House of Representatives

Explanatory Memorandum

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

Chapter 6 - Taxable values

Overview

6.1 This Chapter describes the value to be assigned to wine that is the subject of a taxable dealing. These values will be known as taxable values. The amount of wine tax payable on assessable wine will be calculated by multiplying the taxable value by the wine tax rate, 29%.

6.2 Taxable values are dealt with in Division 9 in Part 2 of the A New Tax System (Wine Equalisation Tax) Bill 1999 (WET Bill).

6.3 The approach of the law will be to:

•

give to each assessable dealing a general taxable value;

•

in some cases, where the taxable value is the notional wholesale selling price, specify how to work out the notional wholesale selling price;

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in other cases, add to the taxable value, where applicable, certain additional amounts; and

•

in certain situations, replace the general taxable value with a taxable value that is calculated by agreement with the Commissioner of Taxation (Commissioner).

6.4 In working out the taxable value, any rebate, refund or other payment or credit made by a State or Territory in respect of the wine is to be disregarded. [Subsection 9-5(4)]

Example: Assume a wholesaler sells wine for $100 (excluding wine tax and goods and services tax (GST)). The wine was previously (prior to August 1997) subject to a lower rate of State liquor franchise fee. The State in which the wholesaler resides decides to pay a rebate of $2. The $2 rebate from the State is to be disregarded in determining the taxable value of the wine. As a result, despite the rebate, the taxable value of the wine does not change and the wine tax payable would still be $29.

6.5 The final taxable value calculated after following these steps will be the value on which wine tax is payable.

6.6 Additionally, the amount of the taxable value will be capable of adjustment by the general non-arm's length dealings provision. [Section 27-10]

Normal taxable values

6.7 Each assessable dealing will attract a normal taxable value. In most cases, this will be the value on which wine tax will be calculated. The normal taxable values are set out in the table below, together with the assessable dealing to which they apply. [Subsection 9-5(1) and Assessable Dealings Table]

Notional wholesale selling price

6.8 The general scheme of the wine tax legislation is to impose wine tax on the last wholesale sale of wine. A wholesale sale means a sale to an entity who purchases for the purpose of resale.

6.9 Where a retail sale is made by a manufacturer of wine or an entity holding a tax free stock of wine, for example, a wholesaler of wine, the wine tax legislation requires wine tax to be paid on a taxable value equivalent to the notional wholesale selling price of the wine. The same taxable value applies where a manufacturer applies wine to its own use.

6.10 In the wine industry, retail sales by a wine manufacturer are a regular occurrence. Sales by cellar door and by mail order are the most common retail sales. Wine is also regularly applied to the manufacturers own use when tastings are given at cellar door or promotional work is undertaken. Accordingly, many manufacturers are required under the wine tax legislation to determine a notional wholesale selling price.

6.11 An entity has the choice of using two methods when working out the notional wholesale selling price for a taxable dealing that is either:

•

a retail sale of grape wine; or

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an AOU connected with retail sales of grape wine.

[Subsection 9-25(1)]

The half retail price method

6.12 This method is used unless you have chosen to use the average wholesale price method. Under this method the notional wholesale selling price is 50% of the price of the sale. [Subsection 9-35(1)]

6.13 Price has the meaning given in section 9-75 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act). This is essentially the amount of money (without any discount for the amount of GST payable on the supply), paid for the wine.

Example: An entity makes retail sales of grape wine at $140 per dozen. The taxable value is calculated as ($140 less 50% = $70).

6.14 For a taxable dealing that is an AOU connected with retail sales of grape wine the notional wholesale selling price using this method is 50% of the price for which you would sell the wine if it were a retail sale. [Subsection 9-35(2)]

Example: An entity uses wine for tastings given at the cellar door. Retail sales of the wine are made at $140 per dozen. The taxable value is calculated as ($140 less 50% = $70).

6.15 The half retail price method is also used as the notional wholesale selling price for a taxable dealing that is either:

•

a retail sale of wine that is not grape wine; or

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an AOU connected with retail sales of wine that is not grape wine.

[Section 9-30]

The average wholesale price method

6.16 For a taxable dealing with grape wine that is a retail sale or an AOU connected with retail sales of grape wine, you may choose to use the average wholesale price method if, at least 10% by value of all your sales of grape wine that:

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is of the same vintage as the grape wine to which the dealing relates; and

•

is produced from the same grape varieties, or the same blend of grape varieties, as the grape wine to which the dealing relates;

are wholesale sales. [Subsection 9-25(3)]

6.17 The average wholesale price method is worked out using the weighted average of the prices (excluding wine tax and GST) for wholesale sales that you have made of grape wine that:

•

is of the same vintage; and

•

is produced from the same grape varieties, or the same blend of grape varieties;

during the tax period in respect of which you are liable to pay wine tax on the retail sale or AOU. [Section 9-40]

Example: If, during a tax period, 70% of the wholesale sales of grape wine of a particular vintage and variety are made to a distributor at $80 per dozen, and the remaining 30% to hotels and restaurants at $90 per dozen, the weighted average price of all wholesale sales during the tax period is: (70% * $80) + (30% * $90) = $83 per dozen.

Notional wholesale selling price for other dealings

6.18 The notional wholesale selling price in all other situations is the price (excluding wine tax and GST) for which you could reasonably have been expected to sell the wine by wholesale under an arms length transaction. [Section 9-45]

Additions to taxable value

6.19 The normal taxable value of assessable dealings will be increased in certain circumstances. Additional amounts will be added to the taxable value of assessable dealings with wine which:

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are in a container which has not been the subject of a taxable dealing [Section 9-65] ;

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are subject to an associated royalty payment [Section 9-70] ;

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occur while the wine is in bond under Customs control. [Section 9-75]

6.20 These additions to taxable value are set out in the Additions to Taxable Values Table.

6.21 The additional amounts will not be added if they would otherwise be included in the taxable value.

Addition 1: The container component

6.22 If assessable wine is the subject of an assessable dealing while it is in a container, then the value of the container will be included in the taxable value of the assessable dealing with the contents. The value to be attributed to the container (the container component) will vary depending on the nature of the assessable dealing with the contents. If the container is used more than once then the value may be included more than once.

6.23 The taxable values that will apply to containers are discussed below.

If the assessable dealing is a wholesale sale

6.24 The container component will be so much of the value of the container as is recouped in the sale of the contents. Generally, there will be no need to add a container component to the taxable value of the contents, as the contents would usually be sold for a single price that includes a recoupment component for the container. [Subsection 9-65(2] )

If the assessable dealing is not a wholesale sale

6.25 The container component will be so much of the value of the container as might reasonably be expected to be recouped if the assessable dealing with the contents was a wholesale sale. [Subsection 9-65(3)]

Addition 2 : Associated royalty component

6.26 In certain circumstances, the value of any royalty that is paid or payable in connection with wine will be included in the taxable value of the wine. If a royalty is paid or payable in connection with a triggering event for wine, such as:

•

the manufacture of wine;

•

the importation or local entry of wine; or

•

a sale of wine;

then that part of the royalty that is paid in relation to the wine will form part of the taxable value for any assessable dealing with the wine. [Section 9-70]

6.27 Some royalties relate to other matters such as the use of a trade name. Where a royalty is paid for something other than wine it does not form part of the taxable value.

6.28 A royalty may be paid as a lump sum or as a fixed or variable amount per article. A lump sum is generally apportioned over the number of goods produced and sold under the royalty agreement. In calculating the taxable value it is only the part of the lump sum royalty that is apportioned to each article that will be included.

6.29 Eventually all the lump sum royalty will be recouped and included in the taxable value of wine. In the event that the full lump sum of the royalty is not recouped, eg. insufficient sales, then the unrecouped portion is not taxable. It simply remains as an unrecouped expense of selling the wine. [Subsection 9-70(1)]

Addition 3 : Assessable dealings with goods in bond

6.30 The amount of customs duty applicable to wine would be included in the taxable value of wine when it is entered for home consumption. Therefore, it is necessary to include this amount in the taxable value when an assessable dealing occurs while wine is in bond which is before the wine is entered for home consumption. [Section 9-75]

Payments of wine tax

6.31 Wine tax amounts that you are liable to pay to the Commissioner are to be added to your net amount for GST. [Section 21-5]

Attribution rules for wine tax

6.32 The wine tax amounts payable by you are attributable to the same tax period or tax periods as they would be for GST if the supply is a taxable supply. If the supply is not a taxable supply, you attribute the wine tax payable as though the supply were a taxable supply. The attribution rules for GST are in section 29-5 of the GST Act. [Subsection 21-10(1)]

6.33 If you are liable to wine tax on a taxable dealing that is not a supply (eg an AOU), the wine tax payable is attributable to the tax period in which the time of the dealing occurs. [Subsection 21-10(2)]

Agreement with the Commissioner of Taxation (Commissioner)

6.34 The Commissioner may enter into an agreement with you to determine a method of calculating a taxable value or values for particular taxable dealings. The manner of calculating the taxable value or values of the wine that is specified in the agreement will apply to all assessable dealings with that wine and will override all the taxable value provisions. [Section 9-10]

Miscellaneous Rules Affecting Taxable Value

6.35 There are also three miscellaneous rules that will affect the taxable value of assessable wine.

Taxable value excludes wine tax and GST

6.36 Where the taxable value of an assessable dealing relates to the price, this will not include any amount of wine tax that has been paid on that assessable dealing or GST payable on the supply. Where the taxable value is the purchase price this will exclude the amount of GST. [Assessable Dealings Table, AD1a, AD1b, AD3c]

The arm's length rule

6.37 Under the law there will be an automatic rule that will apply to all taxable values. If a taxpayer, or an associate, is a party to a non-arm's length transaction then the taxable value of the wine will be recalculated to reflect a price for which the wine could reasonably have been expected to be sold, or purchased, under an arm's length transaction. This rule also extends to transactions that are not directly involved in the calculation of liability. [Section 27-10]

6.38 If a taxpayer is able to sell wine under an arm's length transaction at a low price because of having bought the wine under a non-arm's length transaction at a reduced price then the taxable value of the wine must be increased to an arm's length price.

6.39 The onus is on the entity making the sale to ensure that wine tax is paid on an arm's length taxable value.

Apportionment of amounts

6.40 If wine and other goods are packaged and sold together for one inclusive price, then the goods will be treated separately for the purpose of calculating the taxable value. The value for each item will be the value for which that item could reasonably have been expected to have sold for separately. [Section 27-15]

Example 1: A gift pack containing a bottle of wine and a set of wine glasses is sold by wholesale for one inclusive price of $125 (before GST). The wine has a taxable value of $50 and the set of glasses has a taxable value of $75. The goods would be treated separately to calculate the taxable value of the wine and the total amount of wine tax payable would be $14.50 = ($50 * 29%).