Explanatory Memorandum
(Circulated by authority of the Treasurer, the Hon Peter Costello, MP)Chapter 4 - Key Concepts
Key Concepts
4.1 This Chapter discusses a number of key concepts that appear throughout the law, and which do not fall exclusively within any separate part of it.
4.2 The concepts discussed in this Chapter are:
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- Application to own use (AOU)
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- Australia
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- Borne wine tax
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- Goods and services tax (GST)-free
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- Manufacture and manufacturer
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- Obtain wine under quote
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- Entity
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- Wholesale sale
4.3 An AOU of assessable wine at a time when the wine is in Australia will be, in certain circumstances, an assessable dealing.
4.4 There are various types of AOU:
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- consuming wine;
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- giving wine away;
Example: A winery supplies free tasting of its wine. The supply of the wine for tasting will be an AOU by the winery.
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- transferring property in wine under a contract that is not a contract for the sale of wine.
[Division 5: Assessable Dealings Table AD3a to AD3d]
4.5 The significance of Australia in the law is that references to a dealing with wine can only be an assessable dealing if the wine is in Australia at the time of the dealing.
4.6 The definition of Australia has the meaning given by section 195-1 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act).
4.7 The meaning of Australia in the GST Act also includes certain offshore installations attached to the seabed of waters adjacent to Australia. These installations are deemed, under the Customs Act 1901 , to be part of Australia. Consequently, the installations (and any wine on them) is treated as imported at the time of attachment. Movements of wine between the installations and other parts of Australia will not involve the import or export of wine.
Borne wine tax and wine tax borne
4.8 The purpose of this definition is to identify situations in which particular entities are taken to have borne tax on wine. Tax will be borne by an entity in 2 situations:
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- the entity has become liable to tax on an assessable dealing (unless the entity is entitled to a credit, in which case the amount of tax covered by the credit is not counted); and
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- the entity has purchased the wine for a price that included tax (unless the entity has had any of that tax refunded or credited, in which case the amount of tax covered by the credit is not counted).
The term is used frequently in the law, particularly in the credit rules. [Subdivision 31-C]
4.9 The A New Tax System (Wine Equalisation Tax) Bill 1999 (WET Bill) provides a quotation ground for an entity that intends to make a GST-free supply of wine. GST-free supplies are contained in Chapter 3 of the GST Act. These include exports, supplies made in the context of a medical service, supplies for religious services, however, the supply of wine in connection with a child care service is excluded.
4.10 The concept of manufacture will be a key element of the definition of Australian wine, one of the two classes of wine that can be assessable wine. It will also be a key element of the descriptions of several assessable dealings with wine, although manufacture by itself will not be an assessable dealing. [Defined in the Dictionary, section 33-1]
4.11 The term is intended to be interpreted according to its ordinary meaning, as modified by a number of inclusions and exclusions to the definition.
4.12 The definition of manufacture includes production. Manufacture and production are often used interchangeably, although production is often thought to be the wider term. The inclusion of production in the definition is to remove any suggestion that there are production processes that are not within the general meaning of manufacture.
4.13 Manufacture also includes the combination of parts or ingredients to produce something that is commercially distinct from the parts or ingredients, and treatment of food for human consumption.
4.14 The term manufacturer means the entity that manufactured the wine. The term will not be restricted to an entity that carries on the business of a manufacturer. [Section 33-1]
4.15 An employee who manufactures wine in the course of employment will not be regarded as the manufacturer of the wine - the employer will be the manufacturer.
4.16 An entity will be regarded as the manufacturer of particular wine even if the entity does not own some, or all, of the materials from which the wine is made.
4.17 The concept of obtaining wine under quote is an important element of several assessable dealings. As a general principle, if an entity obtains wine for a tax-exclusive price on the basis of a quotation of an Australian Business Number then the entity should be liable to tax on that wine if the entity deals with it otherwise than in accordance with an exemption. This will be achieved by making any sale, or application to own use, of wine obtained under quote an assessable dealing. [Division 13]
4.18 If an entity quotes in circumstances in which they are not entitled to quote, the entity will nevertheless be regarded as obtaining the wine under quote. Consequently, they will also be liable to tax on any subsequent sale or application to own use of the wine. [Section 13-25]
4.19 There will be 3 situations in which an entity will be treated as having obtained wine under quote:
The entity quoted on a purchase of the wine
For the wine to be treated as having been obtained under quote, one of two further conditions must be satisfied:
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- the sale must have been an assessable dealing (and it must have been freed from tax by reason only of the quote); and
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- if the sale was not an assessable dealing (eg. because it was a retail sale of wine that had already borne tax) then the seller must have excluded tax from the selling price on the basis of the purchasers quote.
The entity quoted on a customs dealing of the wine
In this case, the customs dealing must be an assessable dealing that is freed from tax only because of the quote.
The entity has obtained wine tax paid and has then obtained a credit for the tax on the basis that the entity could have quoted on the wine.
For example, an entity that intends to make GST-free supplies of wine will be entitled to a credit under CR2 because the entity paid wine tax even though it was entitled to quote for the purchase. [Paragraph 13-5(1)(d) and Section 17-5]
4.20 The wine tax law applies to entities. Entity has the same meaning as the GST Act in section 195-1. Entity means any of the following:
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- an individual;
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- a body corporate;
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- a corporation sole;
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- a body politic;
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- a partnership;
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- any other unincorporated association or body of persons;
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- a trust; and
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- a superannuation fund.
Wholesale sale
4.21 Most wholesale sales of assessable wine will be assessable dealings. Wholesale sale is generally defined in the Dictionary to mean a sale to an entity that buys the wine for the purpose of resale.
4.22 However, the general meaning is modified to exclude a sale from one retailer to another retailer or wholesaler to accommodate a temporary stock shortage The exclusion will be limited to wine from a retail store or a retail section of a store. If the sale is to a manufacturer, the wine must be of a kind that is usually manufactured by the manufacturer. [Section 33-1]