Explanatory Memorandum
(Circulated by authority of the Treasurer, the Hon Peter Costello, MP)Chapter 9 - Credits
Overview
9.1 This Chapter describes the general situations in which a credit will be available for wine tax that has been borne on wine. The term credit will embrace both refunds obtained directly from the Commissioner of Taxation (Commissioner) and reductions in the entitys net amount of goods and services tax (GST) payable in a GST return. Credits are dealt with in Part 4 of the A New Tax System (Wine Equalisation Tax) Bill 1999 (WET Bill). The credit entitlement grounds are set out in the Wine Tax Credit Table in section 17-5 .
What is a credit?
9.2 The law will provide an entitlement to a credit if wine tax is overpaid on a transaction, if more wine tax is payable on the wine than the law intends, and in some other circumstances.
9.3 There will be two methods of obtaining credits:
9.4 This will be an amount that an entity will be entitled to deduct from the net amount of GST payable by them during a payment period. An entity that is registered or required to be registered can only claim credits in this manner. [Subsection 17-10(1) and section 21-15]
9.5 This will be a direct payment to the entity claiming the refund. These payments will be obtained by applying directly to the Commissioner. This will only be available to an entity who is not registered and not required to be registered. [Subsection 17-10(2)]
9.6 There will be 5 broad categories of credit grounds under the new law:
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- credits for overpaid wine tax;
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- credits to avoid wine being taxed twice;
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- export-related credits;
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- import-related credits; and
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- credits for bad debts.
How does the passing on condition apply?
9.7 A number of credit grounds require that the amount of the credit available will be limited to the amount that the claimant has not passed on to some other entity. Wine tax will be considered to be not passed on if an entity has passed wine tax on to another entity, but has refunded the wine tax to that other entity before making a claim for the credit. [Section 33-1, definition of passed on]
What does borne wine tax mean?
9.8 A number of credit grounds will require that the claimant must have previously borne wine tax on the wine which is the subject of the dealing. An entity will have borne wine tax on wine where the entity:
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- has become liable to wine tax on an assessable dealing with the wine but not to the extent that the tax has been the basis of a wine tax credit; or
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- has purchased the wine for a price that included wine tax.
[Section 31-10]
Example: An entity purchases wine by wholesale for a total price of $141.90 of which $29 is the amount of wine tax included in the price of the wine and shown on the sales invoice (GST is 1/11 of 141.90 = $12.90). The entity has not received a refund or credit for any part of the $29. The amount of wine tax borne on the wine by the purchaser will be $29.
Credit Ground 1: Wine tax overpaid
9.9 The claimant has paid an amount as wine tax that was not legally payable.
9.10 These overpayments may occur in a number of different circumstances, including:
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- the amount was not legally payable because:
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- the particular dealing was not an assessable dealing;
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- an exemption applied to the dealing;
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- the taxpayer made an incorrect calculation; and
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- liability had not fully crystallised at the time of the payment.
Example: An entity pays wine tax on a wholesale sale under AD1a . The taxable value of the assessable dealing is the price (excluding wine tax and GST) for which the wine was sold. The price is subsequently reduced because of a prompt payment discount which the entity gives to the purchaser. The entity is entitled to a credit for the amount of wine tax overpaid, to the extent that it was not passed on to the purchaser.
9.11 The common law rule is that money paid voluntarily to Government under a mistake of law is irrecoverable. In some circumstances, a taxpayer may have made a wine tax payment which may be described as money paid voluntarily under a mistake of law. CR1 will override this common law rule, because it will apply to an amount paid as wine tax that was not legally payable.
9.12 There is a requirement that the wine tax has not been passed on.
Credits to avoid wine being taxed twice
9.13 There will be circumstances where wine is either directly or indirectly subjected to wine tax more than once. There will be 5 credit grounds to deal with the following situations:
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- failure to quote an Australian Business Number (ABN) - CR2 ;
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- where a fully effective quotation is made ineffective - CR3 ;
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- avoiding the same wine being taxed twice - CR4 ;
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- ensuring exemption where the latest assessable dealing of the taxpayer is non-taxable - CR5 ; and
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- where wine tax excluded from the sale price of tax-paid wine sold to quoting purchasers - CR6 .
9.14 Note that wine tax is not payable on the retail sale or application to own use of wine that has been taxed under the wholesale sales tax. [Paragraph 5-25(3)(c)]
Credit Ground 2: Failure to quote an ABN
9.15 Wine tax has been borne by a registered entity who was entitled to quote an ABN.
9.16 There are two situations covered by this credit ground. The first is where the claimant was entitled to quote on a dealing, but did not quote. The second is where the claimant was entitled to quote but the quote was not accepted by the entity to whom it was given. The claimant will be entitled to a credit if they have borne wine tax on that dealing, to the extent that they have not passed on that wine tax.
Credit Ground 3: Providing credits where a fully effective quotation is made ineffective
9.17 The claimant has become liable to wine tax on an assessable dealing (or has lost an entitlement to a credit under CR6 ) because a fully effective quotation which that entity had accepted was rendered ineffective by virtue of section 13-30 . The supplier in these circumstances will now have a retrospective liability to pay wine tax on the dealing concerned.
9.18 This ground will apply in the following situation:
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- where a supplier of wine has accepted a quotation of an ABN in respect of an assessable dealing with wine;
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- the quotation is made ineffective because of section 13-30 . This could include, for example, where there were reasonable grounds to believe that the purchaser was not authorised to quote, or did not quote in the form and manner approved by the Commissioner; and
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- nevertheless, the quote is and was a bona fide quote.
9.19 This ground will enable the supplier to obtain a credit for the amount of the wine tax payable on the dealing.
9.20 A credit will also be available in these circumstances where the supplier has lost a credit entitlement under CR6 as a result of the quote being ineffective because of section 13-30 .
Example: A retailer makes a wine tax-free sale of wine for $110 out of wine tax-paid stock to a registered entity who quotes an ABN. The retailer is entitled to claim a credit from the Commissioner under CR6 for the amount of the wine tax excluded from the price for which the wine was sold to the registered entity (ie. $29). The retailer has not passed the $29 on to any entity. Note: the wine tax is applied to the GST exclusive value of the wine ie $110 * 1/11 = $100.
An objective assessment of the dealing suggests that the quote is rendered ineffective under section 13-30 because there were reasonable grounds for the quote being refused. Thus the retailer loses his entitlement to a credit under CR6 , as the dealing can no longer be treated as having been a sale to a quoting purchaser.
Subsequently, the facts reveal that the quote was a bona fide quote.
The retailer is entitled to a credit for an amount of $29, because the quote can be treated as valid and the retailer has not passed that amount of wine tax on.
Credit Ground 4: Avoiding the same wine being taxed twice
9.21 The claimant has become liable to wine tax on an assessable dealing in respect of wine, but has borne wine tax on the same wine before the time of that dealing.
9.22 The law will impose a wine tax liability each time there is an assessable dealing with assessable wine, provided no exemption applies. The system of quotation is intended to ensure that, by the time wine ceases to be assessable wine, wine tax will only have been paid on one assessable dealing. However, there will be cases in which liability to wine tax may be incurred twice on the same wine. This credit ground is necessary to prevent that wine being taxed twice in these circumstances.
Credit Ground 5: Ensuring exemption where the latest assessable dealing is non-taxable
9.23 The claimant is the taxpayer for an assessable dealing with wine that is non-taxable, and the claimant has borne wine tax on the same wine before the time of the assessable dealing.
9.24 The purpose of this credit ground is to ensure that, if a taxpayer has borne wine tax on wine (for example, purchasing it for a tax-inclusive price), then that amount of wine tax can be credited to the taxpayer when the taxpayer has an assessable dealing with that wine that is non-taxable. An example of a subsequent assessable dealing with tax-paid wine would be a wholesale sale. The credit ground will not apply if the wine has been taxed while in bond, and the later assessable dealing is a local entry. That local entry will not be taxable because there will be an exemption for wine that previously has been taxed in bond.
9.25 The exemption for a local entry of wine taxed in bond is set out in section 7-20 .
Credit Ground 6: Wine tax excluded from sale price to quoting purchasers
9.26 Wine tax has been excluded from the sale price of tax-paid wine sold to a purchaser who quotes.
9.27 This ground will provide a mechanism for allowing entities to quote or to obtain wine for a tax-exclusive price from a seller, such as a retailer, who holds wine tax-paid stock. It will enable unregistered entities to obtain a refund from the Commissioner if they sell tax-paid wine at a wine tax-free price to a quoting purchaser.
9.28 There is no specific requirement that the wine tax has not been passed on. However, the amount of the credit will only be the amount of the wine tax excluded from the sale price to the quoting purchaser.
Credit Ground 7: Avoiding double tax in respect of containers
9.29 This credit ground is designed to avoid double tax in respect of containers.
9.30 Sometimes, a container and its contents will be regarded as separate goods at the time of the assessable dealing with the contents. This credit ground provides a credit for any wine tax borne on a container in its own right that subsequently has its value included in the taxable value of its contents.
9.31 There is no specific requirement that the wine tax has not been passed on.
Credit Ground 8: Return of defective wine
9.32 The claimant has borne wine tax on wine used for the purpose of replacing other wine because of defects in the other wine on which the claimant has already been liable for wine tax.
9.33 A credit under this ground will be subject to the condition that if the claimant later sells the defective wine which was replaced, then the claimant will be liable to pay an amount in accordance with the formula set out in section 17-35 . This formula will operate to clawback the amount of the original credit to the extent that the claimant has recouped some or all of the wine tax borne on the replacement wine by later selling the defective wine which was replaced.
9.34 There is no specific requirement that the wine tax has not been passed on.
9.35 As exports are one of the categories of supply that are GST-free, exports of wine should not be subject to wine tax where it is exported as assessable wine. This is to ensure that wine which has not been applied to own use in Australia is able to be sold on the international market at prices which do not directly include wine tax.
9.36 The third broad category of credit grounds are export-related credits. The 4 credit grounds which deal with the relief of wine tax on exported wine are as follows:
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- wine tax excluded from the sale price of tax-paid wine sold to a purchaser for export otherwise than as accompanied baggage - CR9 ;
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- wine tax borne directly on assessable wine that is exported - CR10 ;
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- wine tax excluded from the sale price of wine exported by eligible Australian travellers as accompanied baggage - CR11 ; and
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- wine tax excluded from the sale price of wine to be exported by eligible foreign travellers - CR12 .
Credit Ground 9: Wine tax excluded from the sale price of tax-paid wine sold to a purchaser for export
9.37 The claimant has excluded wine tax from the sale price of tax-paid wine sold to a purchaser who, at the time of the sale, had the intention of exporting the wine (otherwise than as accompanied baggage).
9.38 This ground will allow entities, such as a retailers who hold tax-paid stock, to sell wine for export for a tax-exclusive price to an entity that quotes their ABN.
Credit Ground 10: Wine tax borne directly on assessable wine that is exported
9.39 The claimant has borne wine tax on wine which the claimant has exported while the wine is still assessable wine.
9.40 This credit ground will relieve exports from any direct wine tax burden. Under this ground a credit is available for an entity in the following circumstances:
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- the claimant has borne wine tax on wine;
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- the claimant has personally exported the wine; and
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- the wine was assessable wine at the time of export.
9.41 This credit ground will only be available to the entity who actually exports the wine, either by taking the wine with them out of Australia or by arranging the export of the wine by an independent carrier, such as an international shipping or air-freight agent.
Credit Ground 11: Wine tax excluded from the purchase price of wine exported by eligible Australian travellers
9.42 The claimant has sold wine for a wine tax-exclusive price to an eligible Australian traveller in accordance with the prescribed rules for export sales, and the traveller has subsequently exported the wine.
9.43 This credit ground will operate where vendors sell tax-paid wine for a wine tax-exclusive price in the following situation:
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- the claimant has sold wine to an eligible Australian traveller;
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- the sale was in accordance with the prescribed rules for export sales;
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- the selling price excluded some or all of the wine tax previously borne by the claimant on the wine; and
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- the wine has been exported by the purchaser within the time, and in the manner, prescribed by the regulations.
9.44 This term will be defined in the regulations that will be made for the purposes of this definition.
9.45 The rules for export sales will be prescribed by the regulations setting out the conditions to be complied with for these types of sales.
9.46 If the vendor holds wine stock tax-free and makes a sale to an eligible Australian traveller, then that sale will be an assessable dealing. This sale will be taxable, (but will generally be offset by the credit) as there is no exemption for sales to eligible Australian travellers who intend to export the wine as accompanied baggage. Accompanied baggage will mean wine that is exported on a flight or voyage on which the owner of the wine is a passenger. [Section 33-1, definition of accompanied baggage]
9.47 There is no requirement that the wine tax has not been passed on.
Credit Ground 12: Wine tax excluded from the purchase price of wine to be exported by eligible foreign travellers
9.48 The claimant has sold wine for a wine tax-exclusive price to an eligible foreign traveller in accordance with the prescribed rules for export sales.
9.49 This credit ground will operate where vendors sell tax-paid wine for a wine tax-exclusive price in the following situation:
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- the claimant sold wine to an eligible foreign traveller;
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- the sale was in accordance with the prescribed rules for export sales; and
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- the selling price excluded some or all of the wine tax previously borne by the claimant on the wine.
9.50 This ground will effectively apply where the wine is intended to be exported as accompanied baggage by an eligible foreign traveller who is departing Australia on an international air or sea voyage. The prescribed rules for export wine will ensure that a credit entitlement will only arise where the correct procedures have been followed at the point of sale to ensure that the purchaser is a bona fide overseas visitor.
9.51 This term will be defined in the regulations that will be made for the purposes of this definition.
9.52 The rules for export sales will be prescribed by the regulations that will set out conditions which must be complied with in order for a credit to be available where tax-paid wine has been sold at a wine tax-exclusive price to eligible foreign travellers for export.
9.53 There will be two credit grounds relating to imported wine as follows:
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- destruction of imported wine - CR13 ; and
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- drawback of customs duty where imported wine is exported while still assessable wine - CR14 .
Credit Ground 13: Destruction of imported wine
9.54 The claimant has become liable to wine tax on a local entry, but the claimant has rejected the wine for non-compliance with the sale contract and the wine has been destroyed under Customs' supervision.
9.55 This credit ground will operate in those rare cases where the following four conditions are satisfied:
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- the claimant has become liable to wine tax on a local entry of wine that was imported under a contract of sale;
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- the claimant rejected the wine for non-compliance with the contract;
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- the wine was destroyed under Customs' supervision; and
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- the Commissioner is satisfied that the destruction is or would be grounds for remission of customs duty on the wine.
9.56 Grounds for rejecting wine for non-compliance with the contract of sale could include defective wine or wine which does not meet the contract description.
9.57 It will be a requirement that the Commissioner is satisfied that the customs duty paid on the importation of the wine will be remitted because of the destruction. In the case of non-dutiable wine, the Commissioner must be satisfied that if customs duty had been paid on the wine, then that duty would have been remitted by Customs as a result of the destruction of the wine.
Credit Ground 14: Drawback of customs duty on imported wine
9.58 The claimant is an importer who is entitled to a drawback of customs duty on the wine on which wine tax was paid.
9.59 This ground will operate to provide a credit in those cases where:
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- drawback of customs duty has been allowed in respect of certain wine under section 168 of the Customs Act 1901 ; or
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- if the wine is non-dutiable, the Commissioner is satisfied that a drawback of duty would have been allowed if the wine had been liable to duty.
9.60 A drawback of customs duty will be allowed where imported wine is exported without being used in Australia. In this context, wine which has only been used for the purpose of being inspected or exhibited will not be treated as having been used in Australia (see Customs Regulation 129).
9.61 The claimant has paid wine tax on a taxable dealing with wine and some or all of the amount owed to the claimant in respect of that dealing is subsequently written off as a bad debt.
9.62 This credit entitlement will apply where a claimant has paid wine tax on an assessable dealing such as a sale and the claimant has subsequently written off some or all of the price for which the wine was sold.
9.63 Section 17-30 will provide for a clawback of the credit proportionate to the extent to which the bad debt was later recovered.
General rules for obtaining a credit
What are the general entitlements to credits?
9.64 There will be two methods of obtaining a credit.
9.65 This will be an amount that a taxpayer will be entitled to deduct from the net amount of GST payable by them during a tax period. An entity that is registered or required to be registered can use this method to claim credits. [Subsection 17-10(1)]
9.66 This will be a direct payment to the entity claiming the credit. These payments will be obtained by applying directly to the Commissioner. This method is only available for an entity that is not registered and not required to be registered. [Subsection 17-10(2)]
9.67 Offset against other liabilities: The Commissioner will be able to apply the credit against any outstanding wine tax liabilities of the claimant before paying as a refund the remaining amount of the credit [Section 17-20]
9.68 Minimum monetary claims: Refunds will not be available for amounts totalling less than $200. Individual claims may be aggregated to reach the minimum amount. This new requirement is necessary to reduce the likely administrative costs of processing large numbers of small refund claims from a much larger group of potential claimants than exists under the existing law. [Section 17-15]
9.69 There will be no minimum monetary limit for credits claimed as subtractions from GST net amounts.
9.70 Additional requirements regarding the operation of the direct credit provisions will be as follows:
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- Claims for direct credits will be required to be made in a form approved by the Commissioner, and will be required to be accompanied by such supporting evidence as the Commissioner requires. [Subsection 17-10(2)]
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- There will be a provision to ensure repayment by the claimant of excess or overpaid credits. This will cover cases not only where refunds have been incorrectly overpaid by the Commissioner, but also where credits have been improperly deducted from the GST payable in respect of a GST return. The amount of the excess will be treated as if it were wine tax due and payable, and due for payment at the time when it was overpaid or deducted. [Section 17-25]
Agreements relating to calculation of credits
9.71 In almost all situations it is expected that the actual amount of any wine tax credit will be able to be determined from the records of the particular entity. However, if a situation arises where there is difficulty in determining the amount of credit the Commissioner may enter into a section 17-40 agreement with any entity regarding a method of calculating the amount of a wine tax credit. Such agreements will override the legislation.
9.72 Section 17-40 does not allow the Commissioner to authorise a wine tax credit to be granted where the circumstances of that credit are not covered by one of the credit grounds listed in the Wine Tax Credit Table . [Section 17-5] The credit grounds listed in this Table are a complete list of the situations where an entitlement to a wine tax credit arises.
Within what time limits must credit claims be made?
9.73 All claims for credits will be required to be made within 4 years of the time when the credit entitlement arises. [Subsection 17-10(3)]
Objections against credit decisions
9.74 The provisions of the Taxation Administration Act 1953 concerning rights to object against refund decisions will apply. [Section 17-45]