Edited version of private ruling

Authorisation Number: 1011623893302

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Ruling

Subject: Microbrewery

Question

Are you a microbrewery as defined in the Excise Regulations 1925 (the Excise Regulations)?

Answer

No, you are not a microbrewery as defined in the Excise Regulations.

Relevant legislative provisions

Excise Act 1901 - Section 27

Excise Act 1901 - Section 77A

Excise Amendment Regulations 200 (No.7)

Excise Regulations 1925 - Regulation 2AB

Excise Regulations 1925 - Subregulation 2(1)

Excise Regulations 1925 - Paragraph 50(1)(zzd)

Corporations Law - Section 46

Relevant facts and circumstances

Relevant facts

You operate a brewery.

You are the holder of a licence authorising activity relating to excisable products.

Under a verbal agreement you are contracted to brew beer for entity A trading as a X who are the holders of the liquor licence.

You brew according to supply and demand as required by entity A.

You brewed less than 30,000 litres last financial year and will not exceed 30,000 litres brewed in this financial year.

Your office holders are director L and director M.

Director L is responsible for the legal and day to day control.

X where the beer is sold to customers is managed by a number of managers who are paid by entity A.

Director L oversees the daily operations of X. Director L is paid a management fee for overseeing X by entity A.

Entity A pays you for brewing the beer. Payment is a set amount per litre which is over and above what you are reimbursed for the wort, yeast and other costs.

You receive your income from payments to your director for management of X and a set fee per litre for beer brewed. These payments are deposited in your manager's bank account.

Entity A raises funds for the payments of goods and services through the operation of X.

You and entity A share a common director in director L and entity A has entity B as sole shareholder.

The premises occupied by you and entity A are in the name of entity C and are leased from entity C.

The office holders of entity B and entity C are X and Y.

Entity B is connected with another brewery being Brewery AAA.

The registered offices of entity B, Brewery AAA and entity A are listed at the same address.

X is the director and secretary of Brewery AAA.

The wort to brew the beer is produced at Brewery AAA and pumped into fermentation tanks located at X and then the yeast is added at the premises.

You purchase the wort to brew the beer and you are reimbursed for this purchase by entity A.

The fermentation tanks are leased by entity A from entity C.

Entity B is the sole shareholder of entity A. Your director is responsible for day to day matters of entity A.

Entity A claims it makes no money as it sells the beer at X for what it makes, less any expenses paid to you for brewing the beer and other costs associated with lease of tank and premises.

Assumptions

There are no assumptions

Reasons for decision

Summary

Question

Are you a microbrewery as defined in the Excise Regulations 1925 (the Excise Regulations)?

Answer

No, you are not a microbrewery as defined in the Excise Regulations, for the reasons stated in the detailed reasoning.

Detailed reasoning

Regulation 2AB of the Excise Regulations defines a microbrewery as:

A microbrewery is a brewery that has all the following characteristics:

(a) it is legally and economically independent of any other brewery;

(b) in the previous financial year, the total production of beer by the brewery did not exceed 30,000 litres;

(c) in the current financial year, it is likely that the total production of beer by the brewery will not exceed 30,000 litres;

(d) it sells beer (whether wholesale or retail), on which excise has been paid, directly from the manufacturing premises of the brewery.

Subregulation 2(1) of the Excise Regulations provides that:

Unless the contrary intention appears:

Brewery has the meaning given by section 77A of the Excise Act.

Section 77A of the Excise Act defines Brewery as:

brewery means a factory in respect of which a person is licensed to manufacture beer.

Section 27 of the Excise Act provides that only a person that holds a manufacturer's license is to manufacture excisable goods.

The definition of the term brewery in section 77A of the Excise Act refers to a person licensed to manufacture beer and also includes a body corporate.

In your application for a private ruling, you state that you are the holder of a licence authorising activity relating to excisable products (in this instance beer), therefore the requirements under subregulation 2(1) of the Excise Regulations and section 77A of the Excise Act are met, in so far as you are licensed to manufacture beer and fall within the definition of 'brewery'.

Having established that you manufacture beer through your operations at X, and as advised by you, the quantity of litres brewed in the last financial year and in the current financial year will not exceed 30,000, you meet the requirements under (b) (c) and (d) of Regulation 2AB of the Excise Regulations. However, to be classed as a microbrewery, you also need to meet requirement (a) of Regulation 2AB of the Excise Regulations. That is it needs to be determined whether you (a body corporate) is legally and economically independent of any other brewery.

In relation to microbreweries, the explanatory statement to the Excise Amendment Regulations 2000 (No. 7) (Explanatory Statement) when discussing refunds of excise for microbreweries, states that:

For the purposes of this regulation a brewery that is a subsidiary (within the meaning of the Corporations Law) of another brewery, is not legally independent and therefore cannot be a microbrewery. Additionally a brewery cannot be an economically independent microbrewery if its operations are subsidised by another brewery.

In understanding this concept, reference is made to section 46 of the Corporations Law which provides that:

A body corporate (in this section called the first body) is a subsidiary of another body corporate if, and only if:

(a) the other body:

(i) controls the composition of the first body's board;

(ii) is in a position to cast, or control the casting of, more than one-half of the maximum number of votes that might be cast at a general meeting of the first body; or

(iii) holds more than one-half of the issued share capital of the first body (excluding any part of that issued share capital that carries no right to participate beyond a specified amount in a distribution of either profits or capital); or

(b) the first body is a subsidiary of a subsidiary of the other body.

The definition of brewery in section 77A of the Excise Act states that a brewery is the factory at which licensed brewing operations occur, thus restricting the brewery to the physical structure and the location at which it is situated.

Paragraph 50(1)(zzd) of the Excise Regulations refers to beer manufactured in a microbrewery during a financial year. However, a factory being a place cannot be legally or economically independent of another place. A factory cannot provide funds, raw materials or equipment, nor can it effect the transfer of these things, only a person can do that. Similarly, legal control can only be exercised by a person.

The Explanatory Statement refers to the relationship of a holding company to a subsidiary, not to a place being used to manufacture beer. The phrase 'a brewery that is a subsidiary' demonstrates that the Explanatory Statement does not contemplate the brewery as a factory but as a person licensed in respect of the factory.

Evidence of this is provided by the expression the manufacturing premises of the brewery in paragraph 2AB(d) of the Excise Regulations which distinguishes the brewery as a place from the person conducting the brewing operations.

Note that to be a microbrewery the brewery has to meet both requirements of being legally and economically independent of another brewery. Whether a brewery is legally and economically independent is a question of fact, to be determined according to the circumstances of each case.

In your circumstances, you are contracted to do the brewing by entity A the holder of the liquor licence who trades as X. Further:

· Your director is paid for managing the operations of X, by entity A.

· Your director is an office holder of entity A.

· The premises occupied by yourself and entity A are in the name of entity C.

· You purchase wort to brew the beer and are reimbursed by entity A for this purchase.

· This wort is pumped into fermentation tanks on premises leased by entity A.

· You sell beer you brew only to entity A and brew according to supply and demand as required by entity A.

It can thus be seen that there is a direct nexus between your activities to what is required by entity A. From the above and other facts of the case, it is evident that entity A, a body corporate, exercises control over you through its (entity A's) director; who is also your director.

The sole shareholder of entity A is entity B which is controlled by X as director and secretary and shareholder. X also exercises control of the Brewery AAA in their capacity as director and secretary. Entity B and Brewery AAA have the same listed registered office. Entity A has its registered office listed at this same address. All of these entities are connected.

You are contracted by entity A to brew beer. Entity A also provides:

· the funds for the running costs, payment of wages/salaries/management fees

· funds for purchasing the raw materials and equipment for brewing the beer

· your income through your brewing contracts and connection with entity A.

Thus it is evident from the above that you are economically dependent on entity A because:

· you brew beer according to the supply and demand as required by entity A.

· You are reimbursed by entity A for the wort purchased

· entity A is your sole customer.

The above common dependency links both breweries; yourself and Brewery AAA. You are not economically independent of Brewery AAA, which together with entity A is controlled by the same entity.

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