had failed to file returns and pay any remittances, which is not the case. This error originated in the AGCO’s factum, and although it was corrected by both our counsel and the AGCO’s counsel at trial, we regret it somehow still found its way into the ruling. We also expect to have this error corrected on appeal. Onward and upward!

For questions contact Charles Benoit, charles _at_ torontodistillery.ca, T: 416-558-5523.