Edited version of private ruling

Authorisation Number: 1011522064185

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Ruling

Subject: Wine equalisation tax producer rebate

Question 1:

Are you the 'producer' of the wine that is blended or modified by you at your facilities for the purposes of the producer rebate provisions of the WET Act?

Answer

Yes, provided the wine is rebatable wine and is commercially distinct from its inputs.

Question 2

For the purposes of the producer rebate provisions of the WET Act, are you the 'producer' of the wine that is blended or modified by a winery or wineries in accordance with instructions provided by your consultant?

Answer

No.

Relevant facts and circumstances

This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.

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

As part of your enterprise, you buy bulk wine from Australian suppliers.

You have borne WET on the acquisition of the wine.

You sell the bulk wine to both wholesale and retail customers.

Some of the bulk wine you purchase is modified at various facilities owned and/or operated by you. You provided some examples of the ways in which the bulk wine you purchase is modified at your facilities:

Your wine buyer (consultant) finds appropriate wines and, where necessary, provides direct instructions to the winery (or wineries) from which the wine is purchased (the supplier) for the wine to be blended or modified to suit your requirements.

The supplier owns the wine and other inputs prior to and at the time of blending or modification. The supplier also owns the resultant wine following blending or modification

You have an arrangement with X Pty Ltd (X). Under this arrangement X purchases all of the wine that was blended or modified to your instructions from the supplier.

You then purchase all of this wine from X. Ownership in the wine does not pass to you until your transport company collects the wine from X's facilities.

Relevant legislative provisions

A New Tax System (Wine Equalisation Tax) Act 1999 section 19-5

A New Tax System (Wine Equalisation Tax) Act 1999 section 19-10

A New Tax System (Wine Equalisation Tax) Act 1999 section 33-1

Reasons for Decision

While these reasons are not part of the private ruling, we provide them to help you to understand how we reached our decision.

Question 1

Under subsection 19-5(1) of the WET Act, you are entitled to a producer rebate for rebatable wine if you are the producer of the wine.

You must also either be liable to wine equalisation tax (WET) when you have a taxable dealing in relation to the wine in the financial year, or would have been liable to WET had the purchaser of the wine not quoted their ABN to you 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, for example if the wine is exported.

The term 'rebatable wine' is defined in section 33-1 of the WET Act and means grape wine, grape wine products, fruit or vegetable wine, cider, perry, mead or sake.

These products are further defined in Division 31-3 of the WET Act and are discussed in paragraphs 8 to 43 of Wine Equalisation Tax Ruling WETR 2009/2 (WETR 2009/2).

Assuming that the wine you blend or modify at your facilities is rebatable wine, you must be the 'producer' of that wine in order to claim the producer rebate.

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.

When you blend or modify the wine at your facilities, you do not supply to another entity the grapes or other ingredients from which the wine is manufactured. Therefore, for the purposes of this question, the second element of the definition of 'producer' is not relevant.

Therefore, to be the producer of the wine, you must 'manufacture' the wine. The term 'manufacture' is also defined in section 33-1 of the WET Act and, of relevance, includes:

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

WETR 2009/2 sets out the Commissioner's view about the operation of the producer rebate provisions, including the meaning of 'manufacture' and when wine will be considered to be commercially distinct from its inputs.

The Commissioner's view is that the definition of manufacture as set out in the WET Act is an inclusive one that extends the ordinary meaning of the word.

In addition, the Commissioner considers that numerous cases examining the meaning of 'manufacture' for the purposes of the former sales tax legislation are of relevance on the basis that the definition of manufacture under sales tax law is identical to that in the WET Act. These cases provide that the essence of manufacture is where work is done or a procedure is employed that results in an article that is commercially distinct from its parts or ingredients.

Of particular importance in this case, paragraphs 39 and 40 of WETR 2009/2 specifically discuss the issue of 'commercially distinct' in the context of blending wines as follows:

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

40. In the wine industry it is a normal part of winemaking to blend wines. In some cases the wines that are blended may be different varieties of wine, for example cabernet sauvignon and merlot. In other cases the blended wines may be the same variety of wine but with each individual blended wine having characteristics that when combined with the characteristics of the other blended wine results in a wine with its own commercially distinct characteristics. What is commercially distinct will often be a matter of fact and degree. 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.

Where you blend wines of different varieties together, the resultant wine will generally be considered to be commercially distinct from its inputs. Consequently, you will be considered to have manufactured the wine and meet the definition of 'producer' for the purposes of the producer rebate.

You have also advised that you undertake other processes of wine modification in addition to blending, including carbonation and further fermentation. Whether the blending or other modification of wine constitutes you 'manufacturing' the resultant wine is determined by whether the processes to which the wine is subjected to results in wine that is a different thing from that out of which it is made. This will be a matter of fact and degree in relation to each incidence of wine blending or any other process of wine modification.

You have advised us that you rotate your products monthly on average, and as such, you do not want a ruling on whether any of your specific products are commercially distinct; rather, you will self assess this on a product by product basis. Therefore, we will not address whether any of your specific products are manufactured.

In summary, where you manufacture rebatable wine by way of blending or making other modifications to wine, you are a 'producer' for the purposes of the producer rebate provisions of the WET Act. You will then be eligible to claim the producer rebate if you have a WET liability in relation to that wine or would have had a WET liability had the purchaser not quoted at or before the time of sale.

Question 2:

As stated in question 1 above, to be entitled to a producer rebate, you must be the producer of rebatable wine. Also set out above, in accordance with the definition of 'producer' in section 33-1 of the WET Act, to be considered a producer of wine, you must either manufacture the wine, or provide to another entity the raw materials from which the wine is manufactured.

WETR 2009/2 considers whether an entity who engages a contract winemaker to make the wine on their behalf is the manufacturer of the wine. Paragraphs 48-50 state:

48. 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.

49. Although the entity that owns the wine does not carry out any of the physical processes of manufacture personally, by causing the wine to be manufactured on their behalf, the owner has undertaken the manufacture of the wine. In these circumstances the owner of the wine is the producer of that rebatable wine for the purposes of Division 19.

50. Having regard to the views expressed in paragraphs 48 and 49 of this Ruling the Commissioner considers that an owner of grape wine that provides to a contract winemaker the grape wine and other materials and specifications to make a beverage that meets the definition of grape wine product, manufactures the grape wine product as defined in section 33-1. Therefore the owner of the grape wine is the producer of that rebatable wine for the purposes Division 19.

As stated in paragraph 48 of WETR 2009/2, we consider that an entity who engages a contract winemaker to make wine on their behalf must own the ingredients prior to and during the wine manufacturing process, and must own the wine after manufacture in order to be considered the manufacturer of the wine.

But for the view set out in paragraphs 48-50 of WETR 2009/2, neither the owner of the wine nor the contract winemaker would ever be entitled to claim the WET producer rebate. A key element of the producer rebate is that the entity must either be liable for WET or receive a valid quote from the purchaser of the wine. If paragraphs 48-50 did not apply, the owner would not be considered to have manufactured the wine, and the contract winemaker would never be liable for WET because they are supplying a service as opposed to making a sale of wine (i.e. the contract winemaker would never have a dealing in relation to which they would have a WET liability or would have had a WET liability had the purchaser not quoted at or before the time of sale). The same anomaly does not exist if the contract winemaker owns the materials required for the manufacture of wine prior to and during manufacture.

In your case, you employ a wine consultant, who visits wineries on your behalf. Where the consultant determines that base wines need to be blended or modified to create a wine that suits your requirements, direct instructions are given to the supplier, and the supplier blends the base wine to your specifications. The supplier owns the base wines and other ingredients prior to and during blending and modification, and owns the produced wines after blending and modification.

Under your cooperative buying arrangement with another winery (X), X purchases all of the produced wine from the supplier; the supplier does not retain any of it. X then sells the produced wine to you by wholesale at a price including WET and GST. Ownership in the wine does not pass to you until your transport company collects it from X's facilities.

The produced wine is blended or modified to your specifications, under instruction from a consultant acting on your behalf. However, you are not the owner of the base wine or any other constituents of the finished wine prior to or during the manufacturing processes. The supplier retains ownership of the base wine until after it is blended or modified. Furthermore, X also owns the wine after it is blended or modified, but before you own it.

Because you do not own the base wine or other ingredients before or during the wine manufacturing process, and you do not own the finished wine until after it is blended or modified, you are not the manufacturer of the wine that is blended or modified by a winery under instruction from your consultant. As you are not the producer of wine that is blended or modified by a winery or wineries on your behalf under instructions from your consultant, you cannot claim the WET producer rebate in relation to this wine.

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