House of Representatives

Explanatory Memorandum

(Circulated by the authority of the Deputy Prime Minister and Treasurer, the Hon Wayne Swan MP)

Chapter 5 - Wine equalisation tax

Outline of chapter

5.1 Schedule 6 to this Bill amends the A New Tax System (Wine Equalisation Tax) Act 1999 (WET Act) to ensure that a wine producer is not entitled to the wine equalisation tax (WET) producer rebate on other wine (that is, wine acquired from a third party) they use in manufacture, except where the producer of the other wine (or supplier) notifies the subsequent producer.

5.2 The amendments implement a voluntary notice system such that a producer of the other wine (or supplier) may notify the subsequent producer that the producer of other wine is entitled to rebate on a specified amount of the other wine, or that the producer is not entitled to the rebate on the other wine.

5.3 The amendments introduce an offence of strict liability where a person gives a notice that is false or misleading.

5.4 The amendments also make minor technical amendments to the WET Act. The amendments update references to offences and penalties under the Act to ensure that these provisions accord with current drafting practice.

5.5 The amendments commence on the day of Royal Assent.

5.6 All references to legislative provisions in this chapter are references to the WET Act, unless otherwise stated.

Context of amendments

5.7 Schedule 6 to this Bill implements the Government's 2012-13 Budget announcement to protect the integrity of the WET rebate, and was originally announced to commence on 1 July 2012. Its deferral from the original start date was announced in the Assistant Treasurer's Media Release No. 57 of 29 June 2012, to allow for continued consultation with the wine industry.

5.8 The WET rebate scheme entitles a wine producer (or group of producers) to a rebate for certain dealings in wine, at a rate of 29 per cent, up to a maximum of $500,000 per financial year.

5.9 Currently, it is possible for different wine producers to be eligible for multiple WET rebates for the same quantity of wine. This outcome typically arises when one producer acquires wine from another producer and then blends or further manufactures the wine.

5.10 Where wine is blended to create a commercially distinct product, potentially both the producer of the wine constituting the blend and the producer of the blended wine are able to claim a WET rebate. Under the quoting arrangements, the payment of WET is generally deferred until the last wholesale sale. However, the producer of the constituent wine and the producer of the blended wine are entitled to the WET rebate equal to the WET amount that would have been payable on the sale, had the purchaser not quoted. Therefore, the producer of the blended wine would be entitled to the WET rebate on the total value of the blended wine. This presents a situation where multiple producers may claim rebates on the same quantity of wine.

5.11 The further manufacture of wine involves one wine producer selling unfinished wine (for example, raw wine that has undergone primary fermentation) to another wine producer. The subsequent wine producer then undertakes the further manufacture of wine. Under current legislation, assuming both manufacturing processes meet the legislative definition of 'manufacture', both wine producers may be entitled to the producer rebate.

5.12 The amendments will ensure that wine producers will not be able to claim multiple rebates for the same quantity of wine.

5.13 The amendments are in response to concerns raised by the wine industry and the Australian National Audit Office.

Summary of new law

5.14 This Schedule amends the WET Act to reduce entitlement to the producer's rebate, if the producer's wine was manufactured using other wine, except where the producer of the other wine (or supplier) provides a notice.

5.15 The amendments implement a voluntary notice system such that a producer of the other wine (or supplier) may notify the subsequent producer that the producer of other wine is entitled to rebate on a specified amount of the other wine, or that the producer is not entitled to the rebate on the other wine.

5.16 The amendments apply special rules to a New Zealand participant that has not yet been entitled to the producer rebate, for the purposes of determining the amount of the earlier producer rebate.

5.17 The amendments apply to assessable dealings on or after 1 December 2012, or the day on which this Bill receives the Royal Assent, whichever is later.

Comparison of key features of new law and current law

Detailed explanation of new law

5.18 Schedule 6 to this Bill amends the WET Act to ensure the WET producer rebate generally cannot be claimed more than once on a single quantity of wine.

5.19 The amendments implement a voluntary notice system such that a producer of wine (the 'first producer') may notify a subsequent producer who purchases that wine that the first producer is either not entitled to the rebate on the wine or is entitled to rebate on a specified amount of wine.

5.20 Where no notice is given, the WET producer rebate for the producer who purchases the wine is reduced by the amount attributable to the purchased wine.

Earlier producer rebates

5.21 Division 19 of the WET Act governs entitlement to a WET rebate and the amount of the rebate.

5.22 Section 19-15 provides for calculation of the amount of WET rebate that a wine producer or group of producers may claim in a financial year. The amount of a rebate a producer may claim is reduced by the sum of any earlier producer rebates relating to the wine. [Schedule 6, item 1, subsection 19-17(1)]

5.23 The amendments introduce the term earlier producer rebate . [Schedule 6, items 1 and 3, subsection 19-17(2) and section 33-1]

5.24 Where a producer is notified of the amount of the producer's rebate for other wine that was used in manufacture, the 'earlier producer rebate' is so much of the amount of the producer rebate relating to the other wine so used. [Schedule 6, item 1, paragraph 19-17(2)(a)]

5.25 Where a producer is not notified, the earlier producer rebate is the amount equal to what would have been the producer's rebate for the other wine, as relates to the other wine so used, if the producer had been entitled to the full producer rebate on the other wine. [Schedule 6, item 1, paragraph 19-17(2)(b)]

5.26 Where a producer is notified that the producer of the other wine is not entitled to a producer rebate for the other wine, there is no earlier producer rebate. That is, a producer will be treated as being entitled to the rebate relating to the other wine used in the manufacture of the producer's wine. [Schedule 6, item 1, subsection 19-17(2)]

New Zealand producers

5.27 Subsection 19-5(2) requires that wine tax must be paid on the wine before a New Zealand participant becomes entitled to the rebate. As such, a New Zealand participant may not be entitled to the rebate at the time of the sale of the wine.

5.28 The amendments ensure that a New Zealand participant who is not entitled to the rebate because wine tax has not been paid on that wine, will be taken to be entitled to the rebate. The amount of the rebate is taken to be the amount equal to 29 per cent of the approved selling price for the other wine. [Schedule 6, item 1, subsection 19-17(5)]

5.29 Apart from the effect described above, the amendments do not affect a New Zealand participant's entitlement to the rebate. In particular, the amendments do not affect the operation of subsection 19-10(4). Subsection 19-10(4) restricts a New Zealand participant's entitlement to a WET rebate where there is a dealing in wine produced in New Zealand, and a producer rebate has previously been paid in respect of the wine.

Notices system

5.30 The amendments provide that a producer of the other wine may notify, using the approved form, that they are entitled to a producer rebate on a specified amount for the other wine; or they are not entitled to a producer rebate for the other wine. A supplier (who is not the producer) of the other wine may also notify. This is intended to cover situations where a wholesale distributor may pass on a notice received from a producer. [Schedule 6, item 1, subsection 19-17(3)]

5.31 The amendments establish an offence where a person gives a notice that contains a statement that is false or misleading, or omits a matter or thing, without which the statement is false or misleading. The penalty is 20 penalty units. [Schedule 6, item 2, subsection 19-28(1)]

5.32 The offence is an offence of strict liability. [Schedule 6, item 2, subsection 19-28(2)]

5.33 Guidance issued by the Attorney-General's Department (AGD) on the application of strict liability has been considered on whether the use of strict liability is justified. The conclusion is that strict liability is appropriate for this case for the following reasons.

•

The provision of notices is a fundamental part of the measure, and the use of strict liability is considered necessary to protect revenue from the wine equalisation tax regime.

•

The offence is regulatory, and is an offence that is only engaged where producers or suppliers choose to provide a notice.

•

Where a producer provides a notice, the offence relates to facts which are within the producer's knowledge or to which they have ready access. Where a supplier provides a notice, the defence of mistake of fact may cover situations where the supplier has been provided with a false or misleading notice.

•

The offence is not punishable by imprisonment and the offence is less than the 60 penalty units, as recommended by the AGD for strict liability offences.

5.34 The offence intends that producers have responsibility to be aware of whether or not they are entitled to a rebate for a particular sale of wine, where they choose to provide a notice of entitlement.

5.35 Where a wholesale sale of wine includes a sale of two or more types of wine, these amendments ensure that the sale is treated as if there were separate wholesale sales for each type of wine. [Schedule 6, item 1, subsection 19-17(4)]

5.36 For example, where a sale of wine involves the sale of a shiraz and chardonnay, and the producer chooses to notify for both, separate notices must be issued.

Technical amendments to the WET Act

5.37 The amendments update references to offences and penalties under the Act. This ensures that these provisions are updated to current drafting practice. [Schedule 6, items 5 to 11, subsections 13-15(4) and 27-5(2), and sections 13-35 and 19-30]

Commencement provisions

5.38 Schedule 6 to this Bill commences on the day of Royal Assent.

Application and transitional provisions

5.39 These amendments in Part 1 apply to assessable dealings on or after the day (the application day) that is the later of 1 December 2012 or the day of Royal Assent. [Schedule 6, item 4]

5.40 Where wine was manufactured using other wine that was supplied before the application day, the amendments apply as if the producer had been notified that the producer of the other wine is not entitled to a producer rebate for the other wine, and the offences relating to false and misleading statements did not apply. [Schedule 6, item 4]

5.41 The amendments in Part 2 apply from the day of Royal Assent.

STATEMENT OF COMPATIBILITY WITH HUMAN RIGHTS

Prepared in accordance with Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011

Wine equalisation tax rebate

5.42 This Schedule is compatible with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011 .

Overview

5.43 Schedule 6 to this Bill amends the A New Tax System (Wine Equalisation Tax) Act 1999 (WET Act) to ensure that a wine producer will not be entitled to the wine equalisation tax (WET) producer rebate on other wine they use in manufacture, except where the producer of the other wine (or supplier) notifies the subsequent producer.

5.44 The amendments implement a voluntary notice system such that a producer of the other wine (or supplier) may notify the subsequent producer that the producer of other wine is entitled to rebate on a specified amount of the other wine, or that the producer is not entitled to the rebate on the other wine.

5.45 The amendments introduce an offence of strict liability where a person gives a notice that is false or misleading.

Human rights implications

5.46 This Schedule may raise human rights issues because it contains an offence of strict liability, which may raise concerns with respect to the presumption of innocence. The reasons for inserting an offence of strict liability has been assessed in light of guidelines provided by the Attorney-General's Department and are consistent with those guidelines.

5.47 The offence intends that producers have responsibility to be aware of whether or not they are entitled to a rebate for a particular sale of wine, where they choose to provide a notice of entitlement.

5.48 The reasons for establishing a strict liability offence is that it is considered as necessary for protecting the revenue within the wine equalisation tax regime. Furthermore, the relevant matters are regulatory, the offence relates to facts which are within the producer's knowledge or to which they have ready access, and the penalty is below the 60 penalty units, as recommended by the Attorney General's Department.

5.49 The mistake of fact defence may cover situations where a supplier passes on a notice from a producer which is false or misleading.

Conclusion

5.50 This Schedule is compatible with human rights because the aim of revenue protection is legitimate. To the extent that this Schedule may limit those rights, those limitations are reasonable, necessary and proportionate to the aim.