RST Guide

June 2001

Retail Sales Tax Branch

Alcoholic Beverages

The information in this Guide explains how Retail Sales Tax (RST) applies to alcoholic beverages. Please note that this Guide replaces the previous version dated March 1997.

RST applies to sales of liquor, beer, or wine. Those who sell these alcoholic beverages must obtain a Vendor Permit from the Retail Sales Tax Branch (Branch) of the Ministry of Finance to authorize the collection of RST. They must also have a liquor licence issued by the Alcohol and Gaming Commission of Ontario (AGCO, formerly LLBO). Refer to the section entitled "Liquor Licences" at the end of this Guide for more details regarding these licences.

Liquor, beer, or wine may be sold under the authority of a special occasion permit under the Liquor Licence Act which is administered by the AGCO. RST, plus a levy, is payable at the time the alcoholic beverages are purchased. For this reason, alcoholic beverages sold under special occasion permits are not subject to RST.

Licensed Establish-
ments

Whether or not a liquor licence has been obtained from the AGCO, the seller is required to charge RST at the rate of 10% on sales of alcoholic beverages, including premixed drinks. If liquor and mix are supplied but not premixed, RST applies at 10% on the liquor and 8% on the mix provided the charges are shown separately. 8% RST applies to prepared food products sold for more than $4.00 (excluding GST) and snack foods. See RST Guide 300 - Prepared Foods, and RST Guide 501 - Snack Foods, Beverages and Candies for further details on sales of these items.

Retail Outlets

RST at the rate of 12% applies to alcoholic beverages sold by:

• beer manufacturers (retail outlets)
• Brewers Retail stores (The Beer Store outlets)
• LCBO outlets and Agency Stores
• wine stores (including stores selling sacramental wines).

Vessels

Some cruise vessels have docking rights outside Ontario and may be liable for tax to another jurisdiction for any meals and alcoholic beverages served during the cruise. In these instances, RST does not apply to prepared foods and alcoholic beverages served during the cruise, provided the cruise line retains proof that another jurisdiction requires payment of tax and that the tax has in fact been paid to that jurisdiction.

Note:
RST is not to be charged on the federal Goods and Services Tax (GST).

Airlines

RST does not apply to prepared foods and alcoholic beverages sold while the aircraft is in flight. This also applies to any alcoholic beverages that are given away free of charge during the flight.

Gift Packages
or
Arrangements

A package or an arrangement of goods for sale may include taxable and non-taxable items. Effective July 5, 1999, no tax applies to the selling price if the total cost to the vendor of the taxable items, container and packaging is less than 10% of the vendor's cost of the exempt items in the package. Where this cost is more than 10%, RST is collectible on the total selling price of the package.

Unless the items in a package are listed separately indicating the taxable and exempt status of each item, the total package is subject to RST. The breakdown of the selling price must be shown on the price tag of the package or on the customer's sales invoice or receipt, and the vendor must also maintain a record of the breakdown in their accounting records.

If a bottle of alcohol has been included in the package, the price of the alcohol should be shown separately from the prices of the other items included in the package. If the vendor paid 12% RST on the alcohol at the time it was purchased, then the purchaser is not liable for this tax. However, if the vendor has not paid the RST on the alcohol, the purchaser must pay the 12% RST on the alcohol, 8% RST on the taxable items and zero on the exempt items.

Beer & Wine
Making Kits

The contents of a beer or wine-making kit sold as a package must be listed individually to determine which items are taxable or exempt. If the items are not segregated, then the whole kit is taxable. As above, no RST applies to the selling price if the total cost to the vendor of the taxable items, container and packaging is less than 10% of the vendor's cost of the exempt items in the package.

The primary component of most beer making kits is the beer concentrate or malt extracts and hops. For RST purposes, malt, malt extract, and hops are not exempt food products.

The primary component of most wine making kits is the grape or wine concentrate; some kits may also contain yeast. For RST purposes, these ingredients are exempt food products.

The AGCO regulates the sale of alcoholic beverages. Under the Liquor Licence Act, non-alcoholic beer and wine means:

"...a product capable of human consumption that contains 0.5 of 1 per cent or less of alcohol by volume or 0.4 of 1 per cent or less of alcohol by weight."

For RST purposes, wine that is both non-alcoholic per the AGCO and non-carbonated is considered to be fruit juice. For RST purposes, fruit juice is considered to be any noncarbonated fruit juice beverage or fruit drink containing more than 25 % natural fruit juice by volume. Non-alcoholic beer and wines that are sparkling or carbonated, such as the various brands of sparkling wine coolers, are considered to be soft drinks. If the beverages are considered non-alcoholic per the AGCO, RST applies as follows:

1. Beer, sparkling wines, and sparkling wine coolers sold by grocery and convenience stores, etc., or through the AGCO are taxable at the rate of 8%. Wines that are considered to be fruit juice are exempt from RST.
2. Non-alcoholic beverages sold by eating establishments are taxable at the rate of 8% when sold with prepared food products and the total sales transaction is more than $4.00, excluding GST. If the beverage is considered a soft drink and is sold separately, it is taxable at the rate of 8%. Soft drinks can only be sold exempt from RST by an eating establishment when served with prepared food products for a total charge of $4.00 or less.

Vendors who sell alcoholic beverages have the option of using tax-extra pricing or tax-included pricing.

RST-Extra
Pricing

Tax-extra pricing means the applicable 10% or 12% RST to be charged on sales must be shown separately on the bill given to the customer.

Some vendors use the federal option of GST-included pricing for alcoholic beverages. To calculate the amount of RST to charge and collect from customers, a factor can be applied to the total selling price which includes the GST.

For alcoholic beverages taxed at the rate of 10%, vendors can multiply the GST-included selling price times the factor of 9.346%. For alcoholic beverages taxed at the rate of 12%, vendors can multiply the selling price of alcoholic beverages times the factor of 11.215%. The amount of RST calculated by applying these factors to the GST-included selling price is the same amount of RST that is calculated by multiplying the actual selling price, less GST, times the RST rate. The amount of RST calculated must be shown separately when billing customers. The equivalent factor must not be shown or stated on the bill.

Tax-Included
Pricing

Vendors using tax-included pricing for sales of alcoholic beverages must either post a sign in a prominent location or state in their price lists that prices for all alcoholic beverages include the applicable 10% or 12% RST. As an alternative, the actual amount of RST included in the selling price of each beverage may be stated on the sign or price list. One of these methods must be used to advise customers that prices include RST. If customers are not advised, all prices will be considered to be tax-extra. This could result in a penalty assessment for failure to collect the proper amount of tax.

If a vendor's sign or price list makes a general statement that all prices include tax, the RST to be remitted on alcoholic beverages is calculated as follows:

10% rate: 10/117 X total sales (including RST and GST)

12% rate: 12/119 X total sales (including RST and GST)

Where a vendor's sign or price list states the actual amount of RST included in the selling price of each alcoholic beverage, the 10% or 12% RST to be remitted is calculated by multiplying the RST amount by the number of units sold.

Vendors of alcoholic beverages may add a mandatory service or gratuity charge to their bill in lieu of a gratuity that is normally paid at the discretion of the customer. RST is not payable on these service charges provided they fall within percentages normally accepted by the industry, but should not exceed 20%. These charges must be shown separately on the customer's bill.

Vendors are required to pay RST at 12% on any alcoholic beverages taken from inventory for own use or provided free of charge. RST payable may be calculated on cost or on 50% of the regular selling price, and is to be reported on line 3 of the RST return covering the period of use. The option chosen must be used consistently.

The AGCO regulates the sale of all alcoholic beverages in Ontario. Vendors who sell alcoholic beverages must have a liquor licence. They may obtain a liquor licence by registering with the AGCO at 1-800-522-2876. Liquor licences are issued for a location as opposed to a specific business. The AGCO can refuse to issue, renew or transfer a liquor licence if there are any past due RST returns or any money owing to the Retail Sales Tax Branch. The AGCO will inform applicants if this situation applies to them, and will also provide applicants with a contact number for the Collections and Compliance Branch (CCB) of the Ministry of Finance. Applicants must then make arrangements with the CCB to pay all RST liabilities and file all outstanding returns before the AGCO will issue, transfer or renew a liquor licence. Once the applicants have cleared their accounts, the CCB will inform the AGCO that arrangements satisfactory to the Ministry of Finance have been made, and only then will the AGCO proceedwith the issuance of a liquor licence.

The information contained in this publication is only a guideline. For further information, please contact the nearest Ontario Ministry of Finance Tax Office listed in the blue pages of your telephone directory, call our TAX FAX service at 1-877-4-TAX-FAX (1-877-482-9329), or visit our Web site at www.rev.gov.on.ca/tare/html/trierst.htm