Edited version of your written advice

Authorisation Number: 1012736371638

Ruling

Subject: Producer Rebate

Questions

1) Are you a 'producer' of rebatable wine for the purposes of Division 19 of the A New Tax System (Wine Equalisation Tax) Act 1999 (WET Act) where you have grape wine made under contract from grapes and other (raw) wine overseas?

2) Are you entitled to claim a producer rebate in respect of the wine you have made under contract overseas where you have a taxable dealing with the wine or would have had a taxable dealing had the purchaser not quoted?

Answer

Yes (to questions 1 & 2)

This ruling applies for the following periods:

From 1 November 2014 onwards

The scheme commences on:

n/a

Relevant facts and circumstances

• You are a company incorporated in Australia.

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

• You propose to enter into a contact to have grape wine manufactured by another entity on your behalf overseas.

• The wine will be made from grapes and raw wine sourced overseas.

• The arrangement is commercial and at arm's length.

• You will have ownership of and bear all legal and financial risks associated with the grapes, the raw wine and the resultant wine at all material times.

• You will provide specifications and have other input into the winemaking process.

• You will import the wine manufactured under contract overseas into Australia and sell the wine into the Australian domestic market.

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 19-5

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

Reasons for decision

Division 19 of the WET Act states that a wine producer is entitled to a rebate for certain dealings with rebatable wine. The rebate is provided in the form of a wine tax credit.

Section 19-5 of the WET Act provides that you are entitled to a producer rebate for rebatable wine for a financial year if you are the producer of the wine and:

a) you are liable to wine tax for a taxable dealing in the wine during the financial year; or

b) you would have been liable to wine tax for a dealing in the wine during the financial year had the purchaser not quoted for the sale at or before the time of the sale.

Meaning of 'producer'

Section 33-1 of the WET Act provides that a:

producer, of rebatable wine, means an entity that manufactures the wine, or supplies to another entity the grapes, other fruit, vegetables or honey from which the wine is manufactured.

Rebatable wine

Rebatable wine is defined in section 33-1 and includes grape wine.

There is nothing in the WET Act or the A New Tax System (Wine Equalisation Tax Regulations) 2000 (WET Regulations) that requires rebatable wine to be manufactured in Australia or to be manufactured from Australian inputs. Under sub-section 1-3(1) of the WET Act it is specifically acknowledged that the wine tax law extends to acts, omissions, matters and things outside Australia (except where a contrary intention appears).

Manufacture

The term 'manufacture' is defined in the WET Act to include:

a) production;

b) combining parts or ingredients so as to form an article that is commercially distinct from the parts or ingredients…

The term 'manufacture' is explained in more detail under paragraphs 26 to 55 of Wine Equalisation Tax Ruling WETR 2009/2 Wine equalisation tax: operation of the producer rebate for other than New Zealand participants (WETR 2009/2).

An entity will be considered to have manufactured wine where grapes are made into finished wine. An entity will also be considered to have manufactured wine where base wine is further processed such that the end product is a different thing from its inputs. The Commissioner accepts that where wine undergoes secondary fermentation and other processes the end product is commercially distinct from its inputs.

Contract manufacture

The Commissioner's view about wine that is manufactured under contract is set out under paragraphs 48 to 50 as follows:

48. The Commissioner also considers that an entity manufactures wine when it engages a contract wine maker who makes the wine on behalf of the entity, provided that the grapes, other fruit, vegetable or honey and the resulting wine remains the property of the entity. The owner does not physically manufacture the wine, however the owner provides the requisite materials (the grapes, other fruit, vegetable or honey) and specifications for wine to be manufactured, and the engagement of the contract winemaker is akin to engaging an employee to undertake the physical tasks of manufacture.

49. Although the entity that owns the wine does not carry out any of the physical processes of manufacture personally, by causing the wine to be manufactured on their behalf, the owner has undertaken the manufacture of the wine. In these circumstances the owner of the wine is the producer of that rebatable wine for the purposes of Division 19.

50. Having regard to the views expressed in paragraphs 48 and 49 of this Ruling the Commissioner considers that an owner of grape wine that provides to a contract winemaker the grape wine and other materials and specifications to make a beverage that meets the definition of grape wine product, manufactures the grape wine product as defined in section 33-1. Therefore the owner of the grape wine is the producer of that rebatable wine for the purposes Division 19.

Under your contract manufacturing arrangement:

Wine that has undergone primary fermentation and grapes will be purchased from third parties on your behalf and ownership of and risk in the raw wine and grapes passes to you on purchase.

The contract winemaker will manufacture wine on your behalf in accordance with your specifications.

The contract winemaker will bottle, package and label the wine with your name.

You will be invoiced for the base wine and grapes separately from the processing fees.

You bear the legal and financial risk of and title to the raw wine, grapes and the resulting wine at all material times.

Therefore, you are considered to be the producer of the wine made under contract.

Entitlement to claim

You are registered for GST in Australia and you are the producer of the wine made under contract overseas. As such, you are entitled to claim the producer rebate where you are liable for a taxable dealing in the wine in Australia during a financial year, or you would have been liable to WET during the financial year had the purchaser not quoted.

You will be liable for WET where you have an assessable dealing with wine to which no exemption applies. All of the assessable dealings you can have with wine are set out in the Assessable Dealings Table in section 5-5 of the WET Act and all of the exemptions are set out in Division 7 of the WET Act.

Relevantly, assessable dealing AD10 provides that you will have an assessable dealing with imported wine where you make a local entry of the wine. WET is payable on entry.

Additionally, under assessable dealing AD11b, you will have an assessable dealing with imported wine where you make a wholesale sale of the wine in Australia.

Earlier producer rebate

As the wine that you intend having made under contract will be manufactured using other wine, you will be subject to the earlier producer rebate provisions.

Section 19-17 of the WET Act provides that where any wine is manufactured using other wine, the amount of producer rebates to which you would be entitled is reduced by the sum of the amounts of any earlier producer rebates relating to the wine. This is regardless of whether the wine used in the manufacturing process is Australian wine or wine acquired overseas.

Subsection 19-17(2) provides that the amount by which a rebate claim for wine made from other wine will be reduced, depends on whether notification of an earlier rebate amount was provided by the producer of the purchased wine and if so, the amount so notified.

Where a producer chooses to provide notice of an earlier rebate entitlement, the notice must be given in the approved form. Paragraphs 65H to 65J inclusive of WETR 2009/2 set out when a notice of earlier rebate entitlement will be in the approved form.

If a supplier of wine notifies the purchaser in the approved form of the amount of any rebate entitlement, the purchaser's producer rebate for any wine they manufacture using the purchased wine will be reduced. The amount of reduction is the amount of the earlier rebate that is attributable to the purchased wine used to manufacture the wine.

An entity that is not registered for GST in Australia (other than an approved New Zealand participant) is not able to claim a producer rebate and there will generally be no earlier rebate in relation to wine manufactured overseas. Therefore, any earlier rebate amount and consequently, any reduction in your rebate claim is likely to be zero.

Importantly, where you do not receive notice of any earlier rebate in the approved form for wine that you have purchased and used in further manufacture, your producer rebate for any wine manufactured using the purchased wine must be reduced. Your rebate will be reduced by 29% of the WET and GST exclusive price of the purchased wine used in the manufacturing process.