Senate

Revised Explanatory Memorandum

(Circulated by authority of the Treasurer, the Hon Peter Costello, MP)

Chapter 1 - wine producer rebate

Outline of chapter

1.1 Schedule 1 to this bill makes amendments to the A New Tax System (Wine Equalisation Tax) Act 1999 (WET Act) to implement new arrangements for a wine producer rebate.

1.2 The amendments set out the grounds upon which a producer will be entitled to a rebate, define those producers eligible for a rebate and provide for transitional provisions for commencement of the rebate on and from 1 October 2004. [Schedule 1, items 1 to 8 ]

Context of amendments

1.3 A wine producer rebate measure was announced by the Australian Government in the 2004-2005 Budget to provide a wine equalisation tax (WET) rebate of $290,000 to every wine producer per annum. This effectively exempts from WET $1 million (wholesale value) of each producer's domestic wine sales per financial year.

1.4 The wine producer rebate measure replaces the current Australian Government cellar door rebate scheme and accelerated depreciation provisions for grapevine plantings, and takes effect on and from 1 October 2004.

1.5 The existing cellar door rebate scheme provides a maximum WET rebate to licensed producers of up to $42,000 (calculated on a threshold of $300,000 annual rebatable turnover, beyond which rebate entitlement is tapered to zero at $580,000 of otherwise rebatable turnover). Under the new arrangements, a maximum rebate of $290,000 (with no decrease in payment for wholesale values of sales exceeding the $1 million threshold) is available to each wine producer within the new regime. The new rebate is not exclusively linked to cellar door sales.

1.6 Whereas the current rebate scheme applies to certain products classified as wine, the new arrangements capture all products to which WET applies, thereby affording a rebate to cider, perry and sake producers that contribute to the economies of regional areas of Australia.

1.7 Around 90% of wine producers will be able to fully offset their WET liability by accessing the new rebate. In particular, small wine producers in rural and regional Australia will benefit significantly, receiving around 85% of rebate benefits.

Summary of new law

1.8 Where a wine producer is liable for WET or makes a sale where WET is attributable to a subsequent dealing of the wine (a sale under quote), a rebate entitlement arises for the producer, calculated as 29% of wholesale value of wine sold in a financial year. [Schedule 1, item 1]

1.9 In circumstances where a producer makes a sale of wine under quote, the purchaser has an obligation to notify the producer of any intention to make a goods and services tax (GST)-free sale (which under the legislation is also a WET-free sale) for which a rebate is not available. [Schedule 1, item 1]

1.10 The maximum rebate payable to a producer is $290,000 per annum. [Schedule 1, item 1]

1.11 In assessing the amount of rebate a producer is entitled to, the rebate entitlement of associated producers is taken into account so that producers treated as a group of producers under the new provisions will be entitled, as a group, to a maximum rebate of $290,000. [Schedule 1, item 1]

1.12 A rebate is payable in relation to rebatable wine which extends to not only grape wine, grape wine products, fruit or vegetable wine and mead, but also cider, perry and sake. [Schedule 1, item 6A]

1.13 The new arrangements apply on and from 1 October 2004. [Schedule 1, item 7]

1.14 Transitional provisions govern the payment of rebate under the existing arrangements for wine sales between 1 July 2004 and 30 September 2004 in the 2004-2005 financial year, and WET on wine sales effected after the commencement of the new rebate scheme on 1 October 2004 will be rebated under the new scheme. For wine dealings from 1 October 2004, the maximum rebate available is pro-rated to exclude the period of the 2004-2005 financial year accounted for under the existing arrangements (i.e. 1 July 2004 to 30 September 2004). [Schedule 1, item 8]

Detailed explanation of new law

1.15 The amendments repeal Division 19 (governing producer rebates) of the WET Act and substitute the provisions with provisions setting out the new wine producer rebate arrangements.

1.16 New section 19-5 provides that a wine producer is entitled to a producer rebate for rebatable wine if they are liable for WET on a dealing in the wine that gives rise to a WET liability, or they have made a sale to a purchaser that quotes for the sale and thereby the producer directly incurs no WET liability. [Schedule 1, item 1]

1.17 Rebatable wine is defined in section 33-1 of the WET Act as grape wine, grape wine products, fruit or vegetable wine and mead. The new definition is broader and includes cider, perry and sake, with the effect that all products classified as wine under section 31-1 of the WET Act are rebatable wine. [Schedule 1, item 6A]

1.18 New section 19-10 precludes a producer's entitlement to a producer rebate in certain circumstances where effectively no direct WET liability arises, that is:

•

where the producer makes a sale under quote to a purchaser that notifies them of an intention to make a GST-free supply of the wine (new subsection 19-10(1)), or

•

where the producer has already claimed or subsequently claims a wine tax credit in relation to the wine (new subsection 19-10(2)).

[Schedule 1, item 1]

1.19 New section 19-30 creates an offence provision that imposes on a purchaser that purchases wine from a producer under quote, an obligation to notify the producer of an intention to make a GST-free supply of the wine.

1.20 The purchaser must notify the producer of that intention at or before the time of wine purchase. Notification is in the ordinary form of a taxation notice as prescribed by the Commissioner of Taxation. [Schedule 1, item 1]

1.21 New subsection 19-15(1) provides for the calculation of the amount of producer rebate as 29% of the wholesale value of the wine sold or applied to own use.

1.22 Sections 9-25, 9-35 and 9-40 of the WET Act allow the wholesale value of wine for retail sale or applications to own use (notional wholesale selling price) to be calculated using either the half retail price method or average wholesale price method. [Schedule 1, item 1]

1.23 The maximum rebate entitlement in a financial year, specified in new subsection 19-15(2), is $290,000. [Schedule 1, item 1]

1.24 New subsection 19-15(3) provides that a group of associated producers is entitled to a maximum rebate of $290,000. It is not intended that large wine production entities be entitled to multiple rebates. For the purposes of identifying a group of producers existing in a financial year, a group comprises of associated producers as at 30 June of the financial year. [Schedule 1, item 1]

1.25 Producers are 'associated producers' if, under new section 19-20:

•

one is connected to the other pursuant to section 152-30 of the Income Tax Assessment Act 1997 (ITAA 1997) (i.e. if one entity controls the other or if both entities are controlled by a third entity, but without the exception in section 152-30(8) that severs the link between producers where an intermediary is a public entity);

•

one is under an obligation or might reasonably be expected to act in accordance with the directions of the other in relation to their affairs;

•

each of them is under an obligation or might reasonably be expected to act in accordance with the directions of the same third entity; and

•

one is under an obligation or might reasonably be expected to act in accordance with the directions of a third producer and the third producer is under an obligation or might reasonably be expected to act in accordance with the directions of the second producer.

[Schedule 1, item 1]

1.26 New subsection 19-25(1) governs the repayment of excess amounts claimed by a producer in a financial year. The provision allows an adjustment of the total amount claimed in the financial year to take into account amounts that the producer was not entitled to during the year and holds the producer (or producers of a group) liable to pay the amount equivalent to the excess.

1.27 The new subsection holds a producer liable to pay the excess amount and in the case of a group of associated producers, the producers are jointly and severally liable for the excess amount claimed by the producers as a group but each producer is liable to the extent of the rebate amounts they claimed in the financial year. An associated producer has the right, under Subdivision 265-A of the Taxation Administration Act 1953 , to seek compensation from another producer that was jointly liable for the amount payable. [Schedule 1, item 1]

1.28 Amounts claimed by wine producers under the new producer rebate scheme are to be treated, as for rebates under the current scheme, as ordinary income.

Application and transitional provisions

1.29 Schedule 1 commences on and from 1 October 2004.

1.30 Schedule 1, item 8 provides for the calculation of rebate on wine dealings in the 2004-2005 financial year for the periods 1 July 2004 to 30 September 2004 and after 30 September 2004. In the former period, the current rebate arrangements apply as though the financial year ends on and including 30 September. For wine dealings on and from 1 October 2004 to 30 June 2005, the maximum rebate for the financial year is pro-rated to exclude the quarter prior to 1 October 2004. [Schedule 1, item 8]

Consequential amendments

1.31 The amendments repeal the definition of the following terms in section 33-1 (dictionary):

•

'annual rebatable turnover'; and

•

'producer's licence'.

[Schedule 1, items 2 and 6]

1.32 The amendments insert the following terms and their definitions in section 33-1 (dictionary):

•

'associated producer', defined by new section 19-20; and

•

'connected with', defined by section 152-30 of the ITAA 1997.

[Schedule 1, items 3 and 4]

1.33 An amendment alters the definition of 'producer' in section 33-1 (dictionary) to remove the requirement for a producer entity to hold a producer's license. [Schedule 1, item 5]

1.34 An amendment alters the definition of 'rebatable wine' in section 33-1 (dictionary) to include cider, perry and sake. [Schedule 1, item 6A]