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Ruling

Subject: Entitlement to producer rebate

Question 1

Is your product a rebatable wine for the purposes of section 19-5 of the A New Tax System (Wine Equalisation Tax) Act 1999 (WET Act)?

Answer

Yes. Your product is a rebatable wine.

Question 2

Are you entitled to a producer rebate under Division 19 of the WET Act for the manufacture of your product?

Answer

Yes. You are entitled to a producer rebate.

This ruling applies for the following periods:

From 23 December 2011

Relevant facts and circumstances

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

You account for GST using the non-cash or accruals basis method.

Your product is made from the following process:

You have purchased low alcohol grape concentrate (LAGC).

You purchase low sugar grape juice (LSJ) from various suppliers. You also instruct a contract winemaker to produce LSJ to your specifications.

The LAGC is then blended with LSJ. The majority of the blend is LSJ.

You then ferment the blend with yeast and nutrients added to commence the fermentation process.

On completion of the fermentation process you rack and filter the beverage.

The finished beverage is your product, which has 22% alcohol by volume (a/v).

LSJ is made from grape juice condensate prior to fermentation and is produced through one of the following methods:

· Method 1: Grapes are crushed. The juice is collected in a tank and then heated. This produces a vapour which is then cooled, resulting in LSJ.

· Method 2: Finished wine is heated and de-alcoholised. The vapour produced is cooled, resulting in LSJ.

Your product is not sold via the internet.

Your product is sold through an exclusive wholesaler in each state of Australia. The wholesaler will quote their ABN to you stating they will sell the product domestically. You deliver the product to the wholesaler and invoice them without WET. They on-sell to their customers.

Relevant legislative provisions

A New Tax System (Wine Equalisation Tax) Act 1999 Section 17-5

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 19-15, and

A New Tax System (Wine Equalisation Tax) Act 1999 Section 19-20.

Reasons for decision

Summary

Your product is rebatable wine.

Detailed reasoning

Division 19 of the WET Act provides the requirements that must be satisfied before an entitlement exists to the producer rebate.

Subsection 19-5(1) of the WET Act provides:

You are entitled to a *producer rebate for *rebatable wine for a

*financial year if you are the *producer of the wine and:

(a) you are liable to wine tax for a *taxable dealing in the wine during the financial year; or

(b) you would have been liable to wine tax for a dealing in the wine during the financial year had the purchaser not *quoted for the sale at or before the time of the sale.

*Note that the asterisks denote a defined term in the WET Act, but they do not alter the meaning of the word.

It is clear that an entitlement to the producer rebate arises only for rebatable wine. Rebatable wine is defined by section 33-1 of the WET Act, which in turn, refers to wine as defined in Subdivision 31-A of the WET Act.

Subdivision 31-A includes section 31-2 of the WET Act. Section 31-2 defines grape wine, and says:

(1) Grape wine is a beverage that:

(a) is the product of the complete or partial fermentation of fresh grapes or products derived solely from fresh grapes; and

(b) complies with any requirements of the regulations, made for the purposes of section 31-8, relating to grape wine.

(2) A beverage does not cease to be the product of the complete or partial fermentation of fresh grapes or products derived solely from fresh grapes merely because grape spirit, brandy, or both grape spirit and brandy, have been added to it.

Pursuant to subsection 31-1(2) of the WET Act grape wine must contain more than 1.15% a/v.

The only regulation relating to grape wine made for the purposes of section 31-8 of the WET Act is the wine must not contain more than 22% a/v.

According to paragraph 31-2(1)(a) of the WET Act grape wine must be a beverage which is the product of fermented fresh grapes or products that are derived solely from fresh grapes.

The Commissioner considers that fermentation is the conversion of naturally occurring sugars in fruit to alcohol.

You use LSJ in the process to produce your product. LSJ is condensate obtained from heating grape juice or de-alcoholised grape wine and then cooling the resulting vapour. The LSJ is blended with LAGC before yeast and other nutrients are added to commence fermentation. You maintain the ferment at 18-20 °C with the process taking between 5 to 10 days. The resulting beverage is then racked and filtered before fortification to 22% a/v using grape spirit. The end result is your product.

Your product may not be derived from fermented fresh grapes, but it is from the fermentation of products that have been derived from fresh grapes. It is made from LSJ and the LAGC, both of which are products from fresh grapes. LSJ is produced by cooling the vapours obtained from heating grape juice or de-alcoholised grape wine. LAGC is a grape juice concentrate which is a product derived from fresh grapes, albeit in a concentrated form after the removal of water from grape juice via evaporation.

Consequently, your product meets the requirement of paragraph 31-2(1)(a) of the WET Act.

It does not contain more than 22% a/v and therefore meets paragraph 31-2(1)(b) of the WET Act.

The fortification to 22% a/v by using grape spirit is also in accordance with subsection 31-2(2) of the WET Act.

Accordingly, your product is grape wine as defined in section 31-2 of the WET Act, and therefore a rebatable wine for the purposes of subsection 19-5(1) of the WET Act.

Question 2

Summary

You are entitled to the producers rebate for the sales of your product.

Detailed reasoning

Subsection 19-5(1) of the WET Act refers to the producer of rebatable wine being the person entitled to a producer rebate under Division 19 of the WET Act.

Section 33-1 of the WET Act defines a producer as the person that manufactures the wine, or supplies to another the grapes, other fruit, vegetables or honey from which the wine is manufactured.

Manufacture is then defined in section 33-1 of the WET Act to include the following:

(a) production;

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

(c) applying a treatment to foodstuffs as a process in preparing them for human consumption;

but does not include any prescribed combination of parts or ingredients.

In Wine Equalisation Tax Ruling WETR 2009/2 the Commissioner considers the definition of producer in section 33-1 of the WET Act includes a person who manufactures wine from the base constituents (such as grapes, fruit or vegetables), as well as a person who provides the base constituents to another to make the wine on their behalf.

You own all the base constituents that go into making your product. You blend LSJ with LAGC for fermentation with yeast and nutrients. On completion of the fermentation process the wine is racked and filtered before being fortified with grape spirit. Based on this, you manufacture wine and therefore you are the producer of rebatable wine.

Subsection 19-5(1) of the WET Act requires that a producer of rebatable wine must have an assessable dealing with the wine for entitlement to the producer rebate. The dealing does not need to be taxable. This will include a wholesale sale of wine by its manufacturer where the sale is made under quote.

However, there are restrictions imposed on an entitlement to the producer rebate.

Subsection 19-10(1) of the WET Act denies entitlement to the producer where a purchaser notifies at or before the time of purchase they intend to make a GST-free supply of wine. This commonly occurs where the purchaser intends to export the wine for consumption overseas. This is not limited to only where a purchaser provides notification to a producer on an approved quoting form, but also where the information is made known to the producer in other ways.

Subsection 19-10(2) of the WET Act also denies entitlement to a producer of rebatable wine where they have claimed a wine tax credit, or a wine tax credit subsequently arises, for the dealing with the wine.

Subsection 19-15(2) of the WET Act provides that the maximum amount of producer rebate that a producer is entitled to for a financial year is $500,000. However, subsection 19-15(3) of the WET Act overrides this where the producer is an associated producer with one or more other wine producers for a financial year. In that instance, all of the associated producers are treated as a single group with the group being subject to the maximum threshold of producer rebate of $500,000.

According to section 19-20 of the WET Act, a producer is an associated producer for a financial year if, at the end of the financial year:

· they are connected with each other. Generally, this will occur where -

one controls the other

both are controlled by the same third entity; or

one producer controls a second entity and the second entity controls the other producer,

· one is under an obligation (formal or informal), or might reasonably be expected, to act in accordance with the directions of the other in relation to their financial affairs;

· each of them is under an obligation (formal or informal), or might reasonably be expected to, act in accordance with the directions of the same third entity in relation to their financial affairs;

· one is under an obligation (formal or informal), or might reasonably be expected, to act in accordance with the directions of a third producer and the third producer is under an obligation (formal or informal), or might reasonably be expected, to act in accordance with the directions of the second producer in relation to their financial affairs.

We acknowledge that you are the producer of rebatable wine for the purposes of subsection 19-5(1) of the WET Act. You will make an assessable dealing with your product when you sell it to your exclusive wholesaler in each State. You say the wholesaler will give you a WET exemption quote for the sale. Provided you are not notified, or otherwise made aware, that the product is intended to be provided as a GST-free supply, you will be entitled to claim a WET credit in the form of a producer rebate for that dealing.

You will be entitled to claim up to the maximum rebate of $500,000 in a financial year, dependent upon the annual sales of your product, provided you are not associated with any other wine producer.