Supplementary Explanatory Memorandum
(Circulated by authority of the Treasurer, the Hon Peter Costello, MP)Chapter 2 - Producer rebates under the WET
Outline of Chapter
2.1 Amendment 36 adds new Schedule 9A to the Bill to provide legislation to give effect to the Commonwealth's WET rebate scheme for small winemakers. As part of tax reform the Government undertook to ensure that small winemakers with cellar door and mail order sales up to $300,000 (wholesale) per annum will in most cases be effectively free from WET in relation to those sales. This will be achieved by the Commonwealth paying a 14% rebate in addition to the current 15% subsidy provided to winemakers by the states.
2.2 The Commonwealth rebate will taper to zero where the winemaker's eligible annual sales are between $300,000 and $580,000 (wholesale). Where the annual sales are in excess of $580,000 (wholesale), only the 15% state subsidy will apply.
Summary of new law
2.3 The new legislation sets out the circumstances where winemakers will be entitled to a rebate for certain retail sales or application to own use (AOU) of wine. The legislation sets out details of the following:
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- rebatable wine;
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- eligible producers;
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- eligible retail sales and AOUs;
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- annual rebatable turnover;
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- amount of producer rebates; and
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- rebates to be claimed in each tax period.
Detailed explanation of new law
2.4 The WET rebate does not apply to all alcoholic beverages covered by the WET Act. It applies to the following types of wine:
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- grape wine;
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- grape wine products;
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- fruit or vegetable wine; and
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- mead.
[Item 12 of new Schedule 9A, new definition of 'rebatable wine']
2.5 To be eligible for the rebate an entity must be a producer of rebatable wine. This term is defined as an entity that:
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- manufactures the wine, or supplies to another entity the grapes, other fruit, vegetables or honey from which the wine is manufactured; and
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- holds a producer's licence.
[Item 9 of new Schedule 9A]
2.6 A producer's licence is a licence issued under a state or territory law which allows the holder to make retail sales from particular premises as a wine producer or a vigneron. It does not include other types of licences that allow the holder to make retail sales of wine. The definition of producer's licence also allows the Commissioner to determine other categories of licences issued by states or territories that are provided in a similar capacity to producer or vigneron licences.
2.7 Entities that merely purchase bottled wine or bulk wine for bottling and sale by cellar door or mail order are not eligible for a rebate on this wine.
Eligible retail sales and AOUs
2.8 The rebate applies to certain retail sales and AOUs of rebatable wine where:
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- you are the producer of the wine;
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- you hold a producer's licence; and
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- you are liable to pay wine tax for the dealing.
2.9 The retail sales must take place from the premises to which the producer's licence relates and must not contravene the state or territory law under which the licence was issued [new subsection 19-5(1)] . Mail order and Internet sales will be accepted as being made from premises if the wine is dispatched from premises to which the producer's licence relates [new subsection 19-5(2)] . However, where a commission is payable to a third party in respect of mail order or Internet sales these sales are not rebatable [new paragraph 19-5(4)(b)] .
2.10 The rebate will therefore apply to the following assessable dealings with rebatable wine by eligible producers:
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- cellar door sales to unlicensed end users;
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- mail order sales to unlicensed end users (including Internet sales made directly by the winery); and
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- AOUs (includes wine used for tasting and promotional activities).
2.11 The rebate will not apply where wine is sold in the course of providing food for consumption on premises from which it is supplied. For example, some producers may have a cellar door outlet and also operate a restaurant or caf from the same or an adjacent site. In these circumstances they are eligible for the rebate only for retail sales made from the cellar door outlet. They are not eligible for a rebate for retail sales made from the restaurant or caf under the restaurant licence. However, where wine is purchased from the cellar door and consumed in the restaurant under a BYO licence, the wine is eligible for the rebate. [New paragraph 19-5(4)(a)]
2.12 'Premises' in relation to a supply of food is defined for the purposes of new paragraph 19-5(4)(a) but does not apply to the other references to premises (e.g. new paragraph 19-5(1)(c) refers to sales from premises to which the licence relates).
2.13 The rebate does not apply where the annual rebatable turnover for the premises from which the eligible sales or AOUs take place is more than $580,000. [New paragraph 19-5(4)(c)]
2.14 The annual rebatable turnover is linked to the sales or AOUs made under the particular producer's licence. It is calculated for each financial year as the sum of:
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- the notional wholesale selling price of all retail sales of rebatable wine the producer makes under that licence, to which new subsection 19-5(1) applies; and
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- the notional wholesale selling prices of all AOUs of rebatable wine the producer makes under that licence, to which new subsection 19-5(3) applies.
[New section 19-20]
2.15 New section 19-10 sets out the amount of rebate an eligible producer is entitled to claim. This section refers to annual entitlements. New section 19-15 , which is discussed in greater detail in paragraphs 2.19 to 2.22, allows the Commissioner to determine ways in which producers can claim the rebate in each tax period.
2.16 The annual rebate is linked to a producer's annual rebatable turnover of rebatable wine for a particular producer's licence. Where this turnover is $300,000 or less, the amount of the rebate for that financial year is 14% of that turnover.
Example 2.1
Jessica manufactures wine from grapes that she grows. She holds a state producer's licence and makes cellar door and mail order sales from her winery under that licence. The retail value of these sales for the financial year is $420,000. Jessica also applies wine to her own use (tastings, give-aways) with a retail value for the financial year of $20,000. Jessica uses the half retail price method to calculate the notional wholesale selling price of the retail sales and AOUs. The amount of WET paid for these sales and AOUs is calculated as:
$420,000 * 50% = $210,000 * 29% = $60,900
$20,000 * 50% = $20,000 * 29% = $5,800
Jessica's annual rebatable turnover is $230,000 and Jessica is entitled to claim a rebate of $32,200 ($230,000 14%).
2.17 If the annual rebatable turnover of rebatable wine for a particular producer's licence is between $300,000 and $580,000, the amount of the producer rebate is calculated using the formula:
$42,000 - ((annual rebatable turnover - $300,000) * 15%)
Example 2.2
Albert manufactures wine from grapes that he grows. He holds a state producer's licence and makes cellar door and mail order sales from his winery. The retail value of these sales for the financial year is $700,000. Albert uses the half retail price method to calculate the notional wholesale selling price of the retail sales. The amount of WET paid for these sales is calculated as:
$700,000 * 50% = $350,000 * 29% = $101,500
Albert's annual rebate is calculated as:
$42,000 - (($350,000 - $300,000) * 15%) = $34,500
2.18 If the annual rebatable turnover of a producer of rebatable wine for the producer's licence is more than $580,000 (wholesale value) no rebate is claimable.
Note: the state subsidy is claimed separately from the relevant state or territory body and not as a WET credit.
Rebates claimed in each tax period
2.19 To allow producer's to claim rebates in each tax period rather than on an annual basis the amendment provides the Commissioner with the power to determine how amounts may be claimed for a tax period [new subsection 19-15(1)] . This will allow amounts to be claimed as wine tax credits in each tax period [new subsection 19-15(2)] .
2.20 Where estimates are used to determine rebates an adjustment may be required in the final tax period to ensure that the total rebate claimed for the financial year equals the annual entitlement determined in accordance with new section 19-10 . Where the amount of rebate has been over claimed an amount of wine tax will be payable equal to the over claimed amount.
2.21 The following examples highlight the potential operation of new section 19-15 where a determination was made by the Commissioner allowing the rebate to be claimed each tax period based on an estimate of annual entitlement. For example, quarterly lodgers will claim a quarter of the estimated rebate payable for the year in each of the 3 quarters. The amount claimed in the final quarter's return will reflect the actual entitlement taking into account previous amounts claimed. This may either be a credit or an amount payable.
2.22 If you estimate the wholesale value of your annual rebatable turnover for the financial year will be more than $580,000, you would not claim the rebate during the year. If the actual wholesale value of your annual rebatable turnover is less than $580,000 you would claim the rebate at the end of the financial year.
Example 2.3
Hinkler Winery estimates that its annual rebatable turnover for the financial year will be less than $300,000. The winery lodges on a quarterly basis and has the following rebatable dealings for the first 3 quarters:
Period Wholesale value of rebatable dealings Rebate Claimed 1st quarter $75,000 $10,500 2nd quarter $80,000 $11,200 3rd quarter $70,000 $9,800 Total $225,000 $31,500
If the wholesale value of rebatable dealings for the fourth quarter is $60,000, the total wholesale value of rebatable dealings for the financial year is $285,000. The rebate for the fourth quarter is $8,400 (14% of $60,000).
However, if the wholesale value of rebatable dealings for the fourth quarter is $90,000, the total wholesale value of rebatable dealings for the financial year is $315,000. Accordingly, the rebate for the fourth quarter is worked out as follows:
$42,000 - (($315,000 - $300,000) * 15%) = $39,750 less amounts previously claimed $31,500 Amount of rebate claimed in fourth quarter = $8,250
Example 2.4
Ulm's Winery estimates that its annual rebatable turnover for the financial year will be $430,000. It lodges on a quarterly basis. Ulm's estimated rebate for the year is as follows:
$42,000 - (($430,000 - $300,000) * 15%) = $22,500
Ulm's Winery can claim a rebate of $5,625 ($22 500 / 4) for each of the first 3 quarters.
If the winery's actual rebatable turnover for the financial year is $450,000, the rebate claimed for the fourth quarter will be $2,625, worked out as follows:
$42,000 - (($450,000 - $300,000) * 15%) = $19,500 less amounts previously claimed $16,875 Amount of rebate claimed in fourth quarter = $2,625
However, if Ulm's actual rebatable turnover for the financial year is $480,000, Ulm will have to pay $1,875 as wine tax payable in the fourth quarter, worked out as follows:
$42,000 - (($480,000 - $300,000) * 15%) = $15,000 less amounts previously claimed $16,875 Amount of wine tax payable in fourth quarter = $1,875
Producer rebates treated as wine tax credits
2.23 New credit ground CR9 is added to the wine tax credit table in section 17-5 of the WET Act. This treats the producer rebate as a wine tax credit. [Item 2 of new Schedule 9A]
Application and transitional provisions
2.24 The amendments will apply from 1 July 2000.
Regulation impact statement
2.25 The Government's policy objective is to assist winemakers who make retail sales directly to unlicensed people from the cellar door or via mail order and who use their product in application to own use (AOU).
2.26 As part of the new tax system the current WST regime for wine will be replaced by GST and WET. Under existing arrangements, the states provide a subsidy of 15% of the wholesale value of wine, and beverages consisting primarily of wine, bought by unlicensed people at the cellar door, by mail order and, in some states, used for sampling stock.
2.27 In the context of discussions with the Australian Democrats on the tax reform package, the Government undertook to ensure that arrangements were established which provided a tax exemption for cellar door and mail order sales up to a wholesale value of $300,000 per annum.
Assistance delivered as a tax offset
2.28 Assistance delivered as an offset against the winemakers WET liability on the BAS.
2.29 Provide a 14% offset against the WET payable on cellar door and mail order sales, and AOU up to $300,000 per annum. This offset tapers to zero for sales between $300,000 and $580,000 per annum. Sales in excess of $580,000 attract the 15% state subsidy alone. The combination of the existing state subsidy and the Commonwealth offset ensures that cellar door and mail order sales up to $300,000 per annum are effectively WET free.
2.30 Eligibility for the offset is aligned as closely as possible to the eligibility for the state subsidies, which varies across states.
Assistance as a separate outlay
2.31 Assistance (as described in paragraphs 2.28 to 2.30) is delivered as an outlay (separate from the BAS).
2.32 This measure will provide assistance to winemakers who make sales to unlicensed people and who provide stock for, among other things, sampling, promotions and donations (known as AOU). The $300,000 cap will target the assistance to small and medium sized winemakers.
2.33 This measure will also impact on the Commonwealth agency delivering the assistance (the ATO, in the case of the offset option or the appropriate Commonwealth agency in the case of the outlay option).
Assistance delivered as a tax offset
2.34 Winemakers who make less that $580,000 in eligible sales or AOU will be able to claim an offset against their WET liability on the BAS. This will involve identifying retail sales to unlicensed people and AOU product separately from sales to licensed people (i.e. retailers and wholesalers). The compliance cost of determining eligible sales and AOU should be minimal as in most cases these amounts are already determined for the purpose of claiming the state rebate.
2.35 Winemakers will also benefit from the ability to offset the assistance on their BAS, improving cash flow for the business.
2.36 The ATO will incur costs in establishing appropriate administrative arrangements to facilitate the offset and to monitor compliance with the legislation.
2.37 It is estimated that the scheme will cost around $46 million over 3 years from 2000-2001.
Economic and social costs and benefits
2.38 The threshold will also target the assistance towards small and medium sized winemakers.
2.39 The WET rebate is designed to promote tourism and industry in regional areas.
Assistance as a separate outlay
2.40 In addition to the compliance costs associated with the offset option, this option would result in cash flow problems for business which would have to pay WET to the Commonwealth and receive a rebate from 2 levels of government.
2.41 This option would also require a separate administrative regime to be established by the Commonwealth agency providing the outlay to deliver and monitor compliance with the legislation.
2.42 Same as the offset option.
Economic and social costs and benefits
2.43 Same as the offset option.
2.44 The Government consulted with the wine industry, the ATO and the state Treasuries and Revenue Offices, who were supportive of the offset option, in developing this legislation.
Conclusion and recommended option
2.45 The Government has decided to pursue the amendment to provide assistance to small and medium sized winemakers as an offset against their WET liability on the BAS.
2.46 To this end, the Commonwealth will, from 1 July 2000, provide a 14% WET rebate on cellar door and mail order sales, and AOU up to $300,000 per annum. This rebate then tapers to zero for sales between $300,000 and $580,000 per annum. Sales in excess of $580,000 attract the 15% state subsidy alone.