Promotional distribution exemption: Ontario spirits manufacturers

The Liquor Tax Act, 1996, was amended to provide to Ontario spirits manufacturers a limited exemption from the spirits taxes on the spirits and spirits coolers they make and distribute without charge in Ontario to promote their products.

This page provides Ontario spirits manufacturers with general information about the exemption, how it works and how to claim it. It does not replace the law found in the Liquor Tax Act, 1996, and its regulations (Act).

Background

As proposed in the 2016 Fall Budget bill, the Act has been amended to authorize a limited exemption from spirits tax on Ontario spirits manufacturers' promotional distributions of spirits and spirits coolers in Ontario without charge. Normally, spirits manufacturers are required to pay the spirits tax on these types of distributions as deemed purchasers of their own products.

The exemption is effective July 1, 2017, and is pro‑rated for the length of time in the annual period that the spirits manufacturer carries on its business.

How the exemption for Ontario spirits manufacturers works

General details of exemption

An exemption from the payment of spirits tax on spirits and spirits coolers distributed for promotional purposes is available.

1. Some key eligibility requirements are:
   • The exemption is only available to Ontario spirits manufacturers.
   • The exemption is limited to the spirits tax that the spirits manufacturer would otherwise have been required to pay.
2. The exemption is only applicable to spirits and spirits coolers that are made by the spirits manufacturer.
3. The exemption is available for promotional distributions made from July 1, 2017, onward.
   • In order for the distribution to qualify for the exemption, the spirits or spirits coolers must have been distributed:
     • without charge
     • in Ontario, and
     • for the purpose of promoting the product.
4. The exemption is limited to 1,250 litres of spirits and spirits coolers per "corporate family" (i.e., corporations that are affiliates of each other under the Act) for each 12‑month period beginning July 1, with the first 12‑month period starting July 1, 2017.
   • The maximum exemption amount may be apportioned (divided) amongst the corporations in a corporate family however they decide.
5. If a spirits manufacturer carries on business in Ontario for only part of the 12‑month period, the maximum exemption amount is reduced proportionately.
   • For example, if a spirits manufacturer carries on business for only half of the 12‑month period, the maximum exemption amount for that spirits manufacturer for that 12‑month period is 625 litres.
6. Documents supporting the exemption must be kept for seven (7) years.
7. The exemption for a distribution must be claimed within four (4) years of the distribution.

Things to watch for

The promotional distribution exemption cannot be claimed for:

1. distributions made with charge (including nominal charge for sampling), and
2. distributions made without charge but which are not promotional distributions, even if the maximum exemption amount has not been reached.

Promotional distributions made without charge in Ontario in excess of the maximum exemption amount remain taxable to the spirits manufacturer. These distributions must be reported as taxable distributions (other than by sale) on Line 2 (“retail” prices) and Line 11 (litres) of Schedule A – Product Distribution Report of the Spirits and Spirits Cooler Return.

Documents supporting exemption claim

Documents supporting the promotional distributions made and exemption amounts claimed must be kept by the spirits manufacturer, including records of:

• the date of the distribution
• the name and address of the recipient of the spirits or spirits cooler or the event at which the spirit or spirits cooler is distributed
• the names of the spirits manufacturer's affiliates, and the promotional distributions made and exemption amounts claimed by each affiliate, and
• the number of containers of spirits and spirits coolers distributed, and for each container, product particulars including:
  • the product type – whether it is spirits or spirits cooler
  • the brand of spirits or spirits cooler
  • the "retail price", as determined under the Act, of the spirits or spirits cooler
  • the volume of spirits or spirits cooler in the container, and
  • whether the container is a refillable or non‑refillable container.

How to claim the exemption

For qualifying promotional distributions made beginning July 1, 2017

This refers to the ongoing process to be used to claim the exemption for promotional distributions made beginning July 1, 2017:

• On Line 8 of Schedule A – Product Distribution Report of the Spirits and Spirits Cooler Return, enter the total retail price for each product type (spirits and spirits coolers) claimed under the exemption. Refer to the Spirits and Spirits Cooler Return Guide or the Act for more information on the "retail price".
• On Line 17 of Schedule A – Product Distribution Report of the Spirits and Spirits Cooler Return, enter the total litres for each product type (spirits and spirits coolers) claimed under the exemption.

As with all exemption claims, documents supporting the claim amounts must be kept on file.

Warning: unsupported claims or claims over maximum exemption amount

Spirits manufacturers are responsible for substantiating and tracking their promotional distribution exemption claims.

Exemption claims for distributions that are not supported as qualifying promotional distributions and exemption claims for qualifying promotional distributions in excess of the maximum exemption amount are subject to penalty and interest.

More information

Telephone

• 1‑866‑ONT‑TAXS (1‑866‑668‑8297)
• 1‑800‑263‑7776 for teletypewriter (TTY)