Edited version of your private ruling

Authorisation Number: 1012588756383

Ruling

Subject: Wine equalisation tax (WET) - Grape wine classification

Question

Is your product considered to be 'grape wine' for the purposes of Subdivision 31-A of the WET Act and therefore subject to WET?

Answer

No

Relevant facts and circumstances

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

· You are registered for WET.

· You account for GST using the accrual method.

· You intend producing a fortified wine based alcoholic beverage (your product).

· Wine used was produced through fermentation of fresh grapes.

· If your product is ruled subject to WET, you will source 'neutral grape spirit' with a concessional permit.

· If your product is ruled not subject to WET you will require an excise licence.

· You have provided the following description regarding the processes involved in the manufacture of your product:

Step One:

Step Two:

Step Three:

Step Four:

Step Five:

· Once your product has undergone the above processes, including fortification, it will have a final alcoholic strength of less than 22%

Relevant legislative provisions

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

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

A New Tax System (Wine Equalisation Tax) Act 1999 Subsection 31-1(2)

A New Tax System (Wine Equalisation Tax) Act 1999 Section 31-2

A New Tax System (Wine Equalisation Tax) Act 1999 Paragraph 31-2(1)(a)

A New Tax System (Wine Equalisation Tax) Act 1999 Paragraph 31-2(1)(b)

A New Tax System (Wine Equalisation Tax) Act 1999 Subsection 31-2(2)

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

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

Reasons for decision

Summary

Your product is not considered to be 'grape wine' for the purposes of Subdivision 31-A of the WET Act and is therefore not subject to WET. The product will be excisable.

Detailed reasoning

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.

Subsection 31-1 (2) of the WET Act provides that wine does not include beverages that do not contain more than 1.15% by volume of ethyl alcohol.

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 regulations referred to in section 31-2 above are the A New Tax System (Wine Equalisation Tax) Regulations 2000. Regulation 31-2.01 relates to grape wine. It 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.

Section 31-2 of the WET Act states that grape wine is a beverage that is the product of the complete or partial fermentation of fresh grapes or products derived solely from fresh grapes, and comply with the regulations (e.g. be under 22% alcoholic strength). A product doesn't cease to be the product of complete or partial fermentation of grapes merely if it has grape spirit, brandy or both added.

This definition was inserted in the Act by the A New Tax System (Indirect Tax and Consequential Amendments) Act 1999 (Act No 176 of 1999). Previously the definition simply said (for relevant purposes) that wine includes any fruit wine or vegetable wine. Therefore an 'essential character test' needed to be applied.

The Explanatory Memorandum to the amending legislation explains that the aim of the amended definition was to provide greater certainty as to the types of products covered by the WET. It explains:

Grape wine

1.236 Grape wine will cover traditional products such as table wine, sparkling wine and grape wines fortified by the addition of grape spirit or brandy or both grape spirit and brandy. [Item 231, new section 31-2]

In light of the above, we consider that a proper interpretation of the provisions is one that narrows rather than expands the original definition. That is, the legislature intended or assumed that the ordinary definition of 'wine' was being supplemented rather than replaced. Therefore, as well as satisfying the specific requirements of section 31-2, a product still needs to be ordinarily recognisable as wine (a traditional wine product) for it to come within the meaning of 'grape wine.'

We acknowledge that some processes other than fermentation may be a necessary part of the traditional grape winemaking process. Such processes can include filtration. However, the finished product must retain the essential characteristics of grape wine (such as the flavour and aroma compounds of grape wine) for it to be classified as a grape wine.

In your case, a number of processes have been undertaken to your wine. This process is commonly used in the wine industry to reduce the alcoholic level of wine. Normally, once the desired alcoholic level is achieved by de-alcoholising permeate, both streams are reunited as 'retentate' is known to carry the rich favours and aroma of the wine itself.

Where this is the case, the final recombined product may be considered to be a grape wine because the essential characteristics of wine (found in the retentate) are present.

Permeate does not contain many of the characteristics of the original wine. Furthermore your permeate is subjected to further filtering processes which are undertaken to strip it of the remaining characteristics of the original wine source.

On this basis, it cannot be said that your product retains the essential characteristics of grape wine. The original wine has undergone a number of processes which resulted in stripping it of its identifying characteristics i.e. flavour, colour and odour. As such, the end product cannot be classified as a grape wine under section 31-2 of the WET Act.

We note that, whilst not asked to rule on this matter, our conclusion that the product is not grape wine will also preclude any product made from the processed permeate base from being a grape wine product under section 31-3 of the WET Act. This is because, amongst other things, a grape wine product must contain at least 700 millilitres of grape wine per litre. As discussed above the product is not grape wine and therefore cannot satisfy this requirement.

Therefore your product, a clear fortified wine permeate, will be classified as an 'other excisable beverage' under the Excise Tariff Act 1921 and subject to excise duty. An excise manufacturer licence is therefore required to make this product.

Please refer to our website (www.ato.gov.au) for information on how to apply for a licence.