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Ruling

Subject: Wine Equalisation Tax - producer rebates

Question 1

Are you entitled to a wine producer rebate for wines that you blend?

Answer: Yes.

Question 2

Are you entitled to a wine producer rebate for wines that you have a contract winemaker blend on your behalf?

Answer: Yes, as long as you meet certain conditions.

Relevant facts and circumstances

You are registered for goods and services tax (GST).

As part of your enterprise, you buy bulk wines from Australian suppliers. You also buy low sugar grape juice (LSGJ) and grape spirit from your suppliers.

You blend the wines with the LSGJ and grape spirit to make three distinct products:

Product A:

You purchase bulk wine, to which you add LSGJ and grape spirit. You then filter and bottle the product. The total alcohol volume per litre of Product A is not more than 22%.

Product B:

You purchase four different varieties of bulk wine. You blend these wines in one tank, and then add neutral grape concentrate and grape spirit. You then cold stabilise, filter, carbonate and bottle the product. The total alcohol volume per litre of Product B is not more than 22%.

Product C:

You purchase four different varieties of bulk wine. You blend these wines in one tank, and then add neutral grape concentrate and grape spirit. You then cold stabilise, filter and bottle the product. The total alcohol volume per litre of Product C is not more than 22%.

You generally blend the wine using your own formula in your own facilities.

If required in the future, you may have the wines blended under contract.

You sell the wines to wholesale customers under quote. Your customers have indicated that they do not intend to export the wine.

Reasons for decision

Question 1: Are you entitled to a wine producer rebate for wines that you blend?

Under subsection 19-5(1) of the A New Tax System (Wine Equalisation Tax) Act 1999 (WET Act), you are entitled to a producer rebate if you are the producer of rebatable wines.

You must also either be liable to wine equalisation tax (WET) when you sell the wines, or would have been liable to WET had the purchaser of the wine not quoted at or before the time of sale.

Under subsection 19-10(1) of the WET Act, however, you are not entitled to a producer rebate if you make a supply of the wine that is GST-free. The supply of wine will be GST-free if it meets one of the provisions of Division 38 of the A New Tax System (Goods and Services Tax) Act 1999 (the GST Act). A GST-free supply of wine includes wine that is exported from Australia according to Subdivision 38-E of the GST Act.

Sub-issue 1: Are your wines rebatable wines?

Section 33-1 of the WET Act defines the term 'rebatable wine' as:

rebatable wine means grape wine, grape wine products, fruit or vegetable wine, cider or perry, mead or sake.

The term 'grape wine' is defined in section 31-2 of the WET Act, which states:

(1) Grape wine is a beverage that:

(a) is the product of the complete or partial fermentation of fresh grapes or products derived solely from fresh grapes; and

(b) complies with any requirements of the regulations, made for the purposes of section 31-8, relating to grape wine.

(1) A beverage does not cease to be the product of the complete or partial fermentation of fresh grapes or products derived solely from fresh grapes merely because grape spirit, brandy, or both grape spirit and brandy, have been added to it.

Regulation 31-2.01 of the A New Tax System (Wine Equalisation Tax) Regulations 2000 states:

For paragraph 31-8(1)(a) of the Act, a beverage mentioned in paragraph 31-2(1)(a) of the Act must not contain more than 22% by volume of ethyl alcohol.

In order for a wine to be a grape wine, therefore, it must be the product of the complete or partial fermentation of fresh grapes or products derived solely from fresh grapes, and it must also not contain more than 22% by volume of alcohol.

You have three products, being Products A, B and C.

Product A is the product of bulk wine, LSGJ and grape spirit. As stated in subsection 31-2(2) of the WET Act, the addition of grape spirit to Product A does not mean that it is no longer a grape wine. As the finished product is a product of the partial fermentation of fresh grapes or products derived solely from fresh grapes, it meets the definition of a grape wine.

Similarly, Products B and C are made by combining four different bulk wines. Some neutral grape concentrate and grape spirit are added, and Product B is carbonated, however the finished product is a product of the partial fermentation of fresh grapes or products derived solely from fresh grapes. As such, Products B and C meet the definition of a grape wine.

Subissue 2: Are you the producer of the rebatable wines, if you blend them at your own facilities?

Section 33-1 of the WET Act defines the term 'producer' as an entity that:

Manufactures the wine or supplies to another entity the grapes, other fruit, vegetable or honey from which the wine is manufactured.

The term 'manufacture' is also defined in section 33-1 of the WET Act, and includes:

(b) combining parts or ingredients so as to form an article or substance that is commercially distinct from the parts or ingredients.

Wine Equalisation Tax Ruling WETR 2009/2 gives the Commissioner of Taxation's view as to the operation of the producer rebate provisions. Paragraphs 38-50 further explain the Commissioner's view on paragraph (b) of the definition of 'manufacture'. Paragraphs 39-40 state:

The mixing together of two or more different wines… to produce another wine, for example a blended wine satisfies the second limb of the definition of manufacture. The person who mixed the inputs together does not have to have produced the inputs…

The Commissioner considers that an entity that combines different wines to produce wine with its own characteristics, distinct from the individual blended wines, manufactures wine.

In the case of Products B and C, you take four different varieties of bulk wine and you blend them to create a grape wine with its own distinct characteristics. As paragraphs 39-40 of WETR 2009/2 state, we consider that, when you blend these different wines, you manufacture Products B and C.

Similarly, in the case of Product A, you take base wine and add LSGJ and grape spirit to make a fortified wine. A fortified wine is commercially distinct from the base wine, LSGJ and grape spirit; in a commercial sense, it is marketed and sold as a different product. As such, we consider that, when you blend the ingredients to fortify Product A, you manufacture it.

You have advised us that all of your wine is sold under quote to wholesalers. The wholesalers have all indicated that they do not intend to export the wine. If your sales to the wholesalers are GST-free because they meet another provision of Division 38 of the GST Act, then you are not entitled to claim producer rebate. However, where you manufacture the wine yourself, where the sales are not GST-free and where you would be liable to pay WET on the wine if the wholesaler had not quoted their Australian business number to you, you are able to claim a producer rebate.

Question 2: Are you entitled to a wine producer rebate for wines that you have a contract winemaker blend on your behalf?

As stated above, we consider that the three wines are commercially distinct products, and the manufacture of those products would be considered producing the products for the purposes of the WET Act.

However, under section 19-5, you must be the producer of the wine; in other words, you must either manufacture the wine or provide another entity with the raw materials to make the wine.

WETR 2009/2 states at paragraphs 48-49:

The Commissioner also considers that an entity manufactures wine when it engages a contract wine maker who makes the wine on behalf of the entity, provided that the grapes, other fruit, vegetable or honey and the resulting wine remains the property of the entity. The owner does not physically manufacture the wine, however the owner provides the requisite materials… and specifications for wine to be manufactured, and the engagement of the contract winemaker is akin to engaging an employee to undertake the physical tasks of manufacture.

You have advised us that, in the future, you may have the wines blended under contract to your specifications by a contract winemaker, if the volume you need to produce exceeds the amount you can produce at your sites.

In this case, you may be considered to manufacture the wine if:

a) you own and provide to the contract winemaker the requisite base wine, grape spirit, LSGJ, neutral grape concentrate and other materials needed to manufacture the wine, and

b) you provide the specifications under which the wine is manufactured and ensure that the winemaker meets these specifications.

Only if you meet these requirements, will you be considered to be the manufacturer of the wine, and you can claim a producer rebate for the wine.

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