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Edited version of your private ruling
Authorisation Number: 1012559646234
Ruling
Subject: Classification of alcohol product
Question 1
Does your product meet the definition of 'grape wine' or 'grape wine product' under the A New Tax System (Wine Equalisation Tax) Act 1999 (WET Act)?
Answer
Yes. Your product is grape wine, and is therefore subject to wine equalisation tax (WET).
Relevant facts and circumstances
· You are registered for GST.
· You intend to produce a wine using standard winemaking techniques. That is, by the complete fermentation of grapes or products derived solely from grapes, with permitted wine additives and processing aids.
· The wine may have the overall level of alcohol reduced by reverse osmosis.
· You will mature the base wine. A percentage of alcohol in the final product may be attributable to the process of finishing the wine. All other alcohol content will come from the base wine.
· Following the finishing process, the wine will undergo final blending using standard techniques to achieve the final product. Further reduction in alcohol content may be required to bring the final product will be within the desired range.
· The product will then be transferred to wine bottles and labelled to be presented as 'wine'.
Relevant legislative provisions
A New Tax System (Wine Equalisation Tax) Act 1999 section 31-1,
A New Tax System (Wine Equalisation Tax) Act 1999 section 31-2
A New Tax System (Wine Equalisation Tax) Act 1999 subsection 31-2(2)
A New Tax System (Wine Equalisation Tax) Act 1999 section 31-3
A New Tax System (Wine Equalisation Tax) Regulations 2000 regulation 31-2.01
A New Tax System (Wine Equalisation Tax) Regulations 2000 regulation 31-3.01
Reasons for decision
Summary
Your product is grape wine under the definition in section 31-2 of the WET Act, and is therefore subject to WET.
Detailed reasoning
Background
Prior to 1 July 2000, the only definition of wine was given by section 31-1 of the WET Act.
Section 31-1 previously only stated that wine included any fruit or vegetable wine. The section also stated that wine does not include beverages not containing more than 1.15% by volume of ethyl alcohol; or beer; or spirits, liqueurs or spirituous liquors; or beverages that contain beer, spirits (other than spirits for fortifying wine or other beverages), liqueurs or spirituous liquors. A note to the section confirmed that wine tax applies to cider, perry, mead and sake in the same way it applies to wine.
As 'wine' was not exhaustively defined an essential character test applied in determining whether a beverage was 'wine' for the purposes of the provisions. A beverage that exhibited the basic nature of grape wine, and could be objectively identified as grape wine, would not have been precluded from the operation of the WET Act regardless of whether or not it was subjected to particular processes.
Current legislation
The A New Tax System (Indirect Tax and Consequential Amendments) Act 1999 updated section 31-1 and added definitions for a range of products included within the meaning of wine. However, it was not the purpose of the amendments to exclude products that would have, prior to the amendments, been subject to the WET legislation. Rather, the Explanatory Memorandum to the Bill introducing this legislation confirms that the intention remains that:
Grape wine will cover traditional products such as table wine, sparkling wine and grape wines fortified by the addition of grape spirit and brandy…
Updated section 31-1 of the WET Act states that wine means any of the products listed, including grape wine and grape wine products.
Grape wine is defined in section 31-2 of the WET Act as 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 regulations made relating to grape wine.
Regulation 31-2.01 of the A New Tax System (Wine Equalisation Tax) Regulations 2000 (WET Regulations) provides the only regulations for grape wine, being that they must not contain more than 22% by volume of ethyl alcohol.
Subsection 31-2(2) of the WET Act provides that 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.
Grape wine
To be a grape wine, your product must be the result of the complete or partial fermentation of fresh grapes.
If interpreted narrowly, the definition in section 31-2 of the WET Act may mean that adding anything to fermented grapes (other than grape spirit or brandy) would preclude a product from being grape wine. However, this would preclude many traditional products. The Commissioner therefore prefers a broader interpretation, and accepts that additives which are a normal part of the production of wine may be present in grape wine1.
Similarly, the definition of grape wine is silent on processes (other than fermentation) that can be used in making grape wine. A narrow interpretation could result in a view that, because no processes other than fermentation are specifically allowed, a beverage produced using any other process would not meet the definition of grape wine. The Commissioner's view is that the context and underlying intent of the relevant provisions mean a broader interpretation is appropriate.
It is necessary to consider whether the finishing processes for your product mean that you have done or added anything that would preclude your product from the definition of grape wine.
Alcohol products are commonly matured in wood to improve their profile and flavour, including by extracting colour from the cask, imparting a wood character (flavour), and producing a smooth and mellow product. Factors that influence the result of maturation are temperature, humidity, type of wood, size of the cask and the type of cask used. Maturation in wood is generally accepted as a process that will not preclude a product from meeting the definition of grape wine for the purposes of the WET Act. Flavour imparted by exposing your wine to barrels is from within the wood. As such, your product is not precluded from being grape wine on the basis that is has been matured in barrels.
During maturation, the alcoholic strength of the wine may increase. However, this is not through the direct addition of alcohol. As the increase in alcoholic strength is the result of natural processes during finishing, we accept that you have not added alcohol to the wine.
Furthermore, any reduction in the alcoholic strength (such as by molecular filtration, or reverse osmosis) also does not impact on a product's status as grape wine.
As the flavour imparted by the barrels does not preclude your product from being grape wine, and any increase in alcoholic strength is a result of finishing and not from the direct addition of alcohol, your product is grape wine and is subject to WET.
1 See, for example, ATO ID 2011/92 Wine equalisation tax: addition of unfermented grape juice to grape wine and ATO ID 2009/15 Wine equalisation tax: cider manufacture - adding sugar to apple juice prior to fermentation.