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Ruling

Subject: Trade incentives and the taxable value of cider

Question

Does the rebate applied by the taxpayer reduce the price for which the wine is sold and give rise to a wine tax credit for the purposes of A New Tax System (Wine Equalisation Tax) Act 1999 (WET Act)?

Answer

Yes

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.

· The taxpayer is registered for goods and services tax (GST)

· The taxpayer has not previously claimed a wine tax credit for the rebates.

· The taxpayer sells wine to wholesale and retail customers.

· The wine is wine for the purposes of the WET Act and is subject to WET.

· Retailers are offered a rebate which is paid to them as a price discount calculated by reference to volume of sales.

· Rebates are individually negotiated with the retailers and do not form part of the formal written trading terms.

· The rebate is not tied to any other activities to be carried out by the retailers.

· The rebate is usually brought to account in a different tax period to the original sale of wine to the retailer.

Relevant legislative provisions

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

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

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

A New Tax System (Goods and Services Tax) Act 1999 Section 9-75.

Reasons for decision

In accordance with the Assessable Dealings Table in section 5-5 of the WET Act the taxable value of a wholesale sale of wine is the price (excluding WET and GST) for which the wine was sold.

The meaning of price is defined by section 33-1 of the WET Act to have the meaning given by section 9-75 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act). This section 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.

* denotes a term defined by section 195-1 of the GST Act.

Therefore, price for the purposes of wine tax means any payment or act or forbearance for the wine whether expressed in monetary or non-monetary terms.

The Commissioner's view on when trade incentives affect the price for which wine is sold is outlined in paragraphs 118 to 122 of Wine Equalisation Tax Ruling WETR 2009/1 Wine equalisation tax: the operation of the wine equalisation tax system. As outlined in that section in order to reduce the price for which the wine is sold and hence the taxable value on which wine tax is payable the incentive must relate to the sale and selling price of the wine. Incentives that are designed to subsidise, compensate and reimburse such as promotional rebates, advertising rebates and gondola end payments do not usually reduce the price for which the wine is sold as the rebate is a payment for performing a service for the supplier.

In Queensland Independent Wholesalers Limited v FC of T 91 ATC 4492; (1991) 29 FCR 312 (QIW) the Full Court of the Federal Court considered the issue of whether a rebate reduced the amount for which the goods where sold. The Commissioner considers this is relevant to the current WET system even though the case was based on the Sales Tax Assessment Act (No 1) 1930.

In the QIW case, Judge Hill stated that:

While in my view it is not necessary that the amount of a rebate be given contractually to reduce the amount at which the goods are sold, it is clear that the factual circumstances must be such that it is apparent that the rebate does effect a reduction in the sale price as a matter of commercial reality and that it is not directed at some other end.

In the case of the rebate it is not an allowance made to the retailer in return for a service such as promotion or advertising rather it acts to increase sales to those particular retailers of the wine.

Accordingly, the Commissioner considers that the rebate provided by the taxpayer does not form part of the price for which the wine is sold.

Entitlement to a credit

The wine tax credit table in section 17-5 of the WET Act provides a number of grounds for a credit of wine tax. Broadly these grounds ensure that wine tax is not paid more than once on the same wine and is paid at the correct amount on wine to which it should apply.

Applicable to the taxpayers' circumstances is credit ground CR1 contained in the wine tax credit table of section 17-5 of the WET Act. This credit ground provides a credit for wine tax that has been paid that was not legally payable. The amount of credit payable under this ground is the amount overpaid to the extent that the taxpayer has not passed it on. An amount of wine tax is not considered to be passed on if it has been charged and subsequently refunded.

The taxpayer will have paid an amount not legally payable where it has paid the wine tax based on the price of the wine prior to the rebate being applied. This is because the taxpayer is only liable to pay wine tax on the price for which the wine is sold which does not include the rebate as discussed above.

Therefore, the provision of the rebate to a retailer will trigger a wine tax credit entitlement where the wine tax has been paid on the price before the rebate was applied. The credit amount is the difference between the WET payable on the pre-rebate price and the WET payable on the post rebate price of the wine.

NB: As the rebate reduces the price for which the wine is sold then if the taxpayer is eligible for a producer rebate on the dealing in the wine they will also need to adjust the amount of producer rebate claimed for affected sales.