LI 2026/D13 - Explanatory Statement
Excise Act 1901
Explanatory Statement
Draft Excise (Denatured Spirits) Determination 2026
General outline of instrument1. This instrument is made under subsection 77FG (1) of the Excise Act 1901 (the Act).
2. A spirit that has been denatured using the formula determined by the CEO under subsection 77FG(1) of the Act can be delivered for use, other than as fuel used in an internal combustion engine, in the domestic market free of excise duty. This instrument sets out the CEO-determined formula.
3. The instrument is a legislative instrument for the purposes of the Legislation Act 2003.
4. Under subsection 33(3) of the Acts Interpretation Act 1901, where an Act confers a power to make, grant or issue any instrument of a legislative or administrative character (including rules, regulations or by-laws) the power shall be construed as including a power exercisable in the like manner and subject to the like conditions (if any) to repeal, rescind, revoke, amend, or vary any such instrument.
Date of effect5. This instrument commences on the day after it is registered on the Federal Register of Legislation.
Background6. Spirits are excisable goods under Australian excise law if used for an excisable purpose (for example, the manufacture of alcoholic beverages or as fuel). Excise duty must be paid on such spirit at the time it is entered for home consumption (that is, it is released from excise control so it can be sold, used, or consumed within Australia). Duty is paid at the relevant rate specified for the spirit under item 3 of the Schedule to the Tariff Act.
7. However, a spirit may be denatured by the addition of particular substances (the denaturant) which makes it unfit for human consumption.
8. Under subsection 77FG(1) of the Act, the CEO may determine a formula for denaturing spirits for the purposes of subitem 3.8 in the Schedule to the Excise Tariff Act 1921 (Tariff Act). Where a spirit has been denatured using this formula, and the spirit is not for use as a fuel in an internal combustion engine, the spirit may be entered for home consumption duty free.
9. Subsection 77FG(2) of the Act requires the CEO to give the greatest weight to the protection of the revenue when determining the formula for denaturing spirits. The CEO has taken into account the following factors when determining which denaturants should be used and at what concentration, to appropriately reduce the risk of the denatured spirit being consumed as a beverage:
- (a)
- the degree of difficulty in removing the denaturant from the spirit
- (b)
- the effectiveness of the denaturant as a deterrent to using the spirit in a beverage at 5% strength on dilution by the addition of water, cola, lemonade or other beverages – it's effectiveness as a deterrent may be due to the denaturant's unpleasant odour or taste, toxicity, or oily or viscous qualities
- (c)
- the relative price of the spirit and fuel, and
- (d)
- whether a denaturant is itself a fuel (such as petrol) or an additive typically used in producing fuel ethanol (such as an emulsifier).
10. The CEO has determined that the risk of a denatured spirit being consumed as a beverage is appropriately mitigated where the concentration of the denaturant in a spirit (100% ethanol) meets or exceeds the minimum concentration specified in column 3 of the following table. At these concentrations, the denaturants are readily detectable and render the spirit unsuitable.
Table 1: Approved denaturants and the minimum concentrations for a spirit to be denatured
| Item |
Column 1
Approved denaturant |
Column 2
CAS registry number |
Column 3
Minimum denaturant concentration (in 100% ethanol) |
Column 4
Detectable levels/Detrimental effects (parts per million) |
| 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 nitrite | 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 or swallowed |
| 20 | sodium tolytriazole | 64665-57-2 | 0.25% w/w | Characteristic odour |
11. The Excise (Denatured spirits) Determination 2016 (No. 3) (2016 Determination) set out the formula for denaturing spirits, as determined by the CEO.
12. This instrument repeals and replaces the 2016 Determination, which would otherwise sunset on 1 October 2026. This instrument has the same substantive effect as the one it is replacing.
Effect of this instrument13. Under subsection 6(1) a spirit will be denatured, for the purpose of sub-item 3.8 in the Schedule to the Tariff Act, if it contains a covered denaturant at a concentration that equals or exceeds the specified concentration for that denaturant.
14. Subsection 6(2) provides the following formula for working out the specified concentration of covered denaturant that is required to denature a spirit:
specified concentration = minimum concentration × ethanol concentration
15. For the purposes of working out the specified concentration of a covered denaturant:
- (a)
- covered denaturants are the substances listed in column 1 of the table in section 7 that the CEO has determined are able to denature a spirit when added at a sufficient concentration
- (b)
- minimum concentration is the concentration of covered denaturant that would be required to denature 100% ethanol, and
- (c)
- ethanol concentration means the proportion of ethanol in the spirit being denatured, expressed as a decimal. For example, the ethanol concentration of a spirit with an ethanol concentration of 70% is expressed as 0.7.
16. To calculate specified concentration required to denature a spirit:
- (a)
- find the covered denaturant and note the minimum concentration required to denature 100% ethanol
- (b)
- work out the spirit's ethanol concentration (expressed as a decimal)
- (c)
- apply the formula in subsection 6(2).
Example 1
XYZ Company wishes to denature a spirit that is 80% ethanol by the addition of methanol. The ethanol concentration of this spirit, expressed as a decimal, is 0.8.
XYZ Company notes that methanol is a covered denaturant that will denature 100% ethanol at a minimum concentration of 5% v/v.
XYZ Company uses the formula in subsection 6(2) to work out the concentration of methanol that will denature a spirit with an ethanol concentration of 0.8:
specified concentration = minimum concentration × ethanol concentration
specified concentration = 5% v/v × 0.8 = 4% v/v
A spirit is considered denatured if it contains at least 4% v/v methanol.
17. To be covered by sub-item 3.8 of the Schedule in the Tariff Act, the spirit must contain at least one covered denaturant at or above the specified concentration worked out under section 6. Where the spirit contains more than one covered denaturant the formula is applied to each covered denaturant separately. If none of the covered denaturants in the spirit, individually, equals or exceeds the specified concentration for that denaturant, then the spirit is not denatured in accordance with the formula and cannot be classified to subitem 3.8.
Example 2
XYZ Company now wishes to denature a spirit that is 80% ethanol by the addition of methanol and isopropanol. The ethanol concentration of this spirit, expressed as a decimal, is 0.8.
XYZ Company notes that methanol and isopropanol are both covered denaturants and each will denature 100% ethanol at a minimum concentration of 5% v/v.
XYZ Company applies the formula in subsection 6(2) to methanol and isopropanol and determines the spirit must contain either methanol or isopropanol at a minimum concentration of 4% v/v to be denatured.
XYZ Company knows the spirit contains methanol at 3% v/v and isopropanol at 1% v/v. The spirit is therefore not denatured in accordance with the formula as it does not contain at least one covered denaturant at or above the required specified concentration for that denaturant.
As the formula is applied to each covered denaturant separately the concentration of methanol and isopropanol in the spirit cannot be added together to equal the required specified concentration of 4% v/v.
18. Column 2 in the table in section 7 provides the CAS registry number, a unique identifier allocated to chemical substances, that relates to the covered denaturants specified in column 1. These identifiers are incorporated, as they exist on the Chemical Registry System and Chemical Abstracts Service, at the time this instrument commences. The material is freely available on the CAS Common Chemistry resource and can be accessed at https://commonchemistry.cas.org.
Compliance cost assessment19. To be advised.
Consultation20. Subsection 17(1) of the Legislation Act 2003 requires that the Commissioner is satisfied that appropriate and reasonably practicable consultation has been undertaken before they make a legislative instrument.
21. As part of the consultation process, you are invited to comment on the draft instrument and its accompanying draft explanatory statement.
Please forward your comments to the contact officer by the due date.
| Due date: | 26 June 2026 |
| Contact officer: | Anthony Barnard |
| Email: | anthony.barnard@ato.gov.au |
| Phone: | 03 9285 1974 |
Statement of compatibility with human rights
Prepared in accordance with Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011
Excise (Denatured Spirits) Determination 2026This legislative instrument 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 of the legislative instrumentSpirits are excisable goods under excise law and duty must be paid on the spirit at the time it is entered for home consumption. Duty is paid at the relevant rate specified for the spirit under item 3 of the Schedule to the Excise Tariff Act 1921 (Tariff Act).
However, a spirit may be denatured by the addition of particular substances that make it unfit to be consumed as a beverage.
A spirit that has been denatured using the formula determined by the CEO under subsection 77FG(1) of the Excise Act 1901 can be delivered for use, other than as fuel used in an internal combustion engine, in the domestic market duty free. It is duty free because the denaturing prevents the spirit from being used for an excisable purpose. This instrument sets out the CEO-determined formula.
Human rights implicationsThis legislative instrument does not engage any of the applicable rights or freedoms. It provides a formula to work out whether a spirt is denatured for the purposes of sub-item 3.8 of the Tariff Act.
ConclusionThis legislative instrument is compatible with human rights as it does not raise any human rights issues.
Draft published 1 June 2026
Will Day
Deputy Commissioner of Taxation
LI 2026/D13 - Legislative Instrument