ATO Interpretative Decision
ATO ID 2008/29
Excise
Addition of wine to brandy and whether the finished product is brandyFOI status: may be released
This ATOID provides you with the following level of protection:
If you reasonably apply this decision in good faith to your own circumstances (which are not materially different from those described in the decision), and the decision is later found to be incorrect you will not be liable to pay any penalty or interest. However, you will be required to pay any underpaid tax (or repay any over-claimed credit, grant or benefit), provided the time limits under the law allow it. If you do intend to apply this decision to your own circumstances, you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed. You may wish to obtain further advice from the Tax Office or from a professional adviser.
Issue
Is an alcoholic beverage that is 40.2% alcohol by volume (a/v) which is made by combining grape wine and brandy (in the proportion of 49% wine to 51% brandy) 'brandy' as defined in the Schedule to the Excise Tariff Act 1921 (Excise Tariff Act)?
Decision
No. An alcoholic beverage that is 40.2% a/v which is made by combining grape wine and brandy (in the proportion of 49% wine to 51% brandy) is not 'brandy' as defined in the Schedule to the Excise Tariff Act.
Facts
Grape wine with an alcoholic strength of 14.5% a/v is added to brandy with an alcoholic strength of 65% a/v to produce an alcoholic beverage with a strength of 40.2% a/v.
The finished product is made by combining grape wine with brandy at a ratio of 49% grape wine and 51% brandy.
The grape wine complies with the definition of grape wine in subdivision 31-A of the A New Tax System (Wine Equalisation Tax) Act 1999 (WET Act).
Reasons for Decision
'Brandy' is defined in the Schedule to the Excise Tariff Act as follows:
brandy
means a spirit distilled from grape wine in such a manner that the spirit possesses the taste, aroma and other characteristics generally attributed to brandy.
The definition of brandy in the Schedule to the Excise Act was amended by the Excise Laws Amendment (Fuel Tax Reform and Other Measures) Act 2006 with effect from 1 July 2007. The Explanatory Memorandum to the Excise Laws Amendment (Fuel Tax Reform and Other Measures) Bill 2006 states:
1.12 The excise duty rate applicable to 'brandy' is at a lower rate than that applicable to other excisable beverages and so it is necessary to provide a definition so that only brandy as defined pays duty at that rate.
Brandy is defined in a commencing note to the excise tariff to be a spirit that has been distilled from grape wine so that it tastes and smells like brandy and possesses other characteristics such as colour that are expected of brandy [Schedule 1, item 30]
. So-called fruit brandies such as peach brandy and apricot brandy do not fall within this definition as they are not distilled from 'grape wine'. [Emphasis added]
1.13 'Grape wine' is defined in a commencing note to the excise tariff by reference to the A New Tax System (Wine Equalisation Tax) Act 1999
[Schedule 1, item 32]
. This ensures a consistent definition across alcoholic beverages and reinforces that
brandy applies to spirit of grape origin
but not of origin from other fruits. [Emphasis added]
Thus it can be seen that there is no precise definition of brandy, but for a beverage to be brandy the beverage must be a spirit distilled from grape wine and conform to those characteristics that are accepted as belonging to brandy.
In this case the beverage is a mixture of grape wine and brandy rather than a spirit distilled from grape wine.
The definition of 'brandy' in the Schedule to the Excise Tariff Act also states that 'it possesses the taste, aroma and other characteristics generally attributed to brandy'.
The terms 'taste, aroma and other characteristics' are not defined in Excise legislation nor have they been examined in case law, therefore we must rely on the common meaning of these terms to determine whether the final product in this case possesses the same taste, aroma and other characteristics generally attributable to brandy.
Other indicators in determining whether an alcoholic beverage is a brandy, although not definitive on their own, are the requirements prescribed by the Food Standards Code established by Food Standards Australia New Zealand. Standard 2.75 of the Food Standards Code relevantly provides the following definitions of 'brandy' and 'spirit':
brandy
means a spirit obtained from the distillation of wine, or fermented preparations of grapes or grape product.
spirit
means a potable alcoholic distillate, including whisky, brandy, rum, gin, vodka and tequila, which, unless otherwise required by this Standard,
contains at least 37% alcohol by volume
, produced by distillation of fermented liquor derived from food sources, so as to have the taste, aroma and other characteristics generally attributable to that particular spirit. [Emphasis added]
Thus, for the alcoholic beverage to be considered a 'brandy' under the Food Standards Code, the beverage must be a spirit of at least 37% a/v distilled from grape wine or fermented preparations of grapes or grape product. This is a characteristic attributable to brandy.
Standard 4.5.1 of the Food Standards Code contains requirements for the production of wine and brandy in Australia. In relation to brandy, the schedule to this standard provides a list of things that may be added to brandy. This list includes grape wine. This is congruent with the long-standing practice for commercial distillers to add, among other things, a small quantity of wine to brandy.
In this case, although the alcoholic beverage has an overall alcoholic strength of 40.2% a/v, it is not a spirit obtained from the distillation of wine. It is a mixture of a spirit and wine. While the Commissioner of Taxation acknowledges that taste and aroma are subjective and has not assessed the taste or aroma of the beverage, nor has it been considered if the beverage exhibits the 'other characteristics generally attributable to brandy', the alcoholic beverage is a blend of 51% brandy and 49% grape wine and is not 'a spirit distilled from grape wine'.
Therefore, an alcoholic beverage with 40.2% a/v which is made by combining brandy and grape wine in the proportions of 51% brandy and 49% grape wine, is not 'brandy' as defined in the Schedule to the Excise Tariff Act.
Legislative References:
Excise Tariff 1921
The Schedule
ATO ID 2007/192
Other References:
Explanatory Memorandum to the Excise Laws Amendment (Fuel Tax Reform and Other Measures) Bill 2006
Food Standards Code
Keywords
Alcohol
Alcohol excise
Excise
Excise collections
Grape wine
Spirit excise
ISSN: 1445-2782