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Subject: The effect of delivery charges on the taxable value for wine equalisation tax (WET) purposes.

Question 1

Does the taxable value of wine include the packaging, postage and handling component where you make retail sales of:

a) wine in individual bottles,

b) hampers containing wine and other non-alcoholic products, or

c) cases of one dozen bottles of wine?

Answer

In each case, only the cost of the packaging is included in the taxable value.

This ruling applies for the following periods:

From date of ruling

The scheme commences on:

Under serious consideration

Relevant facts and circumstances

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

· You make bulk purchases of wine, WET is included in the purchase price.

· You then bottle, label and sell the wine.

· You offer a custom label service to your customers whereby they can order bottled wine with the label made to their specifications rather than the standard label.

· The custom-label wine can be purchased:

o Individually

o In cases of 12

o As part of a hamper with other non-alcoholic goods.

· Purchasers of any of these products can elect to collect the order or have it delivered by you.

· You add postage and handling charges to orders which are delivered.

· Postage and handling charges include:

o For individual bottles and hampers:

§ Cost of Australia Post packaging

§ Cost of labour for time spent packing the order

§ Cost of postage, as charged by the delivery provider.

o For cases of wine

§ Cost of postage, as charged by the delivery provider

· The cost of the box used for cases of wine is built into the selling price - it is not a separate charge.

· You calculate WET using the half retail price method.

Relevant legislative provisions

A New Tax System (Wine Equalisation Tax) Act 1999 subsection 5-5(4)

A New Tax System (Wine Equalisation Tax) Act 1999 section 9-5

A New Tax System (Wine Equalisation Tax) Act 1999 section 9-25

A New Tax System (Wine Equalisation Tax) Act 1999 subsection 9-35(1)

A New Tax System (Wine Equalisation Tax) Act 1999 subdivision 9-C

A New Tax System (Wine Equalisation Tax) Act 1999 section 9-65

A New Tax System (Wine Equalisation Tax) Act 1999 section 27-15

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

Reasons for decision

Summary

In all situations the additional postage and handling charges applied for the delivery of custom-label products are not included in the taxable value of the sale and therefore, WET is not payable on this component.

The price of the packaging is implicit in the sale price of the cases of wine; therefore this will be included in the taxable value. However, the packaging costs for the hampers and individual bottles of wine will not be included in the taxable value of those products.

Detailed reasoning

The WET system imposes tax on sales, importations and other assessable dealings with wine. Where an entity makes a wholesale or retail sale of wine and no exemption applies then that sale is a taxable dealing and WET is payable.

Subsection 5-5(4) of the A New Tax System (Wine Equalisation Tax) Act 1999 (WET Act) sets out all assessable dealings that may occur in relation to wine. Assessable dealing AD2f applies to retail sales of wine that is placed in containers at a time after WET became payable on the wine.

Section 9-5 of the WET Act provides that the general rules for working out taxable value are set out in the Assessable Dealings Table (ADT) at subsection 5-5(4) of the WET Act and that, in some cases, amounts must be added to the amount set out in the ADT as provided under subdivision 9-C of the WET Act.

The ADT states that the taxable value for assessable dealing AD2f is the notional wholesale selling price (NWSP). Under section 9-25 of the WET Act the NWSP can be calculated using the average wholesale price method or the half retail price method.

Subsection 9-35(1) of the WET Act further provides that the half retail price method for a retail sale of grape wine is calculated as 50% of the price (WET and GST inclusive) of the sale. The price of the sale is generally the amount of money paid; however, other amounts may be included or excluded depending on whether payment of the additional costs are necessary for title in the wine pass to the purchaser.

Wine Equalisation Tax Ruling WETR 2009/1 Wine equalisation tax: the operation of the wine equalisation tax system (WETR 2009/1) provides some explanation about the additional costs that are intended to be included in the price for the purposes of calculating taxable value.

Paragraph 104 of WETR 2009/1 states that the price of wine includes delivery charges when wine is sold under a contract that provides that the sale price includes delivery. If the payment for delivery of the wine must occur for the purchaser to obtain good title to the wine, then the delivery charges form part of the taxable value.

Paragraph 105 explains that it will be clear that charges for freight, postage or insurance do not form part of the sale price when:

· the parties to the contract of sale genuinely intend property in the wine to pass without delivery at the price stated, that is, there are no additional charges to customers who arrange for their own delivery or collect the wine themselves; and

· the amount for delivery is a competitive commercial charge, that is, the charge does not exceed the amount that would have been charged to the buyer by an independent carrier.

This situation is highlighted in the example at paragraphs 109-110 of WETR 2009/1 which states:

109. A customer of RedWine Wholesalers places a phone order for two dozen cases of wine. The price of the wine is $180 per carton. The customer can make their own arrangements for the wine to be collected from RedWine's premises. Alternatively, RedWine can arrange for delivery of the wine for an additional charge of $33. The customer agrees to pay the additional $33 charge for RedWine to arrange delivery of the wine…

110. In these circumstances the charge for delivery is under a separate contractual arrangement to the sale of the wine. The additional $33 charge will not form part of the price for which the wine was sold and will not be included in the taxable value [as long as the charge is not inflated compared with that of an independent carrier].

You provide a custom-label service whereby a customer can order your wine with a specific label either; individually, in cases of one dozen, or as part of a hamper with other non-alcoholic products.

Purchasers of these products can elect to pick up the wine or have it delivered by you. When they elect to have it delivered, you impose additional charges for packaging and handling (individual bottles and hampers only), and postage. These charges do not exceed their cost to you to provide the service.

The postage and handling charges levied on customers who elect to have their orders delivered are not included in the taxable value of the custom-label wine products as, for the reasons discussed above, the charges are subject to a separate contract and therefore not necessary for title in the wine to pass to the purchaser.

Section 9-65 of the WET Act provides that the taxable value of wine which is the subject of a taxable dealing will be increased by so much of the value of the container as is recouped by the seller in connection with the sale of the contents.

The term 'container' is defined at section 33-1 of the WET Act and includes:

'…packaging in which, or with which, any property (the contents) is packed or secured, in the ordinary course of a business, for the purpose of the marketing or delivery of the contents…'

Section 27-15 of the WET Act further states that where:

'there is a need to know how much of a global amount relates to some other element of the transaction, but the parties have not allocated a particular amount to that element, the amount to be allocated to that element is the amount that could reasonably be expected to have been allocated to that element if that element had been the only subject matter of the transaction.'

The final cost for orders of hampers and individual bottles of wine includes a surcharge for the packaging required to deliver the product.

For orders of individual bottles, the whole of this surcharge must be included in the taxable value of the product.

In the case of hamper orders, you must attribute so much of the total amount of the packaging surcharge that could reasonably have been expected to have been allocated to the wine had the wine been sold independently. This amount is likely to be equivalent to the packaging surcharge for individual bottle orders. In this way, the taxable value of the hamper sale includes the amount of the packaging cost attributable to the individual bottle/s.

For orders of a dozen bottles, the cost of the case that the wine is provided in is implicit in the price of the overall product. Therefore, as it is required to be paid before good title can pass to the purchaser, and under section 9-65 of the WET Act, it is included in the taxable value.