Edited version of your written advice

Authorisation Number: 1051390425541

Date of advice: 29 June 2018

Ruling

Subject: WET Producer Rebate and GST Subdivision 153-B Arrangements

Question 1

Will the proposed agency arrangement between the Agent and the Principal constitute an arrangement to which Subdivision 153-B of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) will apply?

Answer

Yes, the proposed agency arrangement between the Agent and the Principal will constitute an arrangement to which Subdivision 153-B of the GST Act will apply.

Question 2

Will the Principal be able to claim producer rebates on:

● the price for which the wine is sold, without any reduction for commissions paid to the Agent or costs passed on by the Agent, when it makes wholesale sales of its wine to third parties under the proposed agency arrangement; and

● the notional wholesale selling price of its wine, as that term is understood in the A New Tax System (Wine Equalisation Tax) Act 1999 (the WET Act), without any reduction for commissions paid to the Agent or costs passed on by the Agent, when it makes retail sales of its wine to third parties under the proposed agency arrangement?

Answer

Yes, you will be able to claim producer rebates for both wholesale and retail sales of wine and the commissions paid to the Agent will not reduce the price for which the wine is sold.

This ruling applies for the following period:

1 July 20xx to 30 June 20xx

The scheme commences on:

1 July 20xx

Relevant facts and circumstances

1. The Principal is registered for goods and services tax (GST).

2. The Agent is registered for GST.

3. The Principal leases multiple vineyards.

4. The Principal owns the fresh grapes picked from those vineyards and continues to maintain ownership of the wine throughout the winemaking process.

5. The Principal supplies the grapes from those vineyards to another entity for that other entity to manufacture the wine on the Principal’s behalf.

6. The Principal may blend wine purchased from third parties with wine manufactured from its own grapes. The amount of wine purchased will not exceed 15% of that blended wine (measured by volume).

7. Where the amount of wine purchased to make a blend exceeds 15% of that blend by volume the Principal will not claim producer rebates on that blended wine.

8. The Principal will only claim producer rebate on wine where it owns all of the grapes used to make at least 85% of that wine, by volume, immediately prior to crushing.

9. The Principal will not pool its grapes, resultant juice or wine with any other producer’s grapes, juice or wine.

10. The Principal will package its wine in bottles suitable for retail sale, not exceeding 5 litres in capacity and one of its registered trademarks will be imprinted on the labels on those bottles.

11. The Agent acts as the marketing and selling agent for the Principal and one other producer.

12. The Agent also contracts with a sales representative to market and sell the wine of its clients on a commission basis.

13. The Agent also handles bottling and packaging on behalf of its clients.

14. The Principal plans to enter into an arrangement with the Agent under which the Agent will, on behalf of the Principal, arrange to market and make predominately wholesale sales, but also a small number of retail sales, of the Principal’s bottled product to third parties.

15. The relationship between the Agent and the Principal will be set out in a written contract.

16. The terms of the contract include that:

a. the Agent will be appointed as the sales agent for the Principal, with the authority to market and sell the Principal’s products as agent for the Principal;

b. the Agent will have authority to acquire items necessary for the marketing and packaging of the Principal’s products, the price of the Principal’s products will be set by the Principal;

c. title to the Principal’s products will never pass to the Agent;

d. the Agent will act in the Principal’s interests and not in competition with the Principal;

e. the Agent will receive a commission on the completion of sales;

f. specific costs incurred by the Agent will be passed on to the Principal;

g. the Agent will arrange for the storage and freight of the Principal’s products on behalf of the Principal;

h. for GST purposes only, the Agent will be treated as making supplies to, and acquisitions from, third parties, and the Principal will be treated as making corresponding supplies to, and acquisitions from, the Agent;

i. the Agent will issue invoices to third party purchasers in its own name, and the Principal will not issue tax invoices in relation to those supplies;

j. except for export sales, the Agent can only arrange for sales of the Principal’s products under quote, where the third party purchaser declares in the quote that they intend to have an assessable dealing with the wine they are purchasing, and that they will be liable for WET on that dealing;

k. any WET quotations received by third party purchasers will be made out to the Principal and not the Agent; and

l. the agreement between the Agent and the Principal will cease to have effect if either the Agent or the Principal ceases to be registered for GST.

17. The specific costs referred to in point 16(f) above are incurred directly by the Agent at the specific instruction of the Principal. These costs, are charged back to the Principal in full and do not form part of the commission.

18. The storage and freight costs referred to in point 16(g) above are incurred directly by the Agent at the specific instruction of the Principal. These costs, which are invoiced to the Agent by third parties, are charged back to the Principal in full and do not form part of the commission.

19. The commission referred to in point 16(e) above will be charged to the Principal by the Agent to:

n cover its costs to employ people or engage contractors;

n cover the costs of the administration involved in arranging sales and other costs such as packaging storage and dispatch; and

n cover the costs of business administration.

20. The commission will be based on the wholesale sale price of the wine excluding all taxes.

Relevant legislative provisions

A New Tax System (Wine Equalisation Tax) Act 1999 Division 9

A New Tax System (Wine Equalisation Tax) Act 1999 Division 19

A New Tax System (Goods and Services Tax) Act 1999 Subdivision 153-B

Reasons for decision

Question 1

Detailed reasoning

Subdivision 153-B of the GST Act allows entities to have arrangements under which an intermediary is treated as the supplier or acquirer for GST purposes only. To qualify, the arrangement must be of the type described in subsection 153-50(1) of the GST Act. An entity can be an intermediary for the purposes of subsection 153-50(1) of the GST Act regardless of whether the entity is the agent of the principal (see subsection 153-50(2) of the GST Act).

Subsection 153-50(1) of the GST Act states:

(1) An entity (the principal) may, in writing, enter into an arrangement with another entity (the intermediary) under which:

(a) the intermediary will, on the principal’s behalf, do any or all of the following:

(i) make supplies to third parties;

(ii) facilitate supplies to third parties (including by issuing *invoices relating to, or receiving *consideration for, such supplies);

(iii) make acquisitions from third parties

(iv) facilitate acquisitions from third parties (including by providing consideration for such acquisitions); and

(b) the kinds of supplies or acquisitions, or the kinds of supplies and acquisitions, to which the arrangement applies are specified; and

(c) for the purposes of the GST law:

(i) the intermediary will be treated as making the supplies to the third parties, or acquisitions from the third parties, or both; and

(ii) the principal will be treated as making corresponding supplies to the intermediary, or corresponding acquisitions from the intermediary, or both; and

(d) in the case of supplies to third parties:

(i) the intermediary will issue to the third parties, in the intermediary’s own name, all the *tax invoices and *adjustment notes relating to those supplies; and

(ii) the principal will not issue to the third parties any tax invoices and adjustment notes relating to those supplies;

(e) the arrangement ceases to have effect if the principal or the intermediary, or both of them, cease to be *registered.

The Principal and the Agent have provided a general summarised description of the terms of a proposed written agreement which they plan to execute in the future at an unspecified future date.

The parties have advised that the proposed written agreement will:

● be in writing;

● provide that the Agent (known also as the ‘intermediary’ for the purposes of Subdivision 153-B of the GST Act) will make supplies to, and acquisitions from, third parties on the Principal’s behalf;

● specify the kinds of supplies and acquisitions to be made by the Agent under the arrangement,

● acknowledge that, for GST purposes only, the Agent will be treated as making supplies to, and acquisitions from, third parties, and that the Principal will be treated as making corresponding supplies to, and acquisitions from, the Agent; and

● require the Agent to issue invoices to the third parties in its own name, and specify that the Principal will not issue tax invoices in relation to those supplies.

The parties have also advised that the written agreement will cease to have effect if either of the Agent or the Principal ceases to be registered for GST.

If the parties enter into a written agreement that is materially the same as the proposed terms detailed in the ‘Relevant facts and circumstances’ section of this private ruling, that future written agreement will satisfy the requirements in section 153-50 of the GST Act.

Question 2

Detailed reasoning

Eligibility for the producer rebate

Division 19 of the A New Tax System (Wine Equalisation Tax) Act 1999 (WET Act) sets out the circumstances where wine producers are entitled to a producer rebate for certain dealings in wine. The rebate is provided in the form of a WET credit.

Section 19-5 of the WET Act specifically lists the eligibility criteria and states that an entity is entitled to claim a producer rebate for rebatable wine for a financial year if:

● it is the producer of the wine; and

● either:

● it is liable to wine tax for an assessable dealing in the wine, or

● it would have been liable to wine tax for an assessable dealing but for the fact that the purchaser quoted on the basis that they intended to pay wine tax on a subsequent dealing; and

● of the total volume of the wine, the entity owned at least 85% as source product at all times from immediately prior to crushing until the time the wine is placed in a container suitable for retail sale;

● at the time of the assessable dealing, the wine was in retail packaging of 5 litres or less; and

● the packaging was branded by a trademark owned by the entity (or an associated entity) that identifies the entity or can readily be associated with that entity.

Rebatable wine

Per section 33-1 of the WET Act, ‘rebatable wine’ means grape wine, grape wine products, fruit or vegetable wine, cider or perry, mead or sake.

We understand the Principal will be producing a wine product that meets the definition of one of the product types listed in the definition of rebatable wine. Therefore this element will be satisfied.

Producer of rebatable wine

Section 33-1 of the WET Act defines a ‘producer’ of rebatable wine as an entity that manufactures the wine, or supplies to another entity the source product from which the wine is manufactured.

Where the Principal entity engages another entity to manufacture wine on its behalf, but retains ownership of the inputs and the resultant wine, the Principal entity would be considered a producer of rebatable wine. Additionally, where the Principal entity blends wine purchased from third parties with wine made from the contracted entity, this constitutes manufacture and the Principal entity would again be considered the producer of rebatable wine. Therefore, the first requirement is met.

Liability to wine tax

The Assessable Dealings Table in section 5-5 of the WET Act sets out all of the assessable dealings that can be subject to wine tax. It includes wholesale sales and retail sales of wine. These dealings will only be taxable if the entity that has the dealing is registered or required to be registered for GST.

Where the Principal, who is registered for GST, intends to make wholesale sales or retail sales of its wine to third parties under its proposed agency arrangement, such sales would be classified as either assessable dealing AD1a or AD2a respectively and would be subject to wine tax.

Where the third party provides a quote to the Principal and states in that quote that it intends to have a taxable dealing with the wine, whilst the Principal won’t be liable to wine tax on that dealing, the Principal would have been liable to wine tax had the third party not quoted.

Therefore in both of the above situations the second eligibility requirement is met.

Source product ownership

For grape wine, the term ‘source product’ is defined in section 19-5(4) of the WET Act to be fresh grapes from which the grape wine is produced. Therefore for a grape wine to satisfy this eligibility requirement, 85% by volume of the final packaged wine must have originated from fresh grapes that were 100% owned by the producer immediately prior to crushing until the wine is placed in its final container.

The Principal uses fresh grapes it owns to produce its wine. In some instances, third party wine is blended with the Principals own wine to produce an alternate blend, however use of third party wine would generally not comprise more than 15% by volume of the final wine. For both products mentioned, the Principal maintains ownership of at least 85% of the source product from crushing through to packaging. Therefore in both situations, the third eligibility requirement would be satisfied.

Where use of third party wine exceeds 15%, the Principal would not satisfy the source product ownership requirement, as the Principal does not own the source product that comprises at least 85% of the finished wine.

Packaging requirements

As the Principal will be selling wine in a container suitable for retail sale that has a volume of 5 litres or less and will be branding the container with an identifiable trademark owned by them, the fourth and fifth eligibility requirements would be satisfied.

Conclusion

Subject to our comments in each sub section above, the Principal will meet the eligibility criteria listed in subsection 19-5 of the WET Act and will therefore be eligible to claim the producer rebate.

Calculating the correct amount of your producer rebate

Pursuant to section 19-15 of the WET Act, the amount of a producer rebate depends on the type of dealing with the wine:

● For wholesale sales, the amount of the producer rebate is equal to 29% of the price (excluding WET and GST) for which the wine was sold; and

● For retail sales and applications to own use, the amount of the producer rebate is equal to 29% of the notional wholesale selling price of the wine.

Whilst a Subdivision 153-B arrangement exists between the Principal and the Agent, for WET purposes either wholesale or retail sales would be made by the Principal to the third party.

Wholesale sales

Calculation of the correct amount of the producer rebate requires us to determine when the wine is sold to the purchaser and at what price the wine is sold. In this case it is important to understand who the wine is sold to, in order to determine when the sale occurs.

Paragraph 96 of WETR 2009/1 states that in broad terms, a sale of wine occurs for the purposes of the WET Act when ownership is transferred from one person (the seller) to another (the purchaser) for a ‘price’.

Whilst the Agent will be invoicing the third party purchaser, there is no transfer of ownership between the Agent and the third party and the transfer of ownership actually occurs between the Principal and the third party. Therefore this is the time the sale of wine occurs and it is the price at this point that needs to be considered.

Section 33-1 of the WET Act specifies that the word ‘price’ is to take the meaning given by section 9-75 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) which defines ‘price’ as the sum of:

(a) so far as the consideration for the supply is consideration expressed as an amount of *money – the amount (without any discount for the amount of GST (if any) payable on the supply); and

(b) so far as the consideration is not consideration expressed as an amount of money – the GST inclusive market value of that consideration.

‘Consideration’ is defined under section 9-15 of the GST Act as including:

(a) any payment, or any act or forbearance, in connection with a supply of anything; and

(b) any payment, or any act or forbearance, in response to or for the inducement of a supply of anything.

Paragraph 89 of WETR 2009/1 also states that the phrase ‘the price for which the wine is sold’ means the total amount that the buyer promises, expressly or tacitly to pay to get good title to the wine. Based on this, it is the price that the third party buyer pays to the Principal to obtain title to the wine that is considered ‘the price for which the wine is sold’. In practice, we would assume this would be the wholesale price of the wine.

Retail sales

For retail sales, the ‘notional wholesale selling price’ needs to be considered to determine the amount of the producer rebate. Section 9-25 of the WET Act states that there are 2 methods for working out the notional wholesale selling price being either the half retail price method or the average wholesale price method. The specific calculation methodologies are contained in sections 9-35 and 9-40 of the WET Act respectively.

Per paragraphs 143 and 147 of WETR 2009/1, both of these methods require consideration of the ‘price’ for which the wine is sold, which is discussed in paragraph 89 of WETR 2009/1. As mentioned above, ‘the price for which the wine is sold’ means the total amount that the buyer promises, expressly or tacitly to pay to get good title to the wine.

As with the position for wholesale sales above, it is the price that the third party buyer pays to the Principal to obtain title to the wine that is considered ‘the price for which the wine is sold’. For retail sales using the half retail price method, this is generally the retail price the wine is sold for. For retail sales using the average wholesale price method, this is generally the wholesale price the wine is sold for.

Once the price of the wine is determined, the remaining calculation requirements for the relevant calculation methodology can be applied. For example, if the half retail price method is chosen, the Principal would calculate the producer rebate based on 50% of the retail price of the wine sold.

Commission

The Principal also pays a commission to the Agent on the completion of sales. Paragraph 123 of WETR 2009/1 states that commission fees do not reduce the price for which the wine was sold and cannot be deducted from the taxable value of the wine. In your circumstances, the commission fee does not reduce the price for which the wine was sold.

Other costs

The information provided also mentions that various costs are expected to be incurred by the Agent at the specific instruction of the Principal. These costs will be invoiced to the Agent by third party suppliers and will then be on charged to the Principal. As these costs would relate to dealings between the Principal and the Agent and not dealings between the Principal and the third party purchaser, these costs would not impact the price for which the wine is sold.

Conclusion

To summarise the above, for wholesale sales, the Principal (subject to satisfying the eligibility criteria) can claim the producer rebate on the wholesale price for which the wine is sold without a reduction for commissions paid to the Agent or the costs charged back to the Principal by the Agent.

For retail sales, the Principal (subject to satisfying the eligibility criteria) can claim the producer rebate using the price for which the wine was sold without a reduction for commissions paid to the Agent or the costs charged back to the Principal by the Agent. This amount can then be used to calculate the amount of the rebate using the selected calculation methodology.

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