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Edited version of your private ruling
Authorisation Number: 1012342157180
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Ruling
Subject: Deduction for wine equalisation tax
Question
Are you entitled to a deduction for the gross wine equalisation tax (WET) liability you incur under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997)?
Answer
Yes.
This ruling applies for the following periods
Year ended 30 June 2010
Year ended 30 June 2011
Year ended 30 June 2012
The scheme commenced on
1 July 2009
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 a wine producer and seller.
You sell wine to both retailers and wholesalers.
You incur WET liabilities.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 8-1
Income Tax Assessment Act 1997 Section 27-15
A New Tax System (Goods and Services Tax) Act 1999 Division 33
A New Tax System (Wine Equalisation Tax) Act 1999 Division 5
Reasons for decision
Summary
You are entitled to a deduction for the gross WET liability you incurred as there is a sufficient nexus between incurring the expense and the income produced from selling the wine.
Detailed reasoning
A deduction is allowed under section 8-1 of the ITAA 1997 for losses or outgoings to the extent that the loss or outgoing is incurred in gaining or producing assessable income, or is necessarily incurred in carrying on a business for the purpose of gaining or producing assessable income. However, a deduction is not allowed under the section where the loss or outgoing is of a capital, private or domestic nature, or is incurred in producing exempt income, or where another provision prevents a deduction.
A loss or outgoing is incurred in gaining or producing assessable income, or necessarily incurred in gaining or producing assessable income, if there is a sufficient nexus or relationship between the loss or outgoing and the production of assessable income so that the loss or outgoing is incidental and relevant to the gaining or producing of assessable income (Ronpibon Tin NL & Tongkah Compound NL v. Federal Commissioner of Taxation (1949) 78 CLR 47; 8 ATD 431; (1949) 4 AITR 236).
In the case of a wine wholesaler who incurs a WET liability, there is a sufficient nexus between the incurring of the expense and the income produced from selling the wine. The WET incurred by the wine wholesaler is a cost that is necessarily incurred in carrying on a business for the purpose of producing assessable income.
The WET liability is not of a capital, domestic or private nature and is not incurred in gaining exempt income.
Although subsection 27-15(1) of the ITAA 1997 provides that a taxpayer cannot deduct a payment made under Division 33 of A New Tax System (Goods and Services Tax) Act 1999 (GST Act), subsection 27-15(2) of the ITAA 1997 clarifies that section 27-15 does not apply to the extent that the net amount was increased because of a WET liability.
Therefore, no provision of the ITAA 1997 or Income Tax Assessment Act 1936 prevents the WET liability included in a net amount under Division 33 of the GST Act from being deductible.
This is confirmed by the explanatory memorandum to A New Tax System (Indirect Tax and Consequential Amendments) Bill 1999 which, once enacted, inserted section 27-15 into the ITAA 1997. The explanatory memorandum states:
3.26 Wine equalisation tax or luxury car tax included in a net amount for Division 33 purposes will be deductible providing the criteria for deductibility are otherwise satisfied. [Item 14, new subsection 27-15(2)]
The deductibility of gross WET liability is consistent with the treatment the courts have given to other taxes and charges, excluding income tax, such as; payroll tax (Layala Enterprises Pty Ltd (In Liquidation) v. Commissioner of Taxation (1998) 86 FCR 348; 98 ATC 4858; (1998) 39 ATR 502), stamp duty associated with revenue transactions and land tax ( Moffatt v. Webb (1913) 16 CLR 120).
Therefore, you are entitled to a deduction under section 8-1 of the ITAA 1997, for your gross WET liability.
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