Senate

Revised Explanatory Memorandum

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

Chapter 2 - confirming wine packaging in tax base

Outline of chapter

2.1 Schedule 2 to this bill makes amendments to the A New Tax System (Wine Equalisation Tax) Act 1999 (WET Act) to ensure that costs of wine packaging (placing in containers and labelling and sealing those containers) that are integral to the preparation of wine for retail sale are included in the calculation of the taxable value of wine. [Schedule 2, items 1 and 1A]

Context of amendments

2.2 The wine equalisation tax (WET) applies at the rate of 29% of the final wholesale sale of wine, or a nominal equivalent, in the absence of an exemption.

2.3 Historically, wine has been sold by the wine producer after it has been packaged as for retail sale, and WET has included a component drawn from wine packaging in containers such as bottles and casks.

2.4 However, some large retailers who are able to buy wine in bulk volumes may do so and then package the wine for retail sale themselves. In doing so wine tax is not applied to the packaging component of the wine product.

2.5 The intention of this measure, though referring to the placing of wine in containers after the point of wholesale sale in the amendments, is to address the nature of costs incurred in the necessary processes to prepare the wine to reach the point of retail sale. It does not encompass the packaging of wine at the time of retail sale, such as putting wine in paper bags or utilising containers of the retail purchaser.

2.6 Further, the amendments reflect that the measure does not intend to impose a WET liability, for the wine packaging component, on organisations that undertake bottling/labelling/packaging activities for non-commercial purposes, such as for fundraising as part of charity.

Summary of new law

2.7 A provision is introduced to the WET Act so that where packaging and associated costs that are integral to a retail sale arise after the final wholesale sale, a new wine tax liability is created when that wine is the subject of a retail sale.

2.8 A retail sale of wine that was packaged after the final wholesale sale will have WET calculated on the basis of its notional wholesale sale value which is calculated according to existing procedures detailed in the WET Act.

2.9 Existing credit rules apply when determining the final WET payable to prevent WET applying more than once to the same goods, with the effect that WET already borne on the wine component of the retail product will be deducted from the final calculation of WET payable.

Detailed explanation of new law

2.10 Under new Assessable Dealings 2f and 12f in section 5-5, wine tax is applied to retail sales of wine in circumstances where WET that had been previously applied to the wine did not include the subsequently incurred packaging costs associated with the retail of the wine.

2.11 Assessable Dealings 2f and 12f are cast in identical terms to apply to, respectively, Australian wine and imported wine.

2.12 Retail sales that are not part of the seller's ordinary course of business are excluded from Assessable Dealings 2f and 12f. For example, charitable sales by organisations that purchase bulk wine and conduct non-commercial wine packaging activities such as fundraising are excluded, as the seller in this case is not a retailer of wine in the ordinary course of business.

2.13 Wine tax liability raised under Assessable Dealings 2f and 12f is created at the time of the retail sale and is payable by the seller of the wine. [Schedule 2, items 1 and 1A]

2.14 Calculation of wine tax to be paid shall be undertaken on the basis of the notional wholesale selling price of the wine, which is determined in accordance with existing Subdivision 9-B. [Schedule 2, items 1 and 1A]

2.15 Under existing Credit Rule 4 in section 17-5, wine tax that has already been borne may be claimed as a credit against a new liability. This ensures that wine tax is not applied twice to the same product, that is, on the wine at the wholesale and retail stages.

2.16 New Assessable Dealings 2f and 12f apply to retail sales of wine for which the bottling/packaging for retail sale occurred after the commencement of the provision creating the Assessable Dealings. [Schedule 2, item 3]

Application and transitional provisions

2.17 Schedule 2, items 1 and 1A commence on the date this bill receives Royal Assent.

2.18 Schedule 2, item 3 provides that Schedule 2, items 1 and 1A apply to retail sales for which the wine was placed in containers after the commencement of Schedule 2. [Schedule 2, item 3]