Ontario’s liquor prices have long carried some of the heaviest tax loads in the country. That shifted in 2025, when the Ford government cut the spirits basic tax rate from 61.5% to 30.75%—with cuts taking effect August 1, 2025.

4 related posts

Spirits basic tax rate cut: 61.5% to 30.75% (MNP) ·
Beer microbrewery draft rate: 17.98 cents/L (Ontario Government) ·
Excise duty relief: Two years on first 15,000 hectolitres (MNP) ·
Announcement: 2025 Ontario budget ·
LCBO markup relief: Significant for spirits, cider, RTDs (EY)

Quick snapshot

1Confirmed facts
  • Spirits basic tax cut from 61.5% to 30.75% effective August 1, 2025 (MNP)
  • Microbrewer draft beer tax reduced to 17.98 cents/L (Ontario Government)
  • Cider LCBO mark-up dropped to 32.0% from 60.6% (KPMG)
2What’s unclear
  • How quickly retail prices drop post-implementation (CityNews Toronto)
  • Full extent of LCBO revenue recovery trajectory (Global News)
  • Federal policy changes beyond 2026 (EY)
3Timeline signal
  • Budget presented May 15, 2025; cuts took effect August 1, 2025 (KPMG)
  • Federal excise duty relief extends to April 1, 2026 (MNP)
  • Non-microbrewer beer rates unchanged until March 2026 (Ontario Government)
4What’s next
  • 2026 budget allocates $200M for further LCBO markup reductions (Global News)
  • New “alcohol refreshment beverage” category under stakeholder review (MNP)
  • Potential further provincial adjustments beyond current cuts (CityNews Toronto)

How much are taxes on alcohol in Ontario?

Ontario applies one of Canada’s steepest combined federal-provincial alcohol tax regimes. The 2025 Ontario Budget introduced the most significant provincial relief in years, cutting the spirits basic tax rate from 61.5% to 30.75%—effectively halving one of the largest cost components in the retail price chain. The government expects this to translate into lower consumer prices, though timelines for retail adjustments remain uncertain.

Current rates post-2025 cuts

The August 1, 2025 rate changes reshaped how Ontario taxes alcohol at the provincial level. For distillery retail stores, the spirits basic tax dropped from 61.5% to 30.75%, according to analysis from MNP and corroborated by KPMG. Ontario’s liquor tax structure consists of three layers: a basic percentage tax on factory gate price, a volume tax per litre, and for non-refillable containers, an environmental levy. The basic tax—the largest component—is what the 2025 budget targeted.

The reduction means Ontario manufacturers at distillery retail stores now pay roughly half the provincial tax they did before August 1, 2025. For a bottle priced at $30 at the distillery door, the provincial tax liability falls from approximately $18.45 to $9.23.

Beer and spirits breakdown

The 2025 budget delivered targeted relief for Ontario’s microbreweries. Draft beer basic tax fell from 35.96 cents per litre to 17.98 cents per litre, while non-draft beer dropped from 39.75 cents per litre to 19.88 cents per litre, per official Ontario government rates. These apply to sales from on-site stores and off-site consignment locations for qualifying microbreweries.

Non-microbrewer beer rates remain at pre-August 2025 levels until March 1, 2026, according to Ontario.ca guidance. For non-draft containers under 18 litres, the combined basic and volume tax totals 107.34 cents per litre. Draft containers of 18 litres or more carry a combined rate of 90.05 cents per litre.

LCBO-specific taxes

The LCBO operates differently from direct-to-consumer producers. It sets retail prices by marking up supplier prices—a structure that the province also targeted in the 2025 budget. Cider saw its basic mark-up reduced from 60.6% to 32.0%, effective August 1, 2025. Wine-based ready-to-drink beverages with ABV at or below 7.1% dropped from 60.6% or 64.6% to 48%. Spirit-based RTDs in the same ABV range fell from 68.5% or 96.7% to 48%, representing the steepest markup reduction among RTD categories.

The government directed the LCBO to reduce mark-ups matching the tax reductions, per EY’s tax alert. Overall alcohol tax revenue through private channels is projected at $388 million in 2025, down from $562 million previously, according to CityNews Toronto. The province committed $250 million over two years to make Ontario’s alcohol market more competitive.

Bottom line: Ontario cut spirits basic tax in half and microbrewer beer rates by roughly 40–50%, but the LCBO’s separate markup structure means consumers may not see proportional retail price drops.

Is alcohol tax going up in Canada?

No federal or provincial increases are on the table for 2025-2026. Instead, both levels of government are moving in the opposite direction. The 2025 Ontario Budget represents the Ford government’s most ambitious push yet to reform how alcohol is taxed and priced in the province.

Federal excise duty relief

Ottawa announced relief for small brewers in the 2024 Fall Economic Statement and extended it through April 1, 2026. The government halved the excise duty rate on the first 15,000 hectolitres of domestic beer production. This federal relief runs parallel to Ontario’s cuts and provides a two-year window for producers to plan without federal tax increases.

Ontario-specific cuts

Ontario’s 2025 budget goes beyond federal relief by also targeting provincial spirits taxes. The basic tax on spirits at distillery retail stores dropped from 61.5% to 30.75%, a reduction that applies regardless of federal provisions. The government framed this as modernization rather than emergency relief, emphasizing competitiveness with other provincial alcohol markets.

Future outlook

LCBO revenue is forecast at $1.85 billion for 2025-26, down from $2.16 billion the prior year, according to CityNews Toronto. The Finance Minister stated that LCBO revenues are expected to grow marginally to $1.9 billion next year. Whether that projection holds depends on whether tax cuts drive sufficient volume growth to offset lower per-unit revenue.

Bottom line: Federal and provincial governments are both cutting, not raising, alcohol taxes—though Ontario’s reductions are the more aggressive move, targeting provincial spirits taxes that other provinces don’t separately impose.

Why is alcohol taxed so heavily in Canada?

Canada’s combined federal and provincial alcohol taxes represent a significant portion of retail prices. Ontario’s layered system—basic tax, volume tax, environmental levy, and LCBO mark-up—means that for a bottle of spirits, the tax component can exceed the pre-tax value of the product itself. The 2025 cuts address one layer, but the overall structure remains substantial.

Historical reasons

Ontario established its Liquor Tax Act baseline rates in March 2022, according to Ontario.ca. The spirits basic tax at that time sat at 61.5%—a figure that had accumulated over decades of policy decisions treating alcohol as a revenue generation tool. The LCBO itself operates as a Crown corporation, and its markup structure serves both as a revenue mechanism and a regulatory framework governing who can sell liquor in the province.

Revenue impact on LCBO

The LCBO generated $2.57 billion in revenue during 2023-24, according to CityNews Toronto. The 2025-26 projection of $1.85 billion reflects the immediate impact of tax breaks, U.S. tariff disruptions pulling American alcohol from shelves, and declining demand. The government allocated $200 million in the 2026 budget specifically to further reduce LCBO markups and taxes for local producers, per Global News analysis.

Pre-cut rates

Before August 1, 2025, Ontario applied a 61.5% basic tax on spirits at distillery retail stores, according to MNP’s budget analysis. Beer faced different structures depending on producer size: microbrewers paid 35.96 cents per litre for draft beer, while larger producers faced different thresholds. Cider carried a 60.6% LCBO mark-up, and spirit-based RTDs could face mark-ups reaching 96.7% depending on volume.

Bottom line: Canada’s heavy alcohol taxation stems from decades of treating liquor as a revenue-generating commodity. Ontario’s 2025 cuts represent the most significant structural break from that history, but the remaining layers mean prices won’t approach international lows.

How much tax is on liquor in Ontario?

The tax on liquor in Ontario breaks down differently depending on whether you’re buying from the LCBO or a distillery’s own retail store. The August 1, 2025 changes restructured both pathways, reducing the spirits basic tax from 61.5% to 30.75% and introducing a new “alcohol refreshment beverage” category for ready-to-drink products.

Liquor Tax Act details

Ontario’s Liquor Tax Act 1996, amended by the 2025 budget, governs provincial alcohol taxation. The Act establishes a basic percentage tax applied to the factory gate price, plus volume-based charges per litre. Environmental levies apply to non-refillable containers. The spirits basic tax—the largest component—dropped to 30.75% effective August 1, 2025, per KPMG’s confirmation of the budget changes.

Changes in 2025 budget

The Ford government announced the cuts via the 2025 Ontario Budget, presented May 15, 2025, under the title “A Plan to Protect Ontario” with a $14.6 billion deficit, according to CityNews Toronto. The budget introduced a new category for “alcohol refreshment beverages”—defined as coolers and hard seltzers with ABV at or below 7.1%—with stakeholder feedback invited through the Regulatory Registry.

Calculator tools

Ontario.ca publishes official rate sheets for beer taxes effective August 1, 2025. For microbrewer draft beer, the basic tax is 17.98 cents per litre. Brew pub draft beer carries a higher rate of 33.41 cents per litre. Non-microbrewer rates remain at pre-August 2025 levels until March 1, 2026.

Bottom line: Ontario’s liquor tax now ranges from 30.75% basic tax on spirits to per-litre beer rates, with the new alcohol refreshment beverage category introducing additional complexity for RTD products.

What is the tax on alcohol in Ontario?

Ontario applies different tax structures depending on the beverage type. The 2025 budget introduced sweeping changes across spirits, beer, cider, and ready-to-drink categories, with microbreweries receiving particularly targeted relief.

Wine and beer specifics

Beer taxation in Ontario varies by producer size. Microbreweries receive the most favorable rates: 17.98 cents per litre for draft beer and 19.88 cents per litre for non-draft beer, per Ontario.ca. Larger breweries face combined basic and volume taxes of 107.34 cents per litre for non-draft containers under 18 litres or 90.05 cents per litre for draft containers of 18 litres or more. Wine falls under the LCBO’s markup structure, with rates adjusted for the new alcohol refreshment beverage category.

Restaurant taxes

Restaurants and bars purchasing through the LCBO’s hospitality division face the same markup structure as retail consumers. The government’s stated goal of making Ontario’s alcohol market more competitive and affordable applies to all channels, though the degree to which businesses pass savings to consumers depends on individual pricing strategies.

LCBO vs private sales

The LCBO’s role as a Crown corporation means it both regulates and profits from alcohol sales in Ontario. Private retailers and distillery stores operate under different markup rules, which is why the spirits basic tax reduction at distillery retail stores doesn’t automatically apply to LCBO purchases. The government directed the LCBO to reduce mark-ups matching the tax cuts, per EY’s analysis.

Bottom line: Ontario’s alcohol tax landscape varies by channel and product, with the 2025 budget creating different effective rates for microbreweries, distilleries, and LCBO purchases. Consumers may see asymmetric price changes across retail formats.

Timeline of key alcohol tax changes in Ontario

Five milestones mark the path from the original Liquor Tax Act baseline to the 2025 reforms and beyond.

Date Event
March 2022 Liquor Tax Act establishes baseline provincial rates
May 2025 2025 Ontario Budget announces sweeping tax and markup cuts
August 1, 2025 All major tax and mark-up reductions take effect
March 1, 2026 Non-microbrewer beer tax rates change
April 1, 2026 Federal excise duty relief extension expires

The pattern shows concentrated activity in 2025, with implementation followed by another policy transition point six months later for non-microbrewer beer rates, and federal relief expiring a month after that.

What we know — and what we don’t

Confirmed

  • Spirits basic tax cut from 61.5% to 30.75% effective August 1, 2025
  • Microbrewer draft beer tax reduced to 17.98 cents/L
  • Cider LCBO mark-up reduced from 60.6% to 32.0%
  • Federal excise duty relief extended to April 1, 2026
  • Ontario committed $250 million over two years to competitive alcohol market
  • 2026 budget allocates $200M for further producer relief

Uncertain

  • Speed and magnitude of retail price drops
  • Full LCBO revenue recovery timeline
  • Whether federal relief continues beyond April 2026
  • Final regulations for “alcohol refreshment beverage” category
  • Impact on consumer purchasing behavior
  • Long-term effects on provincial alcohol revenue

What people are saying

“We’re reducing taxes and fees on alcohol so that we put more money back into small businesses, we put more money back into consumers by making prices lower.”

— Peter Bethlenfalvy, Ontario Finance Minister (CityNews Toronto)

The Finance Minister also indicated that LCBO revenues are expected to grow marginally in the following year, projecting them to reach approximately $1.9 billion according to Global News reporting.

The trade-off

The government’s $250 million investment over two years signals serious intent to reshape Ontario’s alcohol market. Whether retail shelves actually reflect lower prices depends on whether the LCBO and private retailers pass the savings along—or retain them as margin recovery.

Why this matters

Revenue drops stem from multiple sources: tax breaks, U.S. tariffs disrupting American alcohol availability, and declining consumer demand. The tax cuts alone don’t explain the LCBO’s projected revenue decline from $2.16 billion to $1.85 billion. For Ontario’s consumers and producers, the relief is real—but so is the uncertainty about whether prices at the shelf will reflect it.

Summary

Ontario’s 2025 alcohol tax cuts represent the most significant provincial restructuring in years, slashing spirits basic tax from 61.5% to 30.75% and delivering targeted relief to microbreweries and cider producers. The Ford government committed $250 million over two years to make Ontario’s alcohol market more competitive, with an additional $200 million allocated in the 2026 budget for further LCBO markup reductions. For Ontario consumers and producers, the policy creates a clear trade-off: lower taxes and potentially lower prices, but reduced provincial revenue that could affect public services or future LCBO operations. Whether the retail price impact matches the tax relief depends on market dynamics that remain in flux.

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Frequently asked questions

Is there tax on alcohol in Ontario LCBO?

Yes. The LCBO applies mark-ups on top of the federal excise duty. The 2025 budget reduced these mark-ups for spirits, cider, and ready-to-drink beverages. The basic mark-up for cider dropped from 60.6% to 32.0%, effective August 1, 2025.

Is there tax on wine in Ontario?

Yes. Wine falls under the LCBO’s markup structure, with rates adjusted for the new “alcohol refreshment beverage” category introduced in the 2025 budget. Wine-based ready-to-drink beverages with ABV at or below 7.1% saw mark-ups reduced from 60.6% or 64.6% to 48%.

Why are Canadian alcohol prices so high?

Canada’s high alcohol prices stem from layered federal and provincial taxes. Ontario adds a basic percentage tax on factory gate prices, volume charges per litre, and environmental levies on non-refillable containers—plus the LCBO’s markup structure. Before the 2025 cuts, spirits faced a 61.5% basic tax.

What is the liquor tax in Ontario restaurants?

Restaurants and bars purchasing through the LCBO’s hospitality division face the same markup structure as retail consumers. The government’s goal of making Ontario’s alcohol market more competitive applies to all sales channels, though individual businesses control their own pricing.

What is the Liquor Tax Act in Ontario?

Ontario’s Liquor Tax Act 1996, amended by the 2025 budget, governs provincial alcohol taxation. It establishes a basic percentage tax, volume-based per-litre charges, and environmental levies. The August 1, 2025 amendments cut the spirits basic tax from 61.5% to 30.75% and introduced the new “alcohol refreshment beverage” category.

How much is federal excise duty relief for beer?

Ottawa halved the excise duty rate on the first 15,000 hectolitres of domestic beer production, with the relief extended through April 1, 2026. This applies to Canadian brewers regardless of province and runs parallel to Ontario’s separate provincial tax cuts.

When did Ontario alcohol tax cuts take effect?

The major tax and mark-up reductions took effect August 1, 2025. This includes the spirits basic tax cut to 30.75%, microbrewer beer rate reductions, and LCBO markup adjustments for cider and ready-to-drink beverages. Non-microbrewer beer rates remain at pre-August 2025 levels until March 1, 2026.