House of Representatives

Explanatory Memorandum

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

Chapter 4 - Scheme to extend the wine equalisation tax rebate to New Zealand wine producers

Outline of chapter

4.1 Schedule 4 to this Bill amends the A New Tax System (Wine Equalisation Tax) Act 1999 to create a specific scheme to provide the existing wine producer rebate to New Zealand wine producers whose wine is exported to the Australian market.

Context of amendments

4.2 Under existing law wine producers can claim a wine equalisation tax (WET) rebate of up to $290,000 per year. The rebate effectively makes $1 million of the wholesale value of each producer's wine sales in Australia per year exempt from WET.

4.3 The existing rebate is available to wine producers who are registered for goods and services tax (GST) in Australia.

4.4 The Australian Government has decided to provide a rebate to New Zealand wine producers without the need for them to enter the Australian tax system. This demonstrates the close economic relationship between Australia and New Zealand.

Summary of new law

4.5 Schedule 4 creates a specific scheme to provide the existing wine producer rebate to New Zealand wine producers who export their wine to Australia.

4.6 New Zealand wine producers may apply to the Commissioner of Taxation (Commissioner) to become approved New Zealand participants. If approved they can then claim the New Zealand wine producer rebate, provided they can demonstrate that WET has been paid on their wine that has been exported to Australia and they provide such supporting evidence in relation to the claim as the Commissioner requires.

4.7 The rebate entitlement is 29 per cent of the selling price of the wine received by the New Zealand wine producer net of any expenses unrelated to the production of the wine in New Zealand. The maximum entitlement is $290,000 per year.

Comparison of key features of new law and current law

Detailed explanation of new law

4.8 These amendments supplement Divisions 17 and 19 of the A New Tax System (Wine Equalisation Tax) Act 1999 with provisions setting out the New Zealand wine producer rebate arrangements. As far as possible, the arrangements are based on the existing arrangements, except where separate arrangements are necessary as a result of New Zealand producers operating outside Australian jurisdiction.

Amount of the rebate

4.9 The amount of the New Zealand wine producer rebate entitlement is 29 per cent of the approved selling price of the wine [Schedule 4, item 15, subsection 19-15(1A)] . The basis for calculation differs from the existing scheme [Schedule 4, item 14] .

4.10 The approved selling price of the wine means the price for which the wine was sold by the producer net of any expenses unrelated to the production of the wine in New Zealand. [Schedule 4, item 15, subsection 19-15(1C)]

4.11 Specific expenses unrelated to the production of the wine include expenses that would not be incurred if the wine had been produced in Australia such as transportation, freight, insurance, agents' fees and other costs associated with the importation of the wine into Australia. New Zealand or Australian taxes, including customs duties, are also excluded. [Schedule 4, item 15, subsection 19-15(C)]

4.12 The Commissioner will treat any components that make up the approved selling price that are not expressed in Australian currency as if they are amounts of Australian currency. The manner in which any components are treated is determined by the Commissioner [Schedule 4, item 15, subsection 19-15(1B)] . Such a determination is a legislative instrument as it falls within the definition of a 'legislative instrument' under section 5 of the Legislative Instruments Act 2003 .

4.13 The maximum producer rebate to which a producer is entitled under Division 19 is $290,000 per financial year. This applies to the existing scheme and New Zealand participants. [Schedule 4, item 16]

Example 4.1

Kiwi Wines Pty Ltd is a wine producer that manufactures wine in New Zealand and sells it to an Australian importer who pays WET on the wine. Kiwi Wines charges NZ$10,000 to the importer for a shipment of wine inclusive of freight charges of NZ$500 and insurance charges of NZ$100 to transport the wine to the dock. The importer meets the shipping costs to Australia. The approved selling price will be calculated using NZ$10,000, and freight charges (NZ$500) and insurance charges (NZ$100) will be subtracted from this figure. The components used to calculate the approved selling price will be converted into Australian currency in the manner determined by the Commissioner.

4.14 Under subsection 19-15(3), where a producer is associated with other producers, a maximum rebate entitlement of $290,000 applies to them as a group. This includes New Zealand wine producers. [Schedule 4, item 17]

4.15 Section 19-20 defines the circumstances where producers will be considered to be associated. These provisions cover associations between two or more Australian producers or between two or more New Zealand producers. They also cover any international associations between Australian and New Zealand producers; and any other international producer relationship that links the two.

Example 4.2

Kiwi Wines has become part of a Trans-Tasman group with an Australian wine manufacturer, Aussie Wines Ltd. Kiwi Wines is under an obligation to act in accordance with Aussie Wines in relation to its financial affairs. Aussie Wines has claimed $150,000 for taxable dealings over the period 1 July 2006 to 30 June 2007. Therefore, the maximum rebate that Kiwi Wines can claim for eligible wine imported into Australia is $140,000.

Eligibility for the rebate

4.16 Approved New Zealand participants are entitled to the producer rebate where they produce rebateable wine in New Zealand, this wine is exported to Australia and they can provide supporting evidence with their claim (as the Commissioner requires) which will include substantiation that WET was paid on their wine [Schedule 4, item 9] . These are specific grounds for New Zealand participants only [Schedule 4, item 8] . 'New Zealand participant' and 'New Zealand' are terms defined in section 33-1 [Schedule 4, items 23 and 24] .

4.17 Where the New Zealand producer rebate has been claimed for a taxable dealing in particular wine the rebate cannot be accessed on any other taxable dealings in the same wine. [Schedule 4, item 13, subsection 19-10(4)]

4.18 Entitlement to the New Zealand wine producer rebate is extinguished where wine is exported from Australia and the New Zealand wine producer knew or should have known that it was to be exported [Schedule 4, item 13, subsection 19-10(3)] . Other exceptions for entitlement in section 19-10 do not apply to New Zealand participants [Schedule 4, items 11 and 12] .

Claim method

4.19 New Zealand wine producers wishing to claim the New Zealand wine producer rebate must apply to the Commissioner to become New Zealand participants [Schedule 4, item 10, subsection 19-7(1)] . This is similar in concept to the current scheme but different in administration, where claimants of the rebate are registered or required to be registered for GST in Australia.

4.20 To be approved as New Zealand participants, wine producers must produce rebateable wine in New Zealand which is or is likely to be exported to Australia. [Schedule 4, item 10, subsection 19-7(2)]

4.21 The Commissioner must approve New Zealand participants who meet the eligibility criteria and decide the date of effect of that approval. Approved New Zealand participants will be advised in writing of their approval and the date from which it has effect. [Schedule 4, item 10, subsections 19-7(3) to (5)]

4.22 The Commissioner must refuse applications to become New Zealand participants where those applicants do not meet the eligibility criteria. Such applicants will be advised in writing of the refusal and the reasons for such a refusal. [Schedule 4, item 10, subsection 19-7(6)]

4.23 Written instruments of approval and refusing approval as New Zealand participants are not legislative instruments [Schedule 4, item 10, subsection 19-7(7)] . This provision is inserted for clarification as these instruments do not meet the definition of a legislative instrument in section 5 of the Legislative Instruments Act 2003 .

4.24 The Commissioner must revoke an approval as a New Zealand participant for entities who no longer meet the criteria for approval and decide the date of effect of that revocation. Such entities will be advised in writing of the revocation of their approval and the reasons for it. A written instrument of revocation of approval is not a legislative instrument as it does not meet the definition of a legislative instrument in section 5 of the Legislative Instruments Act 2003 . [Schedule 4, item 10, section 19-8]

4.25 An onus lies on approved New Zealand participants to notify the Commissioner if they no longer meet the eligibility criteria due to a change in their circumstances, for example, if they are no longer a producer of rebateable wine in New Zealand. Notification must occur within 21 days of the change in circumstances. The notification is not a legislative instrument as it does not meet the definition of legislative instrument in section 5 of the Legislative Instruments Act 2003 . [Schedule 4, item 10, section 19-9]

4.26 Claims for the New Zealand wine producer rebate will be made in the form approved by the Commissioner [Schedule 4, item 4, subsection 17-10(2A)] . The supporting evidence required will be specified in the form and will include substantiation that WET has been paid on the New Zealand producer's wine. All claims for the New Zealand wine producer rebate will be made on a specific form which differs from the claim methods for other wine tax credits [Schedule 4, items 2 and 3] . Where entities are registered or required to be registered for GST in Australia, they may access the existing wine producer rebate or the New Zealand wine producer rebate but not both on the same wine.

4.27 The Commissioner may determine the time or times during which claims by approved New Zealand participants may be made. This gives the Commissioner the ability to establish a claim cycle for approved New Zealand participants who are not registered or required to be registered for GST in Australia. It enables the Commissioner to provide a similar structure to the existing rebate arrangements, where the lodgement of Business Activity Statements determines the frequency and timing of claims or a claim cycle. Such a determination by the Commissioner is a legislative instrument as it falls within the definition of a legislative instrument under section 5 of the Legislative Instruments Act 2003 . [Schedule 4, item 4, subsection 17-10(2B)]

4.28 A successful claim by an approved New Zealand participant for the producer rebate will give rise to a wine tax credit immediately before the end of the financial year in which the WET was paid on the wine [Schedule 4, item 1] . The wine tax credit must be applied to any outstanding debts (eg overpayment of the producer rebate that has not been repaid) by the Commissioner in accordance with Division 3 of Part IIB of the Tax Administration Act 1953 (TAA 1953) [Schedule 4, item 7] .

4.29 Claims must be lodged within four years after the time when the wine tax credit arises [Schedule 4, item 5] . The Commissioner is not required to consider claims for less than $200 [Schedule 4, item 6] . Individual claims may be aggregated to reach the minimum amount.

4.30 Where an approved New Zealand participant claims a producer rebate in excess of their correct entitlement for a financial year, they are required to repay the excess [Schedule 4, item 19] . The excess is treated as if it were WET payable at the end of the financial year [Schedule 4, item 21] . There is no dependence on tax periods as for the existing scheme [Schedule 4, item 18] . Joint and several liability to repay the excess applies to members of a group of associated producers as for the existing scheme [Schedule 4, item 20] .

4.31 The rebate is treated as if it were a net amount for the purposes of Part VI of the TAA 1953 [Schedule 4, item 22] . Amongst other things, this will enable the Commissioner to make an assessment in relation to a producer rebate for a New Zealand participant and allow New Zealand participants to obtain protection when relying on ruling published by the Commissioner.

Application and transitional provisions

4.32 Schedule 5 commences from 1 July 2005. The New Zealand wine producer rebate can be claimed in relation to wine that has had WET paid on it on or after 1 July 2005. [Schedule 4, item 25]

Consequential amendments

4.33 Subsection 62(2A) of the TAA 1953 specifies those wine tax decisions which are reviewable. Persons dissatisfied with reviewable wine tax decisions relating to them may appeal in the manner specified in Part IVC of the TAA 1953.

4.34 The following are reviewable wine tax decisions, which relate to claims, and applications and revocations for New Zealand participants:

•

Disallowing the whole or part of a claim for a wine tax credit.

•

Deciding the date of effect of approval of a New Zealand participant.

•

Refusing to approve a New Zealand participant.

•

Revoking approval as a New Zealand participant.

•

Deciding the date of effect of revocation of approval of a New Zealand participant.

[Schedule 4, item 26]

4.35 Where reviews are not completed in circumstances where an application was made immediately before the repeal of subsection 62(2A) of the TAA 1953, the review may be continued to be dealt with as if it were sought under the replacement subsection 62(2A). [Schedule 4, item 27]