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Ruling

Subject: Wine equalisation tax - addition of water to fortified wine

Question

Does the addition of water to fortified wine change the wine to something other than wine?

Answer

The addition of water to fortified wine will change the wine to something other than wine where all of the relevant provisions of the A New Tax System (Wine Equalisation Tax) Act 1999 (WET Act) and the A New Tax System (Wine Equalisation Tax) Regulations 2000 (WET Regulations) are not met.

This ruling applies for the following periods:

1 July 2011

Relevant facts and circumstances

You currently purchase fortified grape wine at 22% alcohol by volume (alc/vol) from various wineries (the original wine). The percentage of grape wine in the original wine is 100%. Some of this percentage would be comprised of grape spirit used to fortify the wine to bring it to 22%.

You then add water to reduce the alc/vol of the original wine to just above 8% alc/vol.

You use the reduced alcohol wine to produce a number of different beverages. .

You add preservatives, flavours, water, colours and sugar to give you the final beverage of 8% alc/vol.

The flavours you add are pure flavours and are not of an alcoholic beverage.

All of the flavours you purchase for use in wine based beverages are manufactured using either a wine spirit base or a propylene glycol base to conform to the WET requirements.
No grain based products of other spirits are used to extract the flavours.

The final product will contain 70% of the reduced alcohol wine base and will have 8% alc/vol.

Relevant legislative provisions

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

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

A New Tax System (Wine Equalisation Tax) Act 1999 - Section 33-1

A New Tax System (Wine Equalisation Tax) Act 1999 - Subsection 31-1(1)

A New Tax System (Wine Equalisation Tax) Act 1999 - Section 31-3

A New Tax System (Wine Equalisation Tax) Act 1999 - Section 31-3

A New Tax System (Wine Equalisation Tax) Act 1999 - Paragraph 31-3(a)

A New Tax System (Wine Equalisation Tax) Act 1999 - Subparagraph 31-3(b)(i)

A New Tax System (Wine Equalisation Tax) Regulations 2000 - 31-2.01

Reasons for decision

Section 5-5 of the WET Act imposes a liability to WET on specific dealings with wine. Wine is defined in section 33-1 of the WET Act as having the meaning given by Subdivision 31-A of the WET Act.

Subsection 31-1(1) in Subdivision 31-A of the WET Act states that wine means any of the following:

· Grape wine;

· Grape wine products;

· Fruit or vegetable wines;

· Cider or Perry;

· Mead;

· Sake.

However, wine does not include beverages that do not contain more than 1.15% by volume of ethyl alcohol.

Each of the above are further defined in the WET Act.

Section 31-2 of the WET Act defines grape wine as follows:

(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.

The Regulation covering grape wine is regulation 31-2.01 which states:

For paragraph 31-8(1)(a) of the Act, a beverage mentioned in paragraph 31-2(1)(a) of
the Act must not contain more than 22% by volume of ethyl alcohol.

From the information you have provided, the original wine you purchase meets the definition of grape wine as set out in the WET Act and the WET Regulations.

You use the original wine to produce a range of new low alcoholic beverages after they have undergone the processes as set out in the facts above.

The products you intend to produce fall for consideration as a grape wine product under section 31-3 of the WET Act.

Section 31-3 of the WET Act says:

Grape wine product is a beverage that:

(a) contains at least 700 millilitres of grape wine per litre; and

(b) has not had added to it, at any time, any ethyl alcohol from any other
source, except:

(i) grape spirit; or

(ii) alcohol used in preparing vegetable extracts (including spices,
herbs and grasses); and

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

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

To determine whether the products you wish to produce are grape wine products for the purposes of the WET Act, we need to consider whether your products meet all of the above requirements.

Contains at least 700 millilitres of grape wine per litre:

Paragraph 31-3(a) of the WET Act requires that a grape wine product contains at least
700 millilitres (70%) of grape wine per litre of product. In the formulations proposed by you,
the amount of grape wine in the product is less than 70%.

You are starting out with original wine that is 100% grape wine at 22% alc/vol. You then add water to the original wine to reduce the alcohol. This would give you a final product that is made up of 50%, at most, of grape wine. To this product you are adding preservatives, flavours and some water. This could possibly result in the final beverage that you intend to sell containing even less than 50% grape wine.

As your final products do not meet paragraph 31-3(a) of the WET Act above, it is not relevant to discuss whether the other requirements will be met. Your products are not grape wine products for the purposes of the WET Act and the WET Regulations. Nor will they be any other beverage defined as wine in the WET legislation.

Note:

Excise duty is applicable to all goods manufactured in Australia that are listed in the Schedule to the Excise Tariff Act 1921(Excise Tariff Act).

The Schedule to the Excise Tariff Act defines an 'other excisable beverage' as:

Other excisable beverage means any beverage containing more than 1.15%
alcohol by volume, but does not include:

(a) beer, or
(b) brandy, or
(c) wine.

As your proposed products are to be manufactured in Australia, and are not subject to WET, they are other excisable beverages and subject to excise duty.

Excisable products may only be made by manufacturers holding an appropriate excise manufacturers licence. More information can be obtained by phoning our Licensing team on
1300 137 290.