ATO Interpretative Decision

ATO ID 2004/108 (Withdrawn)

Excise

• This ATO ID is withdrawn as it is superseded by Wine Equalisation Tax Ruling WETR 2009/1
  This document incorporates revisions made since original publication. View its history and amending notices, if applicable.

Issue

Where an entity purchases wine from a retailer, and on-sells the wine as a wholesale sale, and does not know the amount of wine equalisation tax (WET) actually borne on the wine, is the entity able to calculate the amount of WET credit to which it is entitled in the following way?

([Purchase price (including WET and GST) / 2] * 29%)


less

WET included in the purchase price that has been credited or refunded to the entity.

Decision

Yes. Where an entity purchases wine from a retailer, and on-sells the wine as a wholesale sale, and does not know the amount of wine equalisation tax (WET) actually borne on the wine, the entity is able to calculate the amount of WET credit to which it is entitled in the following way:

((Purchase price / 2) * 29%)


less

WET included in the purchase price that has been credited or refunded to the entity.

Facts

The entity (a wine merchant) carries on a business sourcing, purchasing and selling premium wine by wholesale to clients that on-sell the wine to their clients.

One of the sources of supply of the wine merchant is a retailer from which wine has been purchased. The wine merchant has subsequently made wholesale sales of this wine and become liable for WET. The wine merchant has a combination of invoices that specify the amount of WET borne on wine purchased and invoices for wine purchased that do not specify the amount of WET borne.

Reasons for Decision

The WET legislation imposes WET on 'assessable dealings' with wine. The most common assessable dealing is a wholesale sale. In this instance, the entity is selling wine to a retailer. Therefore the entity is making a wholesale sale of wine and will be liable to pay WET on the sale.

However, as the entity has purchased the wine from a wine retailer (who would in turn have acquired the wine via a wholesale sale), WET has already been imposed on the wine.

Therefore, as it stands, the entity has effectively paid WET to the wine retailer (in the form of a higher price), and is liable for WET on the subsequent wholesale sale of the wine.

In appreciation of this, the WET legislation provides for the payment of a credit to a wine wholesaler, to effectively refund the WET that was present in the purchase price of the wine.

Under section 17-5 of the A New Tax System (Wine Equalisation Tax) Act 1999 (WET Act), the Wine Tax Credit Table sets out the situations in which an entity is entitled to a WET credit. Credit ground 'CR4' of the table allows for a credit of WET where an entity has become liable to WET on an assessable dealing but has borne WET on the wine before the time of the current dealing. The amount of the WET credit under 'CR4' is the WET previously borne on the wine.

In this case, the entity is liable for WET on the wholesale sale of the wine, and has already borne WET on the wine when they purchased it from the wine retailer. Therefore the entity is entitled to a WET credit for the amount of WET previously borne on the wine.

Section 31-10 of the WET Act explains the circumstances under which an entity is considered to have borne WET. Under subsection 31-10(3) an entity is taken to have borne WET on wine if the entity purchased the wine for a price that included WET. However, the amount of WET borne is reduced by any amount of WET included in that price that has been refunded or credited to the entity.

Where an amount of WET is shown on the purchase invoice of the wine, it can be accepted that this is the amount of WET borne on the wine by the purchaser of the wine.

Where an entity purchases wine from a wine retailer and the entity is entitled to a WET credit under credit ground 'CR4' but the purchaser is not in a position to know the amount of WET they have actually borne on the wine, the Commissioner will accept the following method of calculating the credit entitlement:

([Purchase price (including WET and GST) / 2] * 29%)


less

WET included in the purchase price that has been credited or refunded to the entity.

The first part of the above method of estimating the WET paid on wine is adopted in Wine Equalisation Tax Ruling WETR 2002/2 in various circumstances including:

1.

calculating the amount of WET refund payable to a person who is leaving Australia under the Tourist Refund Scheme (see paragraph 48 of WETR 2002/2).

2.

calculating the amount of WET credit where a wine exporter purchases wine for export under certain circumstances and does not know the amount of WET they have actually borne on the wine (see paragraph 157 of WETR 2002/2).

The half retail method is also one way of calculating the notional wholesale price of wine, which in turn is used in the calculation of the amount of WET payable on a number of assessable dealings (for example where a wine manufacturer makes a retail sale of wine - per section 5-5 of the WET Act).

Given the widespread use of the half retail method in calculating WET, it is accepted as being the appropriate method for determining the amount of wine tax borne on the purchase of wine by an entity that subsequently makes a wholesale sale of the wine.

However, as explained in subsection 31-10(3) of the WET Act, the amount of WET borne must be reduced by any amount of WET included in the price of the wine that has been refunded or credited to the entity.

In summary, the amount of credit to which the entity is entitled may be determined by applying the formula:

([Purchase price (including WET and GST) / 2] * 29%)


less

WET included in the purchase price that has been credited or refunded to the entity

Legislative References:
A New Tax System (Wine Equalisation Tax) Act 1999
   section 33-1
   section 27-5
   subsection 31-10(3)
   subsection 17-5(3)
   subsection 5-5(4)

Related Public Rulings (including Determinations)
Wine Equalisation Tax Ruling WETR 2002/2

Related ATO Interpretative Decisions
ATO ID 2001/4

Keywords
Excise
Excise collections
WET credit
WET taxable value
Wine equalisation tax

Business Line:  Excise

Date of publication:  6 February 2004

ISSN: 1445-2782