In brief 5 min read
Taxpayers connected with the wine industry need to be aware of recent and upcoming changes to the Wine Equalisation Tax rules, including in relation to the operation of the producer rebate regime. Senior Tax Counsel Jennee Chan and Lawyer Jakub Patela report on the key changes.
Overview of WET
The Wine Equalisation Tax (WET) applies to a wide range of alcoholic wine products. This includes grape wine and grape wine products, other fruit or vegetable wine, cider or perry, mead and sake.
The broad aim of the WET is to tax the last sale of wine at the wholesale level or an equivalent transaction. This is usually the sale from the last wholesaler to the retailer.
Entities that are registered or required to be registered for GST are liable for WET in respect of assessable dealings which do not qualify for an exemption. Categories of assessable dealings include:
- wholesale sales;
- certain retail sales; and
- applications to own use.
WET is calculated at a rate of 29 per cent of the taxable value (the calculation of which depends on the relevant assessable dealing).
Certain assessable dealings are exempt from WET. This includes a sale of wine made under quote. In other words, a sale of wine is not taxable if an eligible purchaser quotes its Australian Business Number (ABN) at or before the time of the sale. The general purpose of this exemption is to ensure that WET does not become payable until the last sale of the wine at the wholesale level.
A registered entity may claim a WET credit in certain circumstances. This includes where the annual producer rebate is available (discussed further below).
The amount of the producer rebate for wholesale sales is 29 per cent of the price (excluding WET and GST) for which the wine was sold, and for retail sale and applications to own use, 29 per cent of the notional wholesale selling price of the wine. The WET producer rebate is currently capped at $500,000 for a financial year.
If a producer is an associated producer of one or more other producers for a financial year, the $500,000 annual cap applies to the group as a whole.
Key changes
Associated producers test
The associated producers test was broadened with effect from 1 October 2017.
Until the amendment, a producer was an associated producer of another producer for a financial year if the associated producers test was met at the end of that financial year.
Under the new amended test, a producer is an associated producer of another producer for a financial year if the associated producers test is met at any time during that financial year.
This amendment aims to prevent artificial restructuring just prior to the end of a financial year to avoid the application of the associated producers rule for that financial year.
Reduction of WET rebate cap
From 1 July 2018, the WET rebate cap will be reduced from $500,000 to $350,000 for a financial year.
Additional eligibility criteria
Additional eligibility criteria will be introduced from 1 July 2018.
Under current law, the WET producer rebate is available to producers of eligible wine that are registered or required to be registered for GST in Australia (as well as approved New Zealand producers). A ‘producer’ is an entity that manufactures the wine or supplies to another entity the source product from which the wine is manufactured.
Under the new rules (and subject to various transitional provisions), a producer rebate will only be available if, among other requirements, the following are satisfied:
- Ownership of source product requirement – at least 85 per cent of the wine by volume in its final form as packaged branded product fit for retail sale originated from source product that was owned by the producer before the wine-making process, and the producer owned this wine throughout the wine-making process.
- Packaging requirement – the wine must be packaged in a container less than 5 litres (51 litres for cider and perry); branded by a trademark that is owned by the wine producer or its associates and that readily identifies or can be associated with the producer of the wine; and packaged suitable for retail sale.
- WET is paid on the wine – the producer must be liable for WET on the wine or would be liable for WET had the purchaser not quoted for the sale in circumstances where the quote did not state an intention of dealing with the wine as a material in manufacture or other treatment or processing, making a supply of the wine that would be GST-free or by sale to an entity that will quote for the sale.
Other changes to WET credit rules
From 1 July 2018, the following seven (out of the current 15) grounds for a WET credit will be repealed:
- CR2 – borne wine tax even though entitled to quote;
- CR3 – liable to tax because the quote was ineffective under section 13-30 (which is about ineffective quotes if there are grounds for believing it was improperly made);
- CR5 – exemption applies if latest assessable dealing is non-taxable;
- CR6 – tax excluded from sale price of tax-paid wine sold to quoting purchaser;
- CR10 – wine exported while still assessable wine;
- CR11 – tax excluded from sale price of a GST-free supply of tax paid wine; and
- CR13 – refund of customs duty following destruction of imported wine.
Repealing the above grounds for a WET credit has the effect that a purchaser of wine would, broadly speaking, only be able to claim a WET credit for the WET included in the purchase price of that wine if it subsequently makes a taxable dealing with that wine.
Things to do
Before the remaining WET changes are implemented, you should:
- consider your entitlement to WET credits under the new rules;
- consider the evidence that might be required to support the ownership of source product requirement; and
- ensure that your trademarks satisfy the packaging requirement.
A toast to tax reform
The WET reforms were prompted by the wine industry amid rorting concerns. The changes to the producer rebate regime are generally supported as a balanced way to address integrity concerns while still providing support to the Australian wine industry.
As part of the suite of measures developed to reform the WET rebate arrangements, the Federal Government has announced the introduction of an annual $100,000 Wine Tourism and Cellar Door grant to eligible producers. The program guidelines are yet to be finalised, but is targeted for implementation from July 2019.
Tax reform set to boost Australia’s already world renowned wine industry? We can toast to that!