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Ruling

Subject: Wine equalisation tax

Issue 1 - Does your beverage meet the definition of 'fruit of vegetable wine' for the purposes of the A New Tax System (Wine Equalisation Tax) Act 1999 (WET Act)?

Question 1

Is the fermentation of apple juice, or apple juice concentrate, blackcurrant juice, colour extracted from grape skins, strawberry flavour and lime flavour, fruit or vegetable wine for the purposes of the WET Act?

Answer

No.

Question 2

Should the initial beverage you produce be fruit or vegetable wine, if you were to add the juice or must of other fruit either before fermentation or after, would the final beverage still be fruit or vegetable wine for the purposes of the WET Act?

Answer

Yes.

Question 3

Should the initial beverage you produce be fruit or vegetable wine, if you were to add water either before fermentation or after, would the final beverage still be fruit or vegetable wine for the purposes of the WET Act?

Answer

Yes.

Question 4

Should the initial beverage you produce be fruit or vegetable wine, if you were to add sugar after fermentation has occurred, would the final beverage still be fruit or vegetable wine for the purposes of the WET Act?

Answer

Yes.

Issue 2 - Marketing of your beverage

Question 1

Can you market your beverage as a cider?

Answer

We cannot rule on this matter.

This ruling applies for the following periods:

1 July 2011 to 30 June 2012.

The scheme commences on:

The scheme has not commenced.

Relevant facts and circumstances

You intend to produce your beverage overseas and sell it in Australia.

You describe the manufacturing process as follows:

Ferment a combination of apple juice, or apple juice concentrate, blackcurrant juice, the spray-dried liquid colour extracted from grape skins, strawberry flavour and lime flavour.

Stabilise and filter the fermented beverage.

Dilute the beverage with water either before or after fermentation so that the final beverage is 8% by volume of ethyl alcohol (a/v).

Add sugar, fruit juice or strawberry and/or lime flavours after fermentation.

The product specification for the spray-dried liquid colour extracted from grape skins does not identify all of the colour's ingredients. It states that from a regulatory perspective, it is natural. It also states that the colour contains maltodextrin, used as a carrier.

You have provided the product specifications of a number of possible strawberry flavours and lime flavours you could use. The product specifications do not identify all of the flavours' ingredients.

The product specifications for strawberry flavour 1 and lime flavour 1 state that from a regulatory perspective, the flavours are natural. They also state that the flavours are not halal-compliant. The manufacturer advises that the flavours contain ethyl alcohol from a dairy source. You have subsequently advised that you will not use these flavours and use the following flavours instead: strawberry flavour 2, strawberry flavour 3, lime flavour 2, and lime flavour 3.

The product specification for strawberry flavour 2 states that the flavour is natural from a regulatory perspective. It states that the ingredients are flavour and beetroot juice.

The product specifications for strawberry flavour 3 and lime flavour 2 state that from a regulatory perspective, the flavours are nature identical.

The product specification for lime flavour 3 does not state that the flavour is natural from a regulatory perspective.

Relevant legislative provisions

A New Tax System (Wine Equalisation Tax) Act 1999 section 31-4

A New Tax System (Wine Equalisation Tax) Act 1999 section 31-5

A New Tax System (Wine Equalisation Tax) Regulations 2000 regulation 31-4.01

Reasons for decision

Issue 1 Question 1

Summary

The colour and flavours you intend to use prevent your beverage from meeting the definition of fruit or vegetable wine for the purposes of the WET Act.

Detailed reasoning

Section 31-4 of the WET Act defines fruit or vegetable wine. It states:

Fruit or vegetable wine is a beverage that:

(a) is the product of the complete or partial fermentation of the juice or must of:

(i) fruit or vegetables; or

(ii) products derived solely from fruit or vegetables; and

(b) has not had added to it, at any time, any ethyl alcohol from any other source, except as specified in the regulations; and

(c) has not had added to it, at any time, any liquor or substance that gives colour or flavour, except as specified in the regulations; and

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

(e) complies with any requirements of the regulations, made for the purposes of section 31-8, relating to fruit or vegetable wine.

The A New Tax System (Wine Equalisation Tax) Regulations 2000 (WET Regulations) are the regulations referred to in section 31-4 of the WET Act. Regulation 31-4.01 relates to fruit or vegetable wine. It states:

(1) For the purposes of:

(a) paragraphs (b), (c) and (e) of the definition of fruit or vegetable wine in section 31-4 of the Act; and

(b) paragraph 31-8(1)(c) of the Act -

this regulation makes arrangements relating to fruit or vegetable wine.

(2) Ethyl alcohol, from grape spirit or neutral spirit, may be added to fruit or vegetable wine.

(3) If ethyl alcohol, from grape spirit or neutral spirit, is added to fruit or vegetable wine, the resulting beverage must contain at least 15% by volume of ethyl alcohol and not more than 22% by volume of ethyl alcohol.

You combine apple juice or apple juice concentrate, blackcurrant juice, colour extracted from grape skins, strawberry flavour and lime flavour and ferment this combination.

Fruit juices

Apple juice and blackcurrant juice

Apple juice and blackcurrant juice are the juices of fruit and thus fall within the scope of subparagraph 31-4(a)(i) of the WET Act.

Apple juice concentrate

The ATO view on reconstituted apple juice, of which apple juice concentrate is a part, is discussed in the context of cider manufacture in ATO ID 2009/38 Excise: Wine Equalisation Tax: cider manufacture. It states that apple juice concentrate is the product of an evaporation process whereby water vapour is removed from apple juice. Apple juice concentrate is thus a product derived solely from apples, and so falls within the scope of subparagraph 31-4(a)(ii) of the WET Act.

Colour and flavours

Paragraph 31-4(c) of the WET Act states that no substance that gives colour or flavour may be added to fruit or vegetable wine at any time, except as specified in the regulations. The WET Regulations do not provide any exceptions to this paragraph. Quintessentially, colours and flavours are substances that give colour or flavour to fruit or vegetable wine. This means that the addition of colours and flavours to the fruit wine either before fermentation or after will prevent your beverage from being fruit or vegetable wine for the purposes of the WET Act.

Furthermore, the colours and flavours are not permissible under subparagraph 31-4(a)(ii) of the WET Act, for the following two reasons:

· Due to their composition, colours and flavours are not substances that will ferment. As a result, they will not be a component of a product of complete or partial fermentation.

· None of the flavours or the colour you intend to use can be shown to be products derived solely from fruit or vegetables. This is explained further in relation to each colour and flavour below.

Colour extracted from grape skins

The product specification for the colour does not list all of its ingredients. It states that from a regulatory perspective, it is natural. It also states that the colour contains maltodextrin as a carrier.

Although maltodextrin is a flavourless substance used as a carrier for the colour, its inclusion in the colour means that the colour is not a product derived solely from fruit or vegetables. It is therefore a substance that gives colour and cannot be added to fruit or vegetable wine at any time.

Strawberry flavour 2

The product specification for strawberry flavour 2 states that the flavour is natural from a regulatory perspective. It also states that the ingredients are 'flavour' and 'beetroot juice'. Even though the flavour is natural, it may contain ingredients that come from sources other than fruit or vegetables. On the basis of this information, we cannot be sure that the flavour is derived solely from fruit or vegetables. It is a substance that gives flavour and cannot be added to fruit or vegetable wine at any time.

Strawberry flavour 3 and lime flavour 2

The product specifications for strawberry flavour 3 and lime flavour 2 state that from a regulatory perspective the flavours are nature identical. Nature identical flavours are chemically synthesised. They are not extracted from natural sources. Therefore these flavours are not products derived solely from fruit or vegetables. They are substances that give flavour and cannot be added to fruit or vegetable wine at any time.

Lime flavour 3

The product specification for lime flavour 3 does not state that the flavour is natural from a regulatory perspective. The product specifications for all of the other flavours expressly state that the flavour is natural or nature identical. The fact that this product specification is silent on this aspect indicates that the flavour is not natural. On this basis, it is not a product derived solely from fruit or vegetables. Rather, it is a substance that gives flavour and cannot be added to fruit or vegetable wine at any time.

Strawberry flavour 1 and lime flavour 1

We provided you with guidance in relation to these flavours in a phone conversation on 20 September 2011. You subsequently advised us that you will not use these flavours. Nonetheless, we include a formal response.

The product specifications for strawberry flavour 1 and lime flavour 1 state that from a regulatory perspective, the flavours are natural. Again, the fact that the flavours are natural is not sufficient to show that they are derived solely from fruit or vegetables.

The product specifications also state that the flavours are not halal-compliant. We made further enquiries about the ingredients of the flavours with the manufacturer, who advised that the flavours contain ethyl alcohol from a dairy source.

According to paragraph 31-4(b) of the WET Act, fruit or vegetable wine must not have, at any time, any ethyl alcohol added to it from any other source, except as specified in the regulations. Subregulation 31-4.01(2) of the WET Regulations states that only ethyl alcohol from grape spirit or neutral spirit may be added to fruit or vegetable wine. As the ethyl alcohol in the flavours is from a dairy source, it is not grape spirit. On the basis of the information we have, we cannot determine whether it is a neutral spirit. Regardless of whether it is or is not a neutral spirit, the ethyl alcohol component of the flavours will prevent your beverage from meeting the definition of fruit or vegetable wine, for the following reasons:

· If the ethyl alcohol in the flavours is not a neutral spirit, you would be adding to your fruit or vegetable wine ethyl alcohol from a source other than grape spirit or neutral spirit. This would not meet the requirements of subregulation 31-4.01(2). Your beverage would therefore not be a fruit or vegetable wine according to the WET Act.

· If the ethyl alcohol in the flavours is a neutral spirit, then subregulation 31-4.01(3) stipulates that the addition of neutral spirit must result in the fruit or vegetable wine being between 15% and 22% a/v. You intend for your final beverage to be 8% a/v. Fruit or vegetable wine cannot contain ethyl alcohol from neutral spirit and be less than 15% a/v. Your beverage would therefore not be a fruit or vegetable wine according to the WET Act.

Conclusion to Question 1

The colour and each of the flavours you intend to use are substances that give colour or flavour, and cannot be added to fruit or vegetable wine at any time according to paragraph 31-4(c) of the WET Act. They therefore prevent your beverage from meeting the definition of fruit or vegetable wine for the purposes of the WET Act. Consequently, you would not be liable for WET on any dealings with this beverage. However, your beverage would be subject to excise duty. For more information, contact Excise Licensing by phone on 1300 137 290 or by email at ATO-EXC-Alcohol@ato.gov.au.

Issue 1 Question 2

Summary

The addition of the juice or must of other fruit either before or after fermentation will not prevent your beverage from meeting the definition of fruit or vegetable wine for the purposes of the WET Act.

Detailed reasoning

Paragraph 31-4(a) of the WET Act describes fruit or vegetable wine as the complete or partial fermentation of the juice or must of fruit or vegetables. Assuming you initially produced a beverage that met the definition of fruit or vegetable wine, adding amounts of the juice or must of other fruit either before fermentation or afterwards would still result in your beverage being the partial fermentation of the juice or must of fruit or vegetables. Therefore as long as your beverage complied with the requirements of the WET Act and Regulations, your beverage would be fruit or vegetable wine.

Issue 1 Question 3

Summary

The addition of water to dilute your beverage either before or after fermentation will not prevent your beverage from meeting the definition of fruit or vegetable wine for the purposes of the WET Act.

Detailed reasoning

Paragraph 31-4(c) of the WET Act states that no substance that gives colour or flavour may be added to fruit or vegetable wine at any time, except as specified in the regulations. The definition of mead in the WET Act has a similar criterion. ATO ID 2006/183 Excise: Definition of mead for the purposes of the A New Tax System (Wine Equalisation Tax) Act 1999 states that as water is colourless and flavourless, it can be used in the manufacture of a beverage that is mead, and still meet the requirements of the WET Act.

The addition of water to dilute your beverage either before or after fermentation will not prevent your beverage from meeting the definition of fruit or vegetable wine for the purposes of the WET Act.

Issue 1 Question 4

Summary

The addition of sugar will not prevent your beverage from meeting the definition of fruit or vegetable wine for the purposes of the WET Act.

Detailed reasoning

Paragraph 31-4(c) of the WET Act states that no substance that gives colour or flavour may be added to fruit or vegetable wine at any time, except as specified in the regulations.

The ATO view on the addition of sugar to fruit wine is published in ATO ID 2003/951 Excise: Addition of sugar to fruit or vegetable wine. It notes that the term 'flavour' is not defined in the WET act and therefore takes on its ordinary meaning, considered in the context of the wine industry. In the wine industry, the sweetness of a wine is not part of the flavour description of the wine. It is also noted that sugar is referred to separately from flavourings in the Food Standards Code, both generally and specifically in relation to the content of alcoholic beverages. It is thus considered that sugar is not a substance that gives flavour within the terms of the definition of a fruit or vegetable wine.

The addition of sugar therefore will not prevent your beverage from meeting the definition of fruit or vegetable wine for the purposes of the WET Act.

Issue 2 Question 1

Summary

Your beverage does not meet the definition of cider or perry for the purposes of the WET Act; however, the ATO does not regulate how a beverage is marketed to the general public. We therefore cannot rule on this matter.

Detailed reasoning

Section 31-5 of the WET Act defines cider or perry. It states:

Cider or perry is a beverage that:

(a) is the product of the complete or partial fermentation of the juice or must of apples or pears; and

(b) has not had added to it, at any time, any ethyl alcohol from any other source, except as specified in the regulations; and

(c) has not had added to it, at any time, any liquor or substance (other than water or the juice or must of apples or pears) that gives colour or flavour, except as specified in the regulations; and

(d) complies with any requirements of the regulations, made for the purposes of section 31-8, relating to cider or perry.

The WET Regulations do not further expand or restrict the definition of cider or perry.

Your beverage is the product of fermentation of the combination of apple juice, blackcurrant juice, colour extracted from grape skins, with strawberry flavour and lime flavour. As you include substances other than the juice or must of apple and pears, your beverage does not meet the definition of cider or perry under section 31-5 of the WET Act. Your beverage must be taxed according to its correct definition under the relevant legislation administered by the ATO. The way in which you market your beverage to the general public is not under the ambit of the ATO's regulatory powers, but may be subject to other federal or state laws. We are therefore unable to rule on this matter

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