EXC 2006/15 - Explanatory statement

Australian Government

Excise Act 1901

General Outline

1. This Explanatory Statement is provided in accordance with section 26 of the Legislative Instruments Act 2003.

2. Excise (Denatured spirits) Determination 2006 (No. 1) is required due to amendments to the Excise legislation effected by Excise Laws Amendment (Fuel Tax Reform and Other Measures) Act 2006, Excise Tariff Amendment (Fuel Tax Reform and Other Measures) Act 2006 and Excise Amendment Regulations 2006 (No. 3).

3. The amendments are the result of the Review of the Schedule to the Excise Tariff Act 1921 (the Review) initiated by Treasury on 2 June 2005 with the release of an industry discussion paper and a targeted consultation process. The principal objects of the Review were to streamline the Schedule to the Excise Tariff Act 1921 (the Excise tariff) and make it more user-friendly, make excise law clearer and less complex, and improve the integrity of the excise system.

4. The amendments include new provisions for concessional spirit and the repeal of the Spirits Act 1906.

5. Up to 30 June 2006, certain methylated spirits have been delivered for home consumption duty-free and without permit under item 2(N) of the Excise tariff. Regulation 17 of the Spirits Regulations 1926 (Spirits Regulations) prescribes formulas for this purpose.

6. Commencing 1 July 2006, the CEO (Commissioner of Taxation) may determine a formula for denatured spirits that can be delivered into home consumption under subitem 3.8 of the revised Excise tariff duty-free without the need for a permit.

7. The relevant provision for determining a formula is section 77FG of the Excise Act 1901 (Excise Act).

8. Paragraph 2.67 of the Explanatory Memorandum to the amending Bills provides commentary on the intended operation of substituted section 77FG of the Excise Act.

Date of effect

9. The instrument is to commence on 1 July 2006.

Purpose and effect of the instrument:

10. Subitem 3.8 of the revised Excise tariff is reliant on the existence of a determination of formulas for denatured spirit.

11. By determining a formula under section 77FG, the CEO allows a person to deliver denatured spirit for home consumption duty-free. From this point the denatured spirit passes out of CEO's control.

12. The formula is expressed in a generic form. The only requirement for spirit to be denatured for the purposes of subitem 3.8 of the Excise tariff is that it contains one of the substances listed in the Schedule at or above the specified minimum concentration. The addition of other substances beyond that requirement is not relevant.

13. Specifying minimum concentrations means that spirits containing, for example, 15%, 10% or 5% methanol are covered by the formula under item 11 in the Schedule to the determination.

14. For simplicity, conciseness and ease of administration, denaturants have not been assessed in relation to their cumulative effect.

15. If none of the listed denaturants is present at or above the specified minimum concentration, the spirits cannot be delivered under subitem 3.8. However, depending on the user's eligibility, spirits may be delivered duty-free under either subitem 3.6 or 3.7 for an industrial, manufacturing, scientific, medical, veterinary or educational purpose. A person who is a member of a determined class of persons for the purposes of subitem 3.6 may receive spirit up to the maximum quantity permitted by the relevant determination. Alternatively, a person may apply to the CEO for an approval to use spirit. The Excise concessional spirit approvals guidelines 2006 (No. 1) apply to such approvals.

16. Denaturants are included in the Schedule according to currency of use in industry (pyridine, for example, is no longer in use) and their effectiveness at the specified concentration in deterring the use of spirits as a beverage. In addition, the suitability of certain denatured spirits for fuel use has been taken into account.

17. The CEO has applied the following criteria in assessing whether a substance sufficiently denatures spirits to eliminate the risk to the revenue through diversion for use as a beverage or a fuel:

the degree of difficulty in removing the denaturant from spirits based on:

differentials in boiling points (less than 40ºC signifying an acceptable level of difficulty); or
other means (e.g. agitation);

effectiveness as a deterrent from use as a beverage at 5% strength on dilution by the addition of water, cola, lemonade or other beverage due to:

unpleasant odour or taste;
oily or viscous quality, signalling the presence of the denaturant;

Note: toxicity may not be a sufficient deterrent if the presence of the toxic substance is not indicated by other factors.
factors such as price and marketing;

Note: the degree of risk is partially dependent on the price differential between spirit and fuel; the high cost of fuel is a driver for fuel substitution, increasing the risk of concessional spirits being diverted to fuel.

whether a denaturant is itself a fuel, such as petrol, or an additive typically used in producing fuel ethanol, such as an emulsifier.
Note: due to the risk of denatured spirits being diverted to fuel ethanol for use in an internal combustion engine, such formulas are not included in the determination.

18. The common names of chemical substances are used in accordance with ordinary practice in technical literature. Proprietary names are not used.

19. To remove any ambiguity that may exist due to a substance having more than one common name, CAS registry numbers are also used to identify each denaturant. CAS registry numbers are unique numerical identifiers for chemical compounds, polymers, biological sequences, mixtures and alloys as allocated in the registry of the Chemical Abstracts Service, a division of the American Chemical Society.

20. The following table lists the formulas approved by the instrument with the reasons why the CEO considers risk to the revenue has been sufficiently mitigated:

component CAS no less than Risk mitigation
1 acetaldehyde 75-07-0 1.0% v/v Detectable at less than 1ppm
2 n-propanol 71-23-8 1.0% v/v Detectable at approx 20ppm
3 n-propyl acetate 109-60-4 1.0% v/v Detectable at approx 20ppm
4 acetone 67-64-1 2.0% v/v Detectable at approx 1000ppm
5 denatonium benzoate 3734-33-6 5 ppm Taste threshold 1:20,000,000
6 ethyl acetate 141-78-6 1.0% v/v Detectable at approx 1ppm
7 propylene glycol mono-methyl ether 107-98-2 1.0% v/v Detectable at approx 100ppm
8 sodium nitrate 7632-00-0 0.25% v/v Toxic at 85ppm
9 methyl ethyl ketone 78-93-3 0.5% v/v Detectable at approx 10ppm
10 methoxy propyl acetate 108-65-6 0.5% v/v Detectable at approx 150ppm
11 methanol 67-56-1 5.0% v/v Detectable at approx 2000ppm
12 isopropanol 67-63-0 5.0% v/v Detectable at approx 2500ppm
13 tertiary butyl alcohol 75-65-0 0.25% v/v Detectable at approx 73ppm
14 methyl isobutyl ketone 108-10-1 0.25% v/v Detectable at approx 10ppm
15 n-hexane 110-54-3 1.0% v/v Detectable at minute levels
16 ethyl ether 60-29-7 1.0% v/v Detectable at approx 0.33ppm
17 propylene glycol 57-55-6 20.0% v/v Colourless, odourless but oily liquid
18 sodium hydroxide 1310-73-2 0.25% w/w Odourless but very corrosive
19 sodium molybdate 7631-95-0 0.25% w/w Odourless but harmful if inhaled / swallowed
20 sodium tolytriazole 64665-57-2 0.25% w/w Characteristic odour

Impact of the instrument

21. The instrument provides a significantly increased range of denatured spirit formulas by specifying minimum concentrations of individual denaturant substances. This overcomes the limitations of regulation 17 of the Spirits Regulations which prescribes a small number of largely outdated formulas based on exact concentrations.

22. Up to 30 June 2006 certain low-risk denatured products have been delivered duty-free without permit under an administrative expedient that characterises the product as a 'solvent' rather than as denatured spirit. This expedient developed as an administrative concession to industry in the face of the inflexibility of the denatured ('methylated') spirits regime.

23. The new provisions remove the need to rely any longer on this expedient and provide the required flexibility to allow the Tax Office to administer the denatured spirits regime in line with modern industry practice and respond to the needs of the industry in a timely way.

24. Under section 77FJ of the Excise Act it is an offence to remove a denaturant from denatured spirits without written permission from the CEO. This replaces the offence under section 15 of the Spirits Act 1906 (under repeal).


14. On 1 June 2006 the Tax Office initiated a 2-week public consultation process on the legislative instruments arising from the Review, with the Assistant Treasurer approving the consultation prior to the related legislation being passed by Parliament.

15. The instruments and explanatory statements were published on the ATO website www.ato.gov.au in the form of drafts for consultation. The determination, together with this explanatory statement, was included in that process.

16. Selected parties in the alcohol industry were contacted and invited to comment on the content, form and language of the determination and explanatory statement.

30 June 2006

Commissioner of Taxation

Subject References:
Excise tariff
denatured spirits
concessional spirit
concessional spirit specific approvals
methylated spirits

Legislative References:
Excise Act 1901
section 25
section 77FG
section 77FH

Excise Tariff Act 1921
the Schedule, item 2(N) (up to 30 June 2006)
the Schedule, subitem 3.8 (on or after 1 July 2006)

Excise Laws Amendment (Fuel Tax Reform and Other Measures) Act 2006
the Act

Excise Tariff Amendment (Fuel Tax Reform and Other Measures) Act 2006
the Act

Excise Amendment Regulations 2006 (No. 3)
the Regs

Spirits Act 1906
section 15

Spirits Regulations 1926
regulation 17

Related Legislative Determinations:
EXC 2006/6 - Excise concessional spirit approvals guidelines 2006 (No. 1)
EXC 2006/8 - Excise (Class of persons-veterinary practitioners) Determination 2006 (No. 5)
EXC 2006/11 - Excise (Class of persons-educational institutions) Determination 2006 (No. 1)
EXC 2006/12 - Excise (Class of persons-medical institutions) Determination 2006 (No. 3)
EXC 2006/13 - Excise (Class of persons-health care practitioners) Determination 2006 (No. 4)
EXC 2006/14 - Excise (Class of persons-government institutions) Determination 2006 (No. 2)
EXC 2006/15 - Excise (Denatured spirits) Determination 2006 (No. 1)

Other References:
Review of the Schedule to the Excise Tariff Act: industry discussion paper, Treasury, 2 June 2005
Explanatory Memorandum to the Excise Laws Amendment (Fuel Tax Reform and Other Measures) Bill 2006, Excise Tariff Amendment (Fuel Tax Reform and Other Measures) Bill 2006