EXC 2006/2 - Explanatory statement
Australian Government
A New Tax System (Wine Equalisation Tax) Act 1999
This instrument sets out the manner in which a component of the approved selling price of wine may be converted to Australian currency for the purposes of calculating the wine equalisation tax (WET) producer rebate by eligible New Zealand wine producers. This instrument may be cited as the Wine Equalisation Tax New Zealand Producer Rebate Foreign Exchange Determination 2006.
The authority for this instrument is provided by subsection 19-15(1B) of the A New Tax System (Wine Equalisation Tax) Act 1999 (WET Act). The instrument is a legislative instrument for the purposes of the Legislative Instruments Act 2003.
Date of effectThis instrument commences from 1 July 2006 or from the commencement of Schedule 4 to the Tax Laws Amendment (2005 Measures No. 4) Act 2005, whichever is the later. This commencement date is aligned with the date from which the entitlement to the WET producer rebate by eligible New Zealand wine producers first arises. This is an appropriate date for commencement of this instrument as calculation and valid claim for the rebate could not be made before that time.
What this instrument is about:Under the WET Act, eligible wine producers can claim a WET producer rebate of up to A$290,000 per year. The WET producer rebate was originally only available to wine producers who were registered for goods and services tax (GST) in Australia. However, entitlement to the rebate has now been extended to include non-GST registered producers of wine in New Zealand that export their wine to Australia and that meet certain eligibility criteria. This extension was made through amendments to the WET Act in the Tax Laws Amendment (2005 Measures No. 4) Act 2005.
The New Zealand WET producer rebate is calculated at the rate of 29% of the approved selling price of the relevant wine, up to the maximum limit of A$290,000. The approved selling price is the New Zealand producers' selling price of the wine net of any expenses unrelated to the production of the wine in New Zealand. The WET Act provides that when any component used to determine the approved selling price is expressed in a currency other than Australian currency, the Australian Commissioner of Taxation may determine how the value of that component should be converted to Australian currency.
This instrument sets out the manner in which any component of the approved selling price that is not expressed in Australian currency may be converted into Australian currency.
Effect of this instrument:This instrument provides 2 options to convert a component of the approved selling price of wine for a New Zealand wine producer into Australian currency. Whichever option is chosen, it must be used consistently.
Option 1 - conversion for components expressed in any foreign currency
Under this option, a New Zealand wine producer can convert a component of the approved selling price of their wine that is expressed in any foreign currency into Australian currency. It is anticipated that in the overwhelming majority of circumstances, the foreign currency to be converted will be New Zealand currency.
The conversion under this option is to be calculated by multiplying the value of the component of the approved selling price, expressed in foreign currency, by the inverse of the New Zealand participant's particular exchange rate on the conversion day.
The New Zealand participant's particular exchange rate will be either:
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- the foreign exchange rate calculated by the Reserve Bank of Australia; or
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- the foreign exchange rate agreed to between the New Zealand participant and the recipient of their wine.
In applying the formula, a New Zealand participant may use either of these rates, as long as the rate they choose is used consistently. These rates have been chosen because they will be easy for New Zealand wine producers to obtain and to substantiate.
The conversion day is the date the New Zealand wine producer will use to convert foreign currency into Australian currency for the purposes of the WET producer rebate. This date will be the earlier of:
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- the day on which any of the consideration is received by the New Zealand wine producer for the supply of their wine; or
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- the date the invoice is issued for that supply.
These dates have been chosen to align with the usual method of attributing WET and GST (ie the non-cash basis).
Option 2 - additional option for components expressed in New Zealand currency
For most New Zealand participants for the WET producer rebate, foreign currency conversions will be generally made from New Zealand currency to Australian currency. It was therefore decided to provide an alternative option to convert currency in this circumstance, by allowing approved New Zealand participants to convert components of the approved selling price that are expressed in New Zealand currency by using a single average rate of conversion for a financial year. This option will provide greater flexibility and reduce compliance costs for affected entities, particularly in instances where they might have a significant number of dealings at different times during a financial year.
The conversion under this option is to be calculated by multiplying the value of the component of the approved selling price on the conversion day, expressed in New Zealand currency, by the average yearly RBNZ rate.
The average yearly RBNZ rate is the total of the Reserve Bank of New Zealand average monthly exchange rates for an Australian financial year, divided by twelve. The Reserve Bank of New Zealand publishes average RBNZ exchange rates every month. The Australian Taxation Office will publish on its website the average yearly RBNZ rate for each financial year. These rates have been chosen because they are easy to obtain and to calculate.
Consultation:Where possible, the Australian Taxation Office endeavours to design its administrative processes to take into account the needs of users of its products and services to make the experience of interaction with the revenue authority easier, cheaper and more personalised. In line with this approach, user research and design workshops were held in Auckland, New Zealand in June 2005 to discuss various aspects of the proposed scheme for the WET producer rebate for New Zealand wine producers.
As part of these workshops, attended by executives of the New Zealand Winegrowers' Association, and representative New Zealand winemakers selected by the association, potential clients were advised that claims would be assessed and paid in Australian dollars. Clients accepted this as reasonable, and indicated a willingness to conform to any reasonable procedures for calculating appropriate conversion rates.
In subsequent information seminars, held in August 2005 in various winegrowing regions of New Zealand, the requirement for foreign exchange conversion in relation to claims for the WET producer rebate for New Zealand producers was again canvassed. These seminars were attended by at least 70% of New Zealand wine producers and there was no adverse comment from participants in relation to this proposal.
New Zealand Inland Revenue and the Australian Department of the Treasury were also consulted in relation to the development of this instrument.
23 March 2006
Commissioner of Taxation
EXC 2006/2 - Legislative Determination