Edited version of private ruling

Authorisation Number: 1011501211997

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Ruling

Subject: Classification of product - grape wine product

Questions

1. Are your cocktail products manufactured during the period 12 February 2009 to 17 May 2009 grape wine products for the purposes of the A New Tax System (Wine Equalisation Tax) Act 1999 (WET Act)?

Answer: No.

Your cocktail products manufactured during the period 12 February 2009 to 17 May 2009 are not grape wine products for the purposes of the WET Act.

2. Are your cocktail products manufactured from 18 May 2009 onwards grape wine products for the purposes of the WET Act?

Answer: No.

Your cocktail products manufactured from 18 May 2009 onwards are not grape wine products for the purposes of the WET Act.

Relevant facts and circumstances

Your advised that:

You carry on an enterprise of manufacturing and supplying cocktail products.

In the past you bought spirits and used them as the base for your cocktail products.

The cocktail products are manufactured on a made to order basis.

You manufacture the cocktail products by mixing cocktail concentrates in different flavours with fortified wine. Some of your cocktail products contain a powdered ingredient similar to powdered milk.

You also manufacture the cocktail concentrates that you use for your cocktail products. These cocktail concentrates contain cocktail flavours, fruit purees, fruit concentrates, colours, sugar, water and preservatives.

You purchase the cocktail flavours for your cocktail concentrates from suppliers, A and B.

You provided product specifications, from A and B, for the particular ingredients in the cocktail flavours. However, you advised that due to trade secrets A and B can only outline general information regarding the ingredients.

The product specifications show that the cocktail flavours contain propylene glycol, ethanol, water and natural flavour.

You stated that the ethanol used in the cocktail flavours is grape derived; it is used as a carrier for the flavour and assists with the solubility of the flavour. However, there was no written statement provided from the suppliers declaring that the ethanol in the flavours is grape spirit. Furthermore, the product specifications do not specify such details.

Besides the cocktail flavours, all the fruit purees, the colours and fruit concentrates are non-alcoholic.

Manufacturing procedures for the period 12 February 2009 to 17 May 2009

You manufactured the cocktail products, for each of the required flavours, by mixing an amount of cocktail concentrate with an amount of fortified wine at 22% by volume of ethyl alcohol.

You checked the cocktail mixtures for sugar concentration, taste, colour and alcohol level.

The cocktail mixtures were bottled into containers.

When a customer placed an order, you blended an amount of cocktail mixture with an amount of liquid sugar and supplied this to the customer.

Manufacturing procedures for the period 18 May 2009 and onwards

You use fortified wine with an alcoholic strength of 10.5% and mix an amount of this fortified wine with an amount of cocktail concentrate.

You check the cocktail mixtures for sugar concentration, taste, colour and alcohol level.

The cocktail mixtures are packaged into containers for sale to customers.

Reasons for decision

Wine equalisation tax (WET) applies to wine that contains more than 1.15% by volume of ethyl alcohol. Section 31-1 of the WET Act specifies that wine includes grape wine and grape wine products.

Grape wine is defined by section 31-2 of the WET Act and regulation 31-2.01 of the A New Tax System (Wine Equalisation Tax) Regulations 2000 (WET Regulations) as a beverage that:

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

· does not contain more than 22% by volume of ethyl alcohol.

Furthermore, subsection 31-2(2) of the WET Act provides that a beverage does not cease to be grape wine merely because grape spirit or brandy or both have been added. This means that grape wine could be fortified by adding grape spirit and the fortified wine would be considered a grape wine if it contains no more than 22% by volume of ethyl alcohol.

On the other hand, grape wine product is defined by section 31-3 of the WET Act. Prior to 10 September 2009, section 31-3 of the WET Act provided that grape wine product is a beverage that contains at least 70% grape wine and:

· has not had added any ethyl alcohol from any other source, except grape spirit or alcohol used in preparing vegetable extracts (including spices, herbs and grasses); and

· contains between 8% and 22% (inclusive) by volume of ethyl alcohol.

The term 'alcohol used in preparing vegetable extracts' is considered by the Commissioner, at paragraph 15 of the Wine Equalisation Taxation Ruling WETR 2009/1, to be limited to alcohol used in the process of extracting flavour from vegetable matter and that has become an intrinsic part of the extraction process. The Commissioner does not consider that it extends to alcohol that has been used as a carrying medium for flavours made from vegetable extracts.

The definition of grape wine product was amended by A New Tax System (Wine Equalisation Tax) Amendment Regulations 2009 (No. 1) and became effective from 10 September 2009.

Therefore, as of 10 September 2009 grape wine product is defined by section 31-3 of the WET Act and regulation 31-3.01 of the WET Regulations as a beverage that meets all the following requirements:

· contains at least 70% grape wine;

· has not had added to it, at any time, any ethyl alcohol from any other source, except:

a) grape spirit; or

b) alcohol used in preparing vegetable extracts (including spices, herbs and grasses), where the alcohol:

1. must only be used to extract flavours from vegetable matter; and

2. must be essential to the extraction process; and

3. must not add more than one percentage point to the strength of alcohol by volume of the beverage;

· contains at least 8% by volume of ethyl alcohol, but not more than 22% by volume of ethyl alcohol; and

· must not have added to it the flavour of any alcoholic beverage (other than wine), whether the flavour is natural or artificial.

Alcoholic strength of the cocktail concentrates

You manufacture the cocktail concentrates using fruit purees, fruit concentrates, cocktail flavours, colours, sugar, water and preservatives. Some of the cocktail concentrates contain cocktail flavours that have ethanol whereas other flavours contain propylene glycol.

Although propylene glycol is a type of alcohol, it is not ethyl alcohol for the purposes of WET.

In relation to the flavours that contain ethyl alcohol, the quantity of ethyl alcohol in each batch of cocktail concentrate is so minimal that overall the alcoholic strength of the cocktail concentrate is 0%.

Thus, it is the fortified wine that you mix with the cocktail concentrates that gives the cocktail products the ethyl alcohol.

1. Cocktail products manufactured during the period 12 February 2009 to 17 May 2009

During this period you manufactured the cocktail products by mixing an amount of cocktail concentrate with an amount of grape wine (fortified wine at 22% ethyl alcohol by volume). This resulted in a cocktail mixture of more than 70% grape wine and had alcoholic strength between 8% and 22%.

When a customer placed an order, you blended an amount of cocktail mixture with an amount of liquid sugar and supplied this to the customer.

The end product that you supplied to the customer contained less than 70% grape wine and had alcoholic strength under 8%.

The definition of grape wine product, prior to 10 September 2009, required the beverage to contain at least 70% grape wine and to have alcoholic strength between 8% and 22%. This means the cocktail products you manufactured during 12 February 2009 to 17 May 2009 were not grape wine products.

2. Cocktail products manufactured from 18 May 2009 onwards

As from 18 May 2009 onwards you manufacture the cocktail products using fortified wine at 10.5% ethyl alcohol by volume instead of 22% ethyl alcohol by volume. For each of the cocktail products, you mix an amount of this fortified wine with an amount of the required cocktail concentrate.

The cocktail mixtures are packaged into containers for sale to customers.

By mixing an amount of cocktail concentrate at 0% ethyl alcohol with an amount of fortified wine at 10.5% ethyl alcohol by volume, this would result in a cocktail mixture with an alcoholic strength of between 8% and 22%.

Furthermore, the cocktail mixture would contain more than 70% grape wine.

The addition of powdered ingredient

You add powdered ingredient similar to powdered milk to some of your cocktail products.

The addition of the powdered ingredient resulted in your cocktail products having an alcoholic strength of less than 8%.

One of the requirements of the definition of grape wine product, both before and after 10 September 2009, is that the beverage must contain at least 8% but no more that 22% ethyl alcohol by volume.

Thus, the cocktail products that have the powdered ingredient added are not grape wine products for the purposes of WET.

Cocktail flavours that contain ethanol

You provided product specifications for the particular cocktail flavours that contain ethyl alcohol and advised that, due to trade secrets suppliers, A and B can only outline general ingredients for these flavours.

The general ingredients for these flavours, as outlined by the product specifications, are ethanol, propylene glycol, water and flavour.

You also stated that the ethanol used in the cocktail flavours is grape derived and it is used as a carrier for the flavour and assists with the solubility of the flavour. There was no written statement from either supplier declaring that the ethanol in the flavours is grape spirit. Furthermore, the product specifications provided do not specify such details.

One of the legislative requirements of a grape wine product, both before and after 10 September 2009, is that it must not contain ethyl alcohol from any other source except grape spirit or alcohol used in preparing vegetable extracts (including spices, herbs and grasses). The alcohol used in preparing vegetable extracts must only be used to extract flavours from vegetable matter and must be essential to the extraction process.

For the cocktail products that contain flavours that have ethanol, there is no information provided by the flavour suppliers showing that the ethanol in the flavours is grape spirit.

In addition, there is no information from the suppliers showing that the ethanol in the flavours was used to extract the flavours from vegetable matter and was an intrinsic part of the extraction process.

Accordingly, the cocktail products that contain flavours that have ethyl alcohol are not grape wine products for the purposes of WET.

Cocktail flavours containing propylene glycol

Your remaining cocktail products contain flavours that only have propylene glycol.

The amended definition of grape wine product, which came into effect on 10 September 2009, requires that a grape wine product must not have added to it the flavour of any alcoholic beverage (other than wine), whether the flavour is natural or artificial.

The Explanatory Statement to A New Tax System (Wine Equalisation Tax) Amendment Regulations 2009 (No.1) states that the purpose of amending the definition of 'grape wine product' is to ensure that where wine based beverages mimic the taste of a spirit flavoured beverage, they are taxed at the same rate as those beverages. Therefore, the amended definition of grape wine product precludes the addition, at any time, of the flavour of any alcoholic beverage (other than wine), whether the flavour is natural or artificial and whether the flavour contains alcohol or not.

Accordingly, the type of beverage that will no longer meet the definition of a grape wine product is a beverage that has had added to it (at any time) either:

· the flavour additive of an alcoholic beverage (other than wine) whether that additive is natural or artificial; or

· more than one flavour additive that, when combined together, is the flavour of alcoholic beverage (other than wine) whether such additives are natural or artificial.

You manufacture the above cocktail products by mixing cocktail concentrates with fortified wine. You also manufacture the cocktail concentrates using cocktail flavours, sugar, fruit purees, fruit concentrates, colours, preservatives and water.

Hence, what you are adding to the fortified wine to make your cocktail products are flavour additives of a cocktail, which is an alcoholic beverage that is not wine. On this basis, the above cocktail products do not meet the current requirements of a grape wine product. Thus, these cocktail products that you manufactured from 10 September 2009 onwards are not grape wine products.

As for the period prior to the introduction of the new grape wine product definition, that is the period 18 May 2009 to 9 September 2009, these cocktail products would be grape wine products if they:

· contain at least 70% grape wine; and

· have not had added any ethyl alcohol from any other source, except grape spirit or alcohol used in preparing vegetable extracts (including spices, herbs and grasses); and

· have alcoholic strengths between 8% and 22% (inclusive).

As calculated above, these cocktail products manufactured during the period 18 May 2009 to 9 September 2009 contained more than 70% grape wine and had alcoholic strength between 8% and 22%.

The product specifications from suppliers, A and B show that the flavours in these cocktail products only contain propylene glycol. However, you advised that due to trade secrets A and B can only outline general information in the product specifications regarding the ingredients of the flavours. This means there is a possibility that the flavours for these cocktails may contain ethyl alcohol that is not grape spirit and is not alcohol used in extracting flavours from vegetable matter where the alcohol is essential to the extraction process.

This possibility may be negated by the provision of sworn affidavits from A and B, declaring that the flavours for these cocktail products do not contain any ethyl alcohol.

Therefore in absence of such information we do not consider that these cocktail products satisfy all the requirements of a grape wine product. Thus, these cocktail products that you manufactured during the period 18 May 2009 to 9 September 2009 were not grape wine products for the purposes of WET.

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