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  • Alcohol Stakeholder Group record of meeting, 8 June 2018

    Discussion summary

    Disclaimer

    The Alcohol Stakeholder Group agendas, minutes and related papers are not binding on the ATO, Treasury, Department of Home Affairs or the other bodies referred to in these papers. While every effort is made to accurately record views expressed, the wording necessarily represents a summary of statements of general position only, and care should be taken in interpreting those statements. These papers reflect the position at the date of release (unless otherwise noted) and readers should note that the position on any issue may subsequently change.

    Agenda Item 1 – Welcome

    Introductions, review of action items and previous minutes - Raj Srikhanta

    Outcome: The minutes of the meeting held on 6 July 2017 had been finalised. All action items had been completed. No conflicts of interest were advised.

    Action Item 08062018-1-1 – ASG members to provide feedback on the use of telepresence for this annual meeting.

    Agenda Item 2 – Treasury update

    Treasury update - Susan Bultitude

    Outcome: Members noted the update provided by Susan Bultitude regarding recently announced measures supporting craft brewers and distillers and extending support to eligible brewers and distributors. The increase in the alcohol excise refund scheme cap commences on 1 July 2019 from $30,000 to $100,000. Members queried whether a change to eligibility was proposed however it was confirmed that there was no change apart from the keg size of 48 to 8 litres.

    Agenda Item 3 – Compliance focus areas

    Compliance focus areas – Marisa Hewitt

    Outcome: Marisa Hewitt provided a summary of compliance areas for WET and excise alcohol with regard to results from 2017/18 and focus areas for 2018/19.

    Alcohol – 2017/18 – The ATO undertook streamlined compliance reviews focusing on lodgement and payment issues. These were targeted at smaller and newer clients where the client has a licence but doesn't lodge and pay responsibly. There were approximately 75 reviews aimed at the areas of lodgement and payment. The New to Excise program continued, with support provided to clients new to the excise system. The ATO called the client usually within the first month of their licence when clients were generally still setting up their business or the product was undergoing maturation. This provided a good opportunity to remind clients of the ATO obligations during that process. The second call would be aligned to the client's expected next interaction with the ATO and was tailored to their business.

    As part of general compliance activities, the ATO found that some clients are holding permissions and licences that they no longer need, some are operating outside their licence conditions (eg manufacturing outside of a licensed area), clients are moving under bond products without permission, concessional spirits are not being used for an approved purpose, the non-lodgement of excise returns and licence-holders have failed to notify the ATO of changes in Directors or key personnel.

    Alcohol – 2018/19 – The ATO is focusing on better management of the population to continue efforts to have the right people in the system; with the right permits; and that lodgements and payments are up to date.

    Support will be provided for those clients impacted by the changes to the distillers and brewers refund to assist in understanding the changes and meet obligations.

    In the regulatory area, the ATO will be working on building up the capability of clients as well as that of ATO staff to support clients. ATO Licensing staff interactions will be more timely and will follow up with clients to discuss their obligations and entitlements, particularly in relation to mandatory lodgement of Excise returns. The ATO will continue to manage various risks including boundary products, cheap spirits and bulk spirits. To assist a level playing field in the market, the ATO will continue to address illicit operations, particularly in the manufacture of alcohol and diversion activities.

    WET – 2017/18 – Approximately 120 risk based reviews were conducted around entries on the BAS label. The New to WET Program had continued with contact by the ATO when clients registered for WET. On occasion, this discussion found that the client did not need to register for WET. Approximately 140 audits and reviews were carried out by the business compliance area within ATO. A small number of reviews looked at distributor margins. The results of those reviews have not been finalised. Generally, other findings are similar to the 2016/17 year, with quoting errors, incorrect calculation of WET, not including freight in the price of wine for WET calculation purposes and not paying WET on wines applied to own use. Errors around the producer rebate included failing to account if the producer rebate had been paid, claiming when the product was exported or claiming on distributor margins.

    WET – 2018/19 – The focus for 2018/19 will be around the WET reforms and providing support and education to clients. Approximately 700 client contacts are scheduled to provide education to WET clients. There will also be ongoing support. Any risk-based reviews will also include education where appropriate. The Strategy and Risk area will continue to work on solutions to common errors, particularly those arising from implementation of the reforms.

    Naomi Schell provided members with a summary of a recent finding by the Federal Court in the matter of Divas Beverages Holdings Ltd v Commissioner of Taxation regarding the tax treatment of clear and characterless grape alcohol based beverages. The ATO has accepted the Federal Court’s decision. Naomi explained that the product in question resembled a vodka or spirit-based product. ATO private rulings and private guidance were being updated. A Decision Impact Statement would be issued soon.

    Action Item 08062018-3-1 – The Decision Impact Statement (DIS) relating to the Divas Beverages Holdings Ltd v Commissioner of Taxation decision to be sent to members when published.

    Agenda Item 4 - ATO updates

    • Excise Remissions – Caraline Hill

    Outcome: Caraline Hill provided an update on work that was progressing following an action item at last year’s ASG meeting in response to feedback from small brewers. It related to a safe harbour for excise remissions whereby clients would not need to apply for remissions up to a certain amount. The ATO is looking at instances where clients could automatically write off up to 120 litres of alcohol per quarter under automatic remissions. Industry has been consulted and the feedback to date is positive. Clients would still be required to retain all records relating to the reason for destruction / writing off of product.

    • Regional Visit Feedback - Richard Grebneff

    Outcome: Members noted the update provided by Richard Grebneff.

    Visits had taken place to various regions of Australia including Margaret River, Tasmania, the Hunter Valley, south east Queensland and Victoria. The regional visits were an initiative to build on the New to Excise and New to WET programs and were planned to occur at times through the year better suited to clients’ availability. ATO officers visited wineries, cider producers and small breweries. Feedback is that the licencing process is good with a lot of small business keen to take on technology and interact that way, for example via the ATO’s Business Portal. Various issues were discussed during the visits including the next steps for clients around WET reforms, permissions to destroy heads and tails, classification of alcohol, a lack of understanding around settlement permissions and movement of under bond goods. The ATO will be focusing on these issues as part of the support and education work being undertaken.

    • WFA Roadshow / NZ Visit - Naomi Schell

    Outcome: Naomi advised that the WET reforms were now in place for 2018 vintage and for all other wine from July. Naomi and Sally Fonovic had taken part in a roadshow which had been arranged and facilitated by the WFA and Wine Australia. There were 14 presentations in six states to approximately 1200 wine industry participants and tax agents over four weeks. A webinar had been recorded for viewing on YouTube, which had been viewed over 6000 times and had received good feedback.

    The draft rulings were in the process of being finalised. Naomi and Sally had also travelled to New Zealand at the request of NZ Inland Revenue and NZ Winegrowers to give three presentations across New Zealand. The reforms are not as relevant to NZ producers as the majority make wine from grapes they grow or they purchase, however the visit was a good opportunity to provide information about the International WET Rebate Scheme (IWRS).

    • ATO Communications

    Raj Srikhanta advised members of the various social media channels that the ATO uses to communicate with clients, including Twitter, LinkedIn and Facebook, with Deborah Jenkins, Deputy Commissioner of Small Business and Raj Srikhanta having accounts on LinkedIn to communicate with ATO clients.

    Claudia Bianco from ATO Marketing and Communications encouraged association representatives to cascade messages to their members and that the ATO was happy to provide information that could be included in association communications.

    Action Item 08062018-4-1 – The ATO to provide details of various social media channels used to engage with clients to ASG members.

    • Online BAS - Michael Hughes

    Outcome: Members noted the update provided by Michael Hughes about the BAS Online Project.

    The Online BAS project is still being worked through and may include a WET aspect. The project aims to reduce the type of errors submitted as part of pre-issue refund checking. Every year, 7.5m BAS returns were lodged and every year 23,000 returns were stopped due to potential issues being found for GST or WET. Analysis has shown that in those cases, approximately 40% are due to inadvertent errors. These errors may include calculation errors, wrong label transposition, etc.

    The ATO are looking at how to prompt clients to reassess information prior to lodgement where inconsistent figures are supplied. For example, this may be in cases where the claim amount is not consistent with previous claims. It is envisaged that the prompt will save clients time in having refunds stopped pending further information being provided, as well as ATO staff time in processing reviews.

    The ATO is currently in a consultation phase, talking with different groups and has carried out some user design around the type of messaging. It is hoped that this initiative may be implemented in July 2019

    Agenda Item 5 - Industry Association Updates

    Winemakers’ Federation of Australia – Tony Battaglene

    Members noted the update from Tony Battaglene regarding the decline in the wine industry over a number of years. The recent 2017 vintage was a record low and it is expected that 2018 will also be down. Fortunately there has not been an increase in production in response to the decline which would have led to an oversupply. Part of the supply has been taken up by export markets where there is profitability and confidence in a growing industry. There are currently 135,000 hectares under vine in Australia.

    With regard to export markets, the growth has been mainly in China. Total exports to China over the past 12 months were worth $1b, which is a growth rate of 40 – 50%. The domestic market has remained stable. With regard to other export markets, the USA has reduced a little whereas the UK and others remained the same. The industry will be investing significantly in the USA and China over the next few years.

    The WFA Roadshows were very well received and provided more clarity around requirements, particularly around quoting. In the lead up to the 1 July 2018 implementation date, there has not been a lot of feedback from industry. The WFA had noted recent media reporting that approximately 1/3 of the wine producers were suffering financial difficulty, however the WFA did not agree with those statistics.

    The WFA will be monitoring the industry to ascertain whether the new measures have an effect on how businesses operate.

    Australian Distillers’ Association – Cameron Syme

    Cameron Syme provided some information about the ADA advising that as at June 2018, the ADA had 149 members. The majority of members were based in NSW; followed by Victoria and Tasmania. There had been 74 new members since January 2017.

    Approximately one third of members were based in metropolitan areas and two thirds in regional / rural areas. 77 members operated a cellar door while others dealt in wholesale product only. The average excise payment of members was $330,000 per annum and members employed an average of six people per distillery.

    Industry appreciated the distillers refund reforms and advised that the other main issue for the spirits industry was around indexation. The ADA would like to see indexation frozen until the rate of excise and beer / wine was more aligned. Another issue for industry related to payment terms of excise being different to commercial terms which meant that it was difficult for businesses to maintain working capital – i.e. commercial terms usually 60 – 90 days whereas excise was due within 21 days of the end of the month. The increasing amount of financial securities being requested at the licensing stage had also been raised as an issue for members.

    DSICA – Alec Wagstaff

    Alec Wagstaff informed members that DSICA supported comments by the ADA regarding a freeze of indexation to align alcohol excise. DSICA believe that this would also reduce complexity in the product. It was noted that the Senate Red Tape Reduction report had recommended that the ATO look at terms of payment for excise.

    DSICA also have concerns around the legitimacy of products that arise from technical gaps in the tax system, for example in the recent Divas case. In the case of fruit ciders, where the alcohol content was a minimum of 8%, these were able to be considered as fruit wine and as such, would not fall into the excise system. DSICA saw this as encouraging producers to make products with a high alcohol content.

    In terms of the industry as a whole, the spirits industry is quite healthy with greater interest in spirit products. Medium term prospects are considered to be positive.

    Cider Australia – Warwick Billings

    Members noted the update provided by Warwick Billings. The cider industry has sustained growth in Australia and though cider itself has plateaued, local craft cider is still growing well. Approximately 13.6% of Australians drink cider.

    An issue of concern for industry was around boundary products, which were seen to erode the credibility of the cider product. Cider was consumed seasonally.

    The industry is worth $310m with $16.5m in exports and strong potential in that area.

    Action Item 08062018-5-1 - WET Rulings will be provided to ASG members when they are published.

    Action Item 08062018-5-2 - Approved WET forms have been posted to the ATO website. A link will be provided to ASG members.

    Agenda Item 6 - Industry / member updates

    Outcome: No issues were raised by industry.

    Agenda Item 7 - Other Business

    Outcome: Members noted the update from Raj Srikhanta about the recent Budget announcement moving the taxing point of tobacco to the border. The announcement resulted from recommendations from the Black Economy Task Force to specifically address illicit tobacco. As part of the new measures, funding had been allocated to upgrade all excise systems (FY 2020/21). It is expected that lodgements will become paperless.

    There was no other business.

    The meeting concluded at 11.10am.

    Meeting details

    Venue: Various ATO Offices - Docklands, Adelaide, Newcastle, Sydney, Canberra and Perth

    Date: 8 June 2018

    Start: 10.00am Finish: 12.00pm

    Chair: Rajitha Srikhanta

    Secretariat: Rowena Troth

    Attendees:

    Rajitha Srikhanta

    ATO - Chair

    Andrew McIver

    ATO

    Marisa Hewitt

    ATO

    Naomi Schell

    ATO

    Sally Fonovic

    ATO

    Frank McNamara

    ATO

    Claudia Bianco

    ATO

    Michael Hughes

    ATO

    Caraline Hill

    ATO

    Richard Grebneff

    ATO

    John Collins

    ATO

    Wendee Mundy

    ATO

    Robyn McManus

    ATO

    Juanita Laird

    ATO

    Rowena Troth

    ATO - Secretariat

    Susan Bultitude

    The Treasury

    Joshua Pooley

    The Treasury

    L J O'Rourke

    The Treasury

    Susan Turville

    Department of Home Affairs

    Andrew Wilson

    Carlton and United Breweries

    Brad Grunert

    Coopers Brewery Ltd

    Sonja Icanovski

    Lion Ltd

    Steven Logan

    Asahi Holdings

    YoungMi Avern

    Diageo Australia

    Chris Callen

    Coca-Cola Amatil Ltd

    Frank Ciampa

    Alepat Taylor

    Rebecca Tolhurst

    Vok Beverages Pty Ltd

    Victoria Angove

    Angove's Proprietary Ltd

    Cameron Syme

    Australian Distillers' Association

    Alex Wagstaff

    DSICA

    Paul Onley

    Metcash Trading Ltd

    Darren Thomas

    Metcash Trading Ltd

    George Nikolaou

    Coles Finance

    Catherine Dishon

    Treasury Wine Estates

    Bob Smart

    Samuel Smith & Son Pty Ltd

    Neil Owen

    Woolworths Ltd

    Connell Breton

    Pernod Ricard

    Tony Battaglene

    Winemakers' Federation of Australia

    Warwick Billings

    Cider Australia

    Georgia Lennon

    the Drinks Association

    Trevor Barr

    Wilmar Bioethanol (Australia) Pty Ltd

    Mark Anderson

    Tarac Australia Pty Ltd

      Last modified: 21 Nov 2018QC 57412