The Alcohol Industry - Excise Technical Guidelines (current to 30 June 2006)

Chapter 6 - Beer

This document has been archived. It is current only to 30 June 2006.

This document has been archived. It is current only to 30 June 2006.

Section 1 Introduction

1.1 Acronyms used in this chapter

AGAL Australian Government Analytical Laboratories

ANTS A new tax system

BOPS Brew-on-premises shops

CEO Chief Executive Officer (the Commissioner of Taxation)

CPI Consumer price index

ETI Excise tariff item

GST Goods and Services Tax

NATA National Association of Testing Authorities

NSC National Standards Association

PSP Periodic settlement permission

1.2 Appendices at the end of this chapter

Appendix 6.1 The brewing process

Appendix 6.2 The brewing process - flow chart

Appendix 6.3 Beer excise legislation - a brief history

Appendix 6.4 Measurement of alcoholic strength.

1.3 Foreword

If you want to know more about Excise go to our website at www.ato.gov.au .

Section 2 Beer Excise

2.1 Overview

The commercial brewing process involves various stages including malting, fermentation, maturation and packaging. A brief explanation of these stages is described at Appendix: 6.1. A flow chart of the brewing process is at Appendix 6.2.

The glossary in chapter 13 of this manual explains some of the terms used in the brewing industry.

2.2 What is Beer?

Beer is defined in the Schedule to the Excise Tariff Act as follows:

' Beer ' means a brewed beverage which -

1. is the product of the yeast fermentation of an aqueous extract of malted or unmalted cereals, whether or not containing other sources of carbohydrates;
2. contains hops, or extracts thereof, or other bitters ¹ ;
3. has not had added to it, at any time, any alcohol from any other source; and
4. contains more than 1.15% by volume of alcohol.

The definition of beer is not an exhaustive definition. That is additional substances other than 'alcohol from any other source', can be added to the brewed beverage without altering its classification as beer.

'Alcohol from any other source' means alcohol from any source other than beer. However in accordance with Item 4 of Schedule 2 of the Excise Regulations, beer spirit (that is spirit distilled from beer) can only be used in the manufacture of beer if either or both of the following conditions are satisfied:

• the beer spirit is used in the manufacture of beer at the brewery at which the beer spirit was distilled, or
• if the manufacturer of the beer spirit holds a brewery licence in respect of another brewery, the beer spirit is used in the manufacture of beer at that other brewery.

Provided the manufactured product complies with the definition of beer, the addition of flavours such as honey or chilli may be used in the manufacture of beer.

The addition of alcoholic essences/flavours containing spirit other than beer would disqualify the manufactured product from the definition of beer. Such product, depending on its alcoholic strength, would be classified to ETI 1D (other excisable beverages of an alcoholic strength by volume not exceeding 10%) or to ETI 2H (other excisable beverages of an alcoholic strength by volume exceeding 10%).

Therefore beer is a beverage with an alcoholic strength of more than 1.15% alcohol by volume (a/v) and is the result of fermentation of malted or unmalted cereal grains (such as barley, wheat and rye) in water. It can contain other sources of carbohydrate such as sugar and flavourings. It must contain hops or extracts of hops or other bitters. It must not contain added alcohol from any other source (that is any added spirit must be distilled only from beer). There is no upper limit on the strength of beer.

Home brewed beer is not excisable provided it is not used for commercial purposes. The Schedule to the Excise Tariff Act, which lists all excisable goods and their relevant rates of duty excludes any liquor that has been produced for non-commercial purposes, using non-commercial facilities and equipment unless it contains distilled spirit.

2.3 Excise liability

The Excise Act ² provides that excisable goods remain under Tax Office control until delivered for home consumption or for export. Excisable goods are defined in section 4 of the Excise Act as goods on which excise duty has been imposed. The Excise Tariff Act imposes excise duty on goods manufactured or produced in Australia that are listed in the Schedule to the Excise Tariff Act ³ . The goods become subject to Tax Office control at the time they are manufactured and remain so until they are delivered for home consumption or for export.

The duty on beer is calculated on the alcohol content above 1.15%. This is sometimes known as the dutiable quantity or dutiable litres of alcohol (Lals). For example the dutiable quantity of alcohol in 100 litres of beer at 5% alcohol by volume is 100 x (5% - 1.15%) = 3.85 Lals.

Excise duty on beer is adjusted according to increases in the CPI index in February and August each year ⁴ .

For a brief history of beer excise legislation see Appendix: 6.3.

2.4 Production losses

A licensee must be able to account to the satisfaction of the Tax Office for all losses of excisable goods ⁵ . Therefore, they are required to keep accurate records of any loss of product. Such records must be sufficient to enable them to compare current and historical losses for the same procedures to determine abnormal losses.

Any abnormal losses occurring after fermentation has taken place (that is when alcohol has been produced and beer becomes accountable), or when a brew is to be destroyed by tipping to waste, need to be detailed in an application for remission of duty ⁶ .

We accept that some losses do occur during production. In particular we recognise that losses occur at the following production stages:

• transfer of product from the fermenter (due to spent yeast being drawn off)
• filtration
• transfer between storage tanks
• reprocessing, and
• bottling.

Generally bottling losses may be calculated as follows:

header tank opening dip

Less

header tank closing dip

volume of packaged product

volume of filter losses

volume of breakages and leakages

volume of samples drawn

volume of drainings and flushings

Equals

bottling losses.

2.5 Calibration of vessels and instruments

The calibration of vessels and instruments is dealt with in chapter 11 section 4 of this guide.

Tanks which were calibrated will need to be recalibrated if:

• they are damaged (for example they suffer bumps, dents and bulges) and the extent of the damage creates doubt as to the continuing accuracy of previous calibrations, or
• they are moved, modified or extensively repaired, or
• doubt exists as to the accuracy of the calibrations.

The Excise Act ⁷ provides that the Tax Office may direct a licensed manufacturer to keep certain records and produce them when required. This includes calibration charts and current instrument certificates.

2.6 Strength Testing and Sampling

The Tax Office has established rules for measuring the alcohol content in excisable products ⁸ . These rules are contained in Excise Act (Alcoholic strength of beer) Determination 2003 (see Appendix: 6.4). This Determination may also be accessed on our website at www.ato.gov.au . The rules require that measuring instruments and equipment be regularly tested and certified.

Should you wish to use other measuring equipment you should write to the Tax Office for approval giving full details of the alternative equipment and show that the alternative equipment will achieve the required accuracy to correctly measure the alcoholic strength of beer.

2.6.1 Sampling by the manufacturer

If a licensee is unable to establish their own accurate testing methods, each brew they make must be analysed by a NATA accredited laboratory at the licensee's expense. Such testing is to continue until they can establish consistency when comparing their own strength testing results against those of the NATA accredited laboratory.

Other than for naturally conditioned beers, samples should only be drawn after the beer has been pasteurised when there will be no further increase in the strength of the product.

2.6.2 Sampling by the Tax Office

The Tax Office may assess a licensee's strength testing methods by drawing samples and forwarding the samples (along with details of the estimated strengths) to AGAL or another NATA approved laboratory ⁹ .

A tax officer will draw samples only after the licensee or a responsible brewery official is advised. Alternatively, the tax officer may supervise the drawing of samples by the licensee or the responsible official.

Bulk beer	where the sampling point is the 'bright beer' stage no sample will be drawn while the tank is operational, or before the brewery has drawn its final pre-release sample and has entered the actual strength in brewery records.
Packaged beer	when the Tax Office requires samples at the packaging stage, sufficient samples are to be drawn from each run to ensure the analysis is representative of the total production run.

All samples drawn by the Tax Office are to be handled in accordance with Regulation 83 of the Excise Regulations as follows:

• the sample is to be drawn under the supervision of a tax officer
• if drawn from a bulk tank the sample is to be divided into three (3) equal parts
• if drawn from packaged product sufficient representative samples (in triplicate) are to be drawn. The number of samples may depend on the type and number of tests to be carried out
• the samples are to be properly sealed and labelled so as to be readily identifiable
• one sample is to be given to the owner and the other two parts retained by the tax officer
• when analysis is required one sample is to be delivered to AGAL
• details of samples are to be entered in a samples register, and
• officers are required to observe proper procedures for maintaining security and accountability of samples.

Other than for naturally conditioned beer, samples should only be drawn after the beer has been pasteurised (when there will be no further increase in the strength of the product).

2.7 Breweries producing less than 100,000 litres per year

2.7.1 Strength

The Excise Act (Alcoholic strength of beer) Determination No. 1 of 2003 (Appendix: 6.4) states:

• 'If the brewery produces less than 100,000 litres of beer in a financial year, a hydrometer and a formula approved by the CEO may, with permission, be used to measure beer's alcoholic strength'.

Question 17 of the application for a licence to manufacture beer asks how the applicant intends to establish or test the alcoholic strength of their product. If they apply for permission to use a hydrometer and a formula to calculate alcoholic strength, then the Tax Office may issue them with a licence allowing them to use that method. However the licence will be issued on condition that such a method must ensure that the strength of the beers are as close as possible to the nominated or labelled strengths, and must be within the permitted variations as required in the Excise Act (alcoholic strength of beer) Determination No. 1 of 2003 .

2.7.2 Quantity

Some breweries producing fewer than 100,000 litres per year are attached to hotels. These often have a retail outlet for their product via the hotel's bar. In some instances the beer is pumped from a storage tank in the under bond area 10 to the bar where it is sold as draught beer. Licensed breweries which operate in this manner usually pay their excise duty by periodic settlement 11 as follows:

• excise duty payable is to be calculated by establishing the opening stock in litres at the beginning of the accounting period, adding to that quantity any transfers to the same tank during the accounting period and then deducting the closing stock in litres at the end of the accounting period.

2.8 Permitted variations in beer strength

Permitted variations are covered by the Excise Act (Alcoholic strength of beer) Determination No. 1 of 2003 (Appendix:6.4).

If the actual strength of beer, other than beer subject to secondary fermentation, does not exceed the nominated or labelled strength by more than 0.2%, the strength is the nominated or labelled strength and the tariff rate applicable to that strength applies.

If the actual strength of beer, other than beer subject to secondary fermentation, exceeds the nominated or labelled strength by more than 0.2%, the strength is the actual strength and the tariff rate applicable to that strength applies.

If the actual strength of beer subject to secondary fermentation does not exceed the nominated or labelled strength by more than 0.3%, the strength is the nominated or labelled strength and the tariff rate applicable to that strength applies.

If the actual strength of beer subject to secondary fermentation exceeds the nominated or labelled strength by more than 0.3%, the strength is the actual strength and the tariff rate applicable to that strength applies.

A practical example of the above calculation (for beer not subject to secondary fermentation) is:

BRAND NAME	QUANTITY (LITRES)	LABELLED STRENGTH	ACTUAL STRENGTH
A	22,000	5.7%	5.6%
B	383,000	3.0%	3.3%
C	71,000	3.5%	3.7%

BRAND A:

Labelled strength does not exceed actual strength by more than 0.2% tolerance. Therefore the dutiable Lals are (22,000 x (5.7% - 1.15%)) = 1,001 Lals.

BRAND B:

Actual strength exceeds labelled strength by more than 0.2% tolerance. Therefore the dutiable Lals are (383,000 x (3.3% - 1.15%)) = 8,234.5 Lals.

BRAND C:

Labelled strength does not exceed actual strength by more than 0.2% tolerance. Therefore the dutiable Lals are (71,000 x (3.5% - 1.15%)) = 1,668.5 Lals.

The correct classification within the Excise Tariff must be established to identify the rate of duty applicable to beer. The classification and therefore rate of duty, is dependent on both the alcohol strength before the deduction of the 1.15% excise free quantity of alcohol, and the size of the container in which the beer is packaged. In the preceding examples BRAND A will be classified under excise tariff item (ETI) 1C1c or 1C2c for beer at 5.7% strength, BRAND B under ETI 1C1b or 1C2b for beer at 3.3% strength and BRAND C under 1C1b or 1C2b for beer at 3.5% strength.

Separate calculations must be done for each batch of beers.

Note

• An average actual strength is determined for each packaging run.
• Where an average actual strength exceeds the allowable tolerance, excise duty is payable on the actual contents.
• Under bond movements:
  • if excisable beer is to be removed on an excise movement permission the documentation is to show the labelled alcohol strength, and the licensed packager is to pay the additional excise duty where the actual strength exceeds the allowable tolerance

Specific conditions within manufacturing or storage licences are to cover:

• reconciliation periods, for example monthly, quarterly and so on
• lodgement due dates
• what information to send to the Tax Office, and
• where to send the excise duty payment.

Excise duty payment options are:

a) at the time of lodging the excise return:

• payment of the full excise duty, based on the nominated or labelled strength, if the actual strength does not exceed the nominated or labelled strength by more than 0.2% (or 0.3% for secondary fermentation beers), and
• payment of the full excise duty, based on the actual strength, if the actual strength exceeds the nominated or labelled strength by more than 0.2% (or 0.3% for secondary fermentation beers) plus any additional duty payable as a result of the strength exceeding the allowable tolerance, or

b) the excise duty, based on labelled strength, can be paid at the time the excise return is lodged, and the additional excise duty where the actual strength exceeds the nominated or labelled strength by more than 0.2% (or 0.3% for secondary fermentation beers) is paid in accordance with the specific conditions of the client's licence. In the absence of specific conditions option (a) is to be used.

Example reconciliation				Single fermentation - 0.2% allowable tolerance
Bottling run	Average actual strength	Label strength	Variation
1	4.5%	4.5%	0.0%	Does not exceed tolerance - pay at label strength
2	4.8%	4.5%	0.3%	Exceeds tolerance - pay at actual strength
3	4.6%	4.5%	0.1%	Does not exceed tolerance - pay at label strength
4	4.4%	4.5%	-0.1%	Does not exceed tolerance - pay at label strength
5	4.3%	4.5%	-0.2%	Does not exceed tolerance - pay at label strength
6	4.7%	4.5%	0.2%	Does not exceed tolerance - pay at label strength
7	4.7%	4.5%	0.2%	Does not exceed tolerance - pay at label strength
8	4.8%	4.5%	0.3%	Exceeds tolerance - pay at actual strength
9	4.4%	4.5%	-0.1%	Does not exceed tolerance - pay at label strength
10	4.6%	4.5%	0.1%	Does not exceed tolerance - pay at label strength

Example

Bottling run 2 (bottling run of 10,000 litres): 10,000 litres x 0.3% excess strength-	= 30.0 Lals @ $ 35.53-	= $1,065.90
Bottling run 8 (bottling run of 30,000 litres): 30,000 litres x 0.3% excess strength-	= 90.0 Lals @ $ 35.53-	= $3,197.70
Total amount of additional duty payable		= $4,263.60

Example reconciliation				Secondary fermentation - 0.3% allowable tolerance
Bottling run	Average actual strength	Label strength	Variation
1	4.5%	4.5%	0.0%	Does not exceed tolerance - pay at label strength
2	4.8%	4.5%	0.3%	Does not exceed tolerance - pay at label strength
3	4.6%	4.5%	0.1%	Does not exceed tolerance - pay at label strength
4	4.4%	4.5%	-0.1%	Does not exceed tolerance - pay at label strength
5	4.3%	4.5%	-0.2%	Does not exceed tolerance - pay at label strength
6	4.7%	4.5%	0.2%	Does not exceed tolerance - pay at label strength
7	4.7%	4.5%	0.2%	Does not exceed tolerance - pay at label strength
8	5.0%	4.5%	0.5%	Exceeds tolerance - pay at actual strength
9	4.4%	4.5%	-0.1%	Does not exceed tolerance - pay at label strength
10	4.6%	4.5%	0.1%	Does not exceed tolerance - pay at label strength

Example

Bottling run 8 (bottling run of 20,000 litres): 20,000 litres x 0.5% excess strength	= 100.0 Lals @ $35.53	= $3553.00
Total amount of additional duty payable		= $3553.00

As stated earlier, breweries are required to pay the extra duty on beer that exceeds the allowable tolerance at the time of lodging their excise return or may, subject to Tax Office approval, pay the extra duty when the average strength, reconciled over an agreed settlement period (usually a month) exceeds the allowable strength tolerance. All beer produced during the agreed settlement period is to be included in the reconciliation. Breweries must apply to the Tax Office and receive approval for any settlement period.

Section 3 Brewer's Responsibilities

3.1 Onus to satisfy the Tax Office

The regulation of breweries under the Excise Act is based on the maintenance of satisfactory records to verify production and maintain accountability for excisable product.

Large commercial breweries generally use banks of counters on bottling lines to record production. The counters are usually in banks of three to ensure a consistent count. In some larger breweries stock inventory is automatically updated with the production line data. Irrespective of the size of a brewery or methods employed to measure production, system and management controls must be sufficient to ensure that production is accurately recorded.

3.2 Records to be kept

Section 50 of the Excise Act states in part:

• (1) A licensed manufacturer, and a proprietor of an approved place, shall:
  • (a) keep [i.e. maintain] records, and furnish to the CEO such returns, as the CEO directs;
  • (b) retain any records so kept for such period as the CEO directs; and
  • (c) on demand by an officer, produce the records to the officer.
• ...
• (2) An officer may inspect and take copies of, or extracts from, any records kept in pursuance of subsection (1).

Regulation 180 of the Excise Regulations states in part:

• (1) When required by the Collector, a brewer, distiller or manufacturer of any goods dutiable under the Excise Tariff (whether licensed under any Excise Act or not), must produce to the Collector or an officer nominated by the Collector, all books and accounts that:
  • (a) contain entries relating to relevant goods; and
  • (b) are in the possession, custody or control of the brewer, distiller or manufacturer.
• (1A) The Collector or nominated officer may inspect, and take copies of or extracts from, any such books or accounts.

Every licensed manufacturer of excisable beer must, when required by the Tax Office, produce all books and accounts in their possession, custody or control containing entries relating to the beer brewed. The Tax Office may inspect and take copies of, or extracts from, any records relating to the manufacture of beer.

The direction issued under section 50 of the Excise Act at the time of licensing will require a manufacturer to record the following details:

• raw materials used in the manufacture of the beer
• various stages of the brewing process
• quantity of beer produced
• loss or wastage of the beer or of the materials used in the manufacture of the beer, whether during or after manufacture
• storage of the beer
• under bond transfers, and
• periodic settlement payments or Excise Returns and supporting documents.

Record keeping requirements for breweries are set out in chapter 5 of this manual.

Section 4 Contents for Duty Purposes

4.1 Legal definitions

Excise duty is levied on litres of alcohol (Lals) at the rate specified in the relevant item of the Schedule to the Excise Tariff Act .

Bulk container means a container that has the capacity to have packaged in it more than two litres of beer ¹² .

Container includes a bottle, a can or any other article capable of holding liquids ¹³ .

1.1.1. 4.2 Calculating dutiable contents

A licensee must measure samples of packaged beer (including beer in kegs) for volume to ensure that the volume of beer in the container is within the tolerance allowed for that container.

Beer in a bulk container :

If a licensee intends to manufacture beer and package the beer in kegs, they are required to nominate the volume to which they intend to fill each keg size. They may provide this information at question 22 of their application for a licence, and at any time after they are licensed if they intend to change the fill volumes or introduce other bulk container sizes.

For beer packaged in a bulk container the tolerance allowed on volume is 1% of the nominated volume ¹⁴ .

If the actual volume does not exceed the nominated/labelled volume by more than 1% the dutiable volume is the nominated/labelled volume.

If the actual volume exceeds the nominated/labelled volume by more than 1%, the dutiable volume is the nominated/labelled volume, plus the volume by which the actual volume exceeds the nominated/labelled volume by more than 1%.

If the volume of the contents is not nominated the dutiable contents are the actual contents ¹⁵

Beer in other than a bulk container

For beer packaged in other than a bulk container, the tolerance allowed on volume is 1.5% of the labelled volume ¹⁶ .

If the volume of the contents of a container, other than a bulk container, is indicated on a label printed on or attached to the container and:

• the actual volume does not exceed the labelled contents by more than 1.5%,the dutiable contents are the labelled contents
• the actual contents exceeds the labelled contents by more than 1.5%, the dutiable contents are the labelled contents plus the volume by which the actual contents exceeds the labelled contents by more than 1.5%, or
• if the volume of the contents is not indicated on a label, the dutiable contents are the actual contents.

Determination of dutiable contents

The Excise Act recognises that variations can occur during packaging/racking of product.

Where the actual contents are within the tolerances allowed:
Bulk:	Dutiable contents = Nominated fill.
Other than a bulk :	Dutiable contents = Labelled contents
Where the actual contents are not within the tolerances allowed:
Bulk :	A dditional D utiable Q uantity ( ADQ ) equals A ctual C ontents ( AC ) less ( N ominated F ill [ NF ] + 1%) that is ADQ = AC - (NF + 1%)
Other than a bulk:	A dditional D utiable Q uantity ( ADQ ) equals A ctual C ontents ( AC ) less ( L abelled C ontents [ LC ] + 1.5%) that is ADQ = AC - (LC +1.5%)

EXAMPLES OF EXTRA DUTY CALCULATION

These extra duty calculations are applied to each production run for:

Packaged beer

750 ml bottle	(stated contents on label)
765 ml fill	(actual contents)
15 ml overfill	(difference between stated and actual contents)

750ml ( stated contents )	X (multiply)	101.5% ( 1.5% tolerance )	=	761.25ml ( total permissible fill before incurring extra duty )
765ml ( actual contents )	- (minus)	761.25ml ( total permissible fill before incurring extra duty )	=	3.75ml ( quantity attracting extra duty )

Assuming an actual bottling run of 1,000 bottles, the volume of excisable product would be:

1,000 x 750ml	=	750.0 litres
plus
1,000 x 3.75ml	=	3.75 litres
	Total	753.75 litres

Bulk beer

49 litres fill	(actual contents)
47 litres nominated	(nominated fill)
2 litres overfill	(difference between actual contents and nominated fill)

47 litres ( stated contents )	X (multiply)	101% ( 1% tolerance )	=	47.47 litres ( total permissible fill before incurring extra duty )
49 litres ( actual contents )	- (minus)	47.47 litres (total permissible fill before incurring extra duty)	=	1.53 litres (quantity attracting extra duty)

Assuming an actual racking run of 200 kegs, the volume of excisable product would be:

200 x 47 litres	=	9,400 litres
plus
200 x 1.53 litres	=	306 litres
	Total	9,706 litres

A licensee must sample and measure the product to determine whether the actual volume of the contents exceeds the nominated fill or labelled contents by more than the permitted tolerance. This must be done for each batch.

If a licensee lodges pre-paid excise returns they may adjust over or underpayments of excise duty, by lodging an amending excise return for each particular case.

If they are a PSP ¹⁷ holder, a licensee is required to lodge an amending excise return detailing any adjustments for over or underpayments that have occurred outside the current settlement period. Law Administration Practice Statement PS LA 2003/1 sets out the conditions under which, with Tax Office approval only, a licensee may make such adjustments on an excise return without seeking specific approval for each occasion. Tax Office approval to participate in these arrangements must be obtained from the National Director Alcohol, Alcohol Industry Group, GPO Box 2318, Adelaide SA 5001.

Section 5 Refunds, Remissions and Return of Duty Paid Beer

5.1 Refunds - bulk beer

The Excise Regulations prescribe the circumstances for a refund on beer ¹⁸ :

excise duty must have been paid on the beer

the beer must be contained in a bulk container ¹⁹ , and

the beer is returned to the brewery at which it was made in the container it was in when removed from the brewery or the beer was destroyed by permission of the Tax Office.

Refund approvals do not constitute permission to remove goods from an excise establishment prior to destruction. Off-site destruction requires a movement permission from the Tax Office ( see chapter 4 ).

The Excise Regulations prescribes that a refund of excise duty shall not be allowed under the circumstances prescribed in paragraph 50(1)(k) of the Excise Regulations unless ²⁰ :

• the beer has been returned to the brewery at which it was made within 90 days after it was first removed from the brewery, or
• if the beer has been destroyed
  • it was destroyed because it became unfit for human consumption, and
  • the permission of the Tax Office for the destruction of the beer was sought within 90 days after it was first removed from the brewery at which it was made, and
• the volume of beer that was in the bulk container when it was returned to the brewery at which it was made or was destroyed was not less than 87.5% of the volume of the bulk container at the time it was entered for home consumption.

Only the amount of duty which has been paid on the volume of beer returned or destroyed may be refunded. The amount of refund is not made on the original volume in the container.

The Excise Regulations ²¹ prescribe that an application for a refund of excise duty must be in writing, signed by the applicant and state, as far as practicable, the nature and particulars of the claim.

Excise legislation does not prescribe a time limit for making an application for refund on duty paid bulk beer.

Refunds for alcoholic goods generally are dealt with in chapter 3 section 9 ( Excise liability and payment of duty ) in this manual.

5.2 Microbreweries refund

Breweries that produce fewer than 30,000 litres of beer may be eligible for a refund of part of the duty paid in the previous financial year.

Regulation 2AB of the Excise Regulations defines a microbrewery as a brewery that has all the following characteristics:

• it is legally and economically independent of any other brewery,
• in the previous financial year the total production of beer ²² * by the brewery did not exceed 30,000 litres,
• in the current financial year it is likely that the total production of beer* by the brewery will not exceed 30,000 litres, and
• it sells beer (whether wholesale or retail), on which excise has been paid, directly from the manufacturing premises of the brewery.

Note: A brewery that is a subsidiary of another brewery within the meaning of the Corporations Law is not legally independent and therefore cannot be a microbrewery.

Section 46 in Division 6 of the Corporations Act 2001 defines a subsidiary as follows:

A body corporate (in this section called the first body ) is a subsidiary of another body corporate if, and only if:

(a) the other body:

(i) controls the composition of the first body's board, or

(ii) is in a position to cast, or control the casting of, more than one-half of the maximum number of votes that might be cast at a general meeting of the first body, or

(iii) holds more than one-half of the issued share capital of the first body (excluding any part of that issued share capital that carries no right to participate beyond a specified amount in a distribution of either profits or capital), or

(b) the first body is a subsidiary of a subsidiary of the other body.

Even if a brewery is not a subsidiary of another brewery, it cannot be economically independent of another brewery if its operations are subsidised by another brewery. It would therefore not be a microbrewery within the meaning of regulation 2AB of the Excise Regulations.

Paragraph 50(1)(zzd) of the Excise Regulations provides that the following circumstance is prescribed for the purposes of a refund of duty:

• excise duty has been paid on beer manufactured in a microbrewery during a financial year, and the amount of refund paid during the financial year does not exceed:
  • if the brewery is a microbrewery at the start of the financial year - $10,000; or
  • if the brewery first becomes a microbrewery after the start of the financial year - an amount worked out by:
    • (A) multiplying $10,000 by the number of days in the period starting when the brewery first becomes a microbrewery and ending at the end of the financial year; and
    • (B) dividing the result by 365.

Regulation 52AAA of the Excise Regulations provides that the amount of refund of excise duty that may be allowed in respect of beer in the circumstance specified in paragraph 50 (1)(zzd) is 60% (of the original Excise Return on which the duty was paid). Therefore, each request for a refund must relate to an original return.

The provisions enable a microbrewery as defined above to obtain a refund of 60% of the excise duty paid in a financial year, up to a maximum of $10,000 per year.

The procedure for lodgement and processing of microbrewery refunds is the same as for any other excise refund.

* Total production of beer by a microbrewery in a financial year comprises:

• beer manufactured by the microbrewery and entered for home consumption
• beer manufactured by the microbrewery and removed under permission (that is while subject to the CEO's control)
• beer manufactured by the microbrewery and on hand at 30 ^th June but not yet entered for home consumption, and
• beer manufactured by the microbrewery under contract for another entity

but does not include:

• beer manufactured by the microbrewery and approved for remission
• production or packaging losses at the microbrewery, and
• beer manufactured for the microbrewery by another independent brewery.

5.3 Remission

The Excise Act provides that remission of excise duty may be allowed in respect of excisable goods generally or goods included in a class of excisable goods, in certain circumstances and under prescribed conditions and restrictions ²³ .

Remission applies to excisable goods on which duty has not yet been paid. Remission is the removal of a liability to pay excise duty. The approval of an excise remission application allows an excise liability to be extinguished. This occurs where excisable goods, that are subject to the Tax Office's control, will not be entering home consumption because the product has deteriorated or been damaged, lost, pillaged, destroyed or become unfit for human consumption ²⁴ . Remission of duty will not be granted for under bond goods which have been stolen.

A remission of excise duty will not be allowed in most cases unless a signed application in writing is made to the Tax Office ²⁵ . A remission application is not required if the goods have been totally lost or have otherwise ceased to exist ²⁶ .

Any application for remission of excise duty must be in writing, signed, and state the nature and particulars of the claim ²⁷ . For the purposes of verifying an application for remission, the Tax Office may require the applicant to produce records or to give further information to substantiate the claim ²⁸ .

Remission approvals do not constitute permission to remove goods from an excise establishment prior to destruction. Off-site destructions require movement permissions from the Tax Office ( see chapter 4 ).

Remissions for alcoholic goods generally are dealt with in chapter 3 section 9 in this manual.

5.4 Duty paid goods returned to the brewery

Goods falling within the following categories may be returned to under bond stock:

• incorrect stock selections, or
• over delivery.

Returns are subject to the following conditions:

• they must be accompanied by the original documentation, and
• they must be returned within 48 hours of delivery, or such further time as the Tax Office may allow if satisfied that the goods have been returned without delay.

Breakages that occur after goods have left Tax Office control must not be returned to under bond stock.

Interpretative Decisions (ATO IDs) which provide examples of when goods may or may not be returned to under bond stock after removal or delivery may be found at ATO IDs .

5.5 Reissued beer

Where duty paid beer is returned to the brewery and does not meet any of the above conditions for return to under bond stock, the beer may be treated as reissued beer and no credit of excise duty can be made. Such beer is subject to the following conditions:

• beer returned to the brewery for reissue must be kept separate from other beer in the brewery. It must not be removed from the brewery unless accompanied by an invoice or delivery document showing the correct details of the reissued beer, and
• the cancelled delivery dockets or invoices relating to the original removal from the brewery must be retained for audit purposes.

5.6 Spoilt beer

Where beer is unfit for human consumption and is sold for manufacturing purposes it may, with Tax Office approval ²⁹ , be removed from a brewery without entry for home consumption and without payment of duty in containers marked 'spoilt beer' ³⁰ .

The beer must be unfit for human consumption and the removal from the brewery is to be covered by an excise movement permission. The containers must be marked in compliance with the legislation.

Spoilt beer must be unfit for human consumption and not just out of specification. Excisable beer that is merely under-filled or under-strength is not unfit for human consumption .

The excise licensees should also apply in writing to the Tax Office for remission on the beer ³¹ .

Section 6 Commercial Facilities for Brewing Non-commercial Beer: Brew-On-Premises Shops (BOPS)

6.1 Background

In December 1993 legislation was introduced to impose excise on beer produced for non-commercial purposes using commercial facilities or equipment. Premises conducting these activities are known as Brew on Premises Shops (BOPS). These outlets offer the use of their commercial facilities and equipment to enable the public to make their own beer.

Typically, BOPS have a number of brewing kettles, chilling facilities and bottling equipment as permanent fixtures. They also provide beer-making ingredients such as yeast, malt and hops usually in kit form. BOPS staff are on hand to advise the customer in all aspects of beer making. The customer pays up front for the ingredients, use of the equipment, bottles (if needed) and the expertise of the BOPS staff. The customer is responsible for their own brew. Once the beer is bottled by the customer, about a fortnight after the initial process the customer takes the beer home for consumption.

It should be noted that this BOPS arrangement extends only to beer (see Excise Tariff Item (ETI) 1BB). There are no similar provisions for the non-commercial manufacture, using commercial equipment and facilities, of alcoholic drinks that do not meet the definition of beer.

6.2 Revenue collection from BOPS

Excise liability for BOPS is calculated on each batch (customer's fermenter). A batch is usually 48-50 litres in volume. The strength of the batch is taken to be a standard strength which applies to a particular recipe and has been verified by a test brew. BOPS operators are required to maintain sequential batch cards which contain the recipe and strength details for each brew, including test brews.

Excise is payable on the full contents of each fermenter. As bottling is done by individual BOPS customers, the bottling process is regarded as being inherently unreliable and as a consequence, no allowance is permitted for bottling or packaging losses.

Beer produced in BOPS is entered under ETI 1BB as 'beer produced for non-commercial purposes using commercial facilities or equipment'. The duty rate is currently 7% of the rate applying to goods classified to sub-item 1C.

BOPS customers who find that their brew is unfit for consumption may return the beer to the BOPS for a replacement brew. The BOPS operator can apply for remission of duty and can then brew an identical batch without the need to pay further duty, provided that the application for remission has been approved.

6.3 Labelling exemption

In recognition that the beer brewed and bottled in BOPS is intended for their customers' own use and not for commercial purposes, the Tax Office has exempted bottles leaving BOPS outlets from the labelling requirements of section 77C of the Excise Act.

6.4 Sample and test brews

Sample brews (that is brews for tasting), whether consumed on the premises or not, are permitted. Sample brews are to be classified according to the Schedule to the Excise Tariff Act as beer produced for commercial purposes and duty must be paid at the full applicable rate. Sample brews are not classified to ETI 1BB as beer produced for non-commercial purposes.

Test brews (including new recipes) are permitted. A BOPS operator may make test brews for bona fide analysis for quality control and for verification of the strength of beer recipes. A BOPS operator must not use test brews as samples or for tastings unless the full applicable excise beer rate is paid. All test brews must be recorded and batch card sequencing maintained for audit purposes.

With regard to test brews that have not been entered and duty paid at the full applicable excise rate, a BOPS operator must apply to the Tax Office for remission of duty for each test brew, using the appropriate tariff classification for beer produced for commercial purposes, and for approval to dispose of the test brews and to write them off the operator's records.

6.5 Guidance Notes

Guidance Notes for Applicants for BOPS Licences are available from the Alcohol Industry Group.

APPENDIX: 6.1 The Brewing process

(section 2.1 in this chapter)

The following description is intended to be indicative only of the brewing process and is not intended to cover all circumstances or all manufacturing processes which take place in a brewery.

Malting

The raw cereal, usually barley, is steeped (soaked) in water at a controlled temperature then allowed to germinate. Germination enables the development of enzymes required later in the brewing process. When shoots have appeared the grain is heat dried in a kiln until growth is halted or at least retarded. At this stage it has become what is known as 'malt' or 'malted barley'. After drying the malt is cleaned, polished, coloured and cured. Malting often occurs away from the brewery and is frequently done by independent specialist operators.

Mashing

At the brewery the ground malt (grist) is mixed with warm water in a false bottomed tub (mash tun) to form a mash. Other ground cereals such as unmalted barley, wheat or rice are often added to the mash to introduce particular characteristics. For example, stout is brewed by a similar method except that some roasted (black) barley or malt is included before mashing to give a darker colour. The temperature is raised progressively in the Lauter Tun (for filtration) to enable the enzymes developed during malting to convert the starches into fermentable sugars. The mash is allowed to settle. The spent grain forms a filter bed through which the liquid, now known as the wort, is drawn off into the wort kettle. The grain is 'sparged' (sprayed with hot water) to separate any remaining wort. This liquid is drained into the wort kettle.

Wort

Sugar is added and the wort is brought to boiling point in the wort kettle and the hops or hop extract added, usually in three stages. Hops give beer its characteristic bitter flavour and partially clarifies the wort. Boiling concentrates and sterilises the wort. This process takes about two hours. Immediately after the last addition of hops or hop extract, the wort is drained from the kettle. The hops are strained and sparged (sprayed with hot water) to remove any remaining extract.

Fermentation

The wort is cooled quickly and yeast added to enable fermentation to occur. The fermentation time varies according to the product desired and the yeast used. For example, lager is fermented at a maximum temperature of 16_C for about 8-10 days using yeast that settles on the bottom of the tank. Ale is fermented at temperatures of up to 24_C for 5 to 8 days using yeast that rises to the top of the vat. Carbon dioxide, a by-product of fermentation, is often reclaimed during this process for use at a later stage.

Storage, maturing and finishing

The new beer is pumped into storage tanks and is maintained under pressure from this point. It is allowed to mature for some time (a minimum of 7 days for draught beer or 14 days for packaged beer). The new beer may be carbonated by allowing controlled secondary fermentation to occur under pressure during maturation. Alternatively carbon dioxide is injected into the beer as it is filtered. After filtration the product is known as bright beer (that is matured, carbonated and filtered beer ready for packaging and drinking). Bright beer is an industry term and does not appear in excise legislation. If necessary, the product is blended to maintain uniformity and de-aerated water may be added to lower the alcohol content. Product that does not meet quality control standards is reprocessed.

Pasteurisation of bulk beer is done as part of the filtration process. It involves partial sterilisation and is designed to destroy any unwanted organisms, give the beer longer shelf life and prevent further fermentation. Pasteurisation involves heating the beer to about 60 ° C for approximately ten minutes followed by rapid cooling.

Beer is stored in large tanks at low temperature prior to packaging/racking.

Bottled or canned beer is pasteurised after it is bottled or canned.

Naturally conditioned beers

Naturally conditioned beers (or secondary fermentation beers) are made as follows:

Wort is prepared in the brew house, chilled, then transferred to fermenting vessels where it is mixed with yeast and allowed to ferment for 4 to 5 days. Fermented beer is then passed through a centrifuge to remove all the yeast on its way to the bottling tank. Small portions of yeast and liquid sugar are then added to the beer in the bottling tank and mixed just prior to bottling. After bottling the beer is stored in the warehouse for a minimum of 4 weeks to allow secondary fermentation to take place in the bottle. In this process the yeast ferments the liquid sugar to produce carbon dioxide gas plus an extra 0.5% by volume of alcohol in the beer.

Samples of the beer are then tested for alcoholic strength and carbon dioxide level. The beer is tasted to see if the flavour is acceptable and, if so, the beer is then released for sale. This whole process from brew house to release for sale usually takes a minimum of 5 weeks. Naturally conditioned beers are usually distinguishable by a small amount of sediment remaining in the bottle/glass after drinking.

APPENDIX: 6:2 The brewing process - flow chart

(section 2.1 in this chapter)

APPENDIX: 6.3 Beer excise legislation - a brief history

(section 2.3 in this chapter)

(1) The Beer Excise Act 1901 which was repealed in 1968 was the first piece of Commonwealth legislation covering the collection of excise duty on beer.

(2)In the earliest days of that Act, packaged beer was marketed in so-called pint and quart bottles which were reputed to be filled at the rate of:

• quart - 6 per gallon
• pint - 12 per gallon.

(3) Excise duty was paid using stamps bought by the brewery and attached to the outside of the case containing the bottled beer.

(4) Beer stamps were at first given monetary value but this became cumbersome because of various duty rate changes and in 1947 the system was changed so that stamps were expressed in gallons. The basis of dutiable quantities for bottled beer continued at the rate of 6 large or 12 small bottles to the gallon.

(5)

• (a) Fluid ounces gradually replaced reputed contents as the means of calculating dutiable contents. This is thought to be because of changes in Commonwealth and States Weights and Measures legislation. However there is no sign that the size, shape or contents of bottles was affected by this change. It was purely a change in terminology.
• (b) The so-called quart bottle (holding 1/6 of a gallon or 26 2/3 fluid ounces) became known as the 26 ounce bottle.
• (c) Duty was paid on the basis of six bottles to the gallon, so the dutiable content per quart bottle was 26 2/3 fluid ounces. The small so-called pint bottle became the 13 ounce bottle and attracted duty as though it contained 13 1/3 ounces.

(6) Following metrication in 1972 the 26 ounce bottle became accepted as 750mls and the 13 ounce bottle became accepted as 375mls for duty collection purposes.

(7) In 1984 an amendment was made to the definition of beer and excise was made subject to six-monthly Consumer Price Index adjustments each February and August.

(8) In 1988 an amendment was made to vary the method of calculating the duty liability of beer. This required duty to be paid on the alcohol content in lieu of the previous volumetric method.

(9) On 1 July 2000 when Tax Reform - A New Tax System (ANTS) was implemented, the excise duty rate on beer was split into three tiers imposing different rates for low strength, mid strength and full strength beers.

(10) From 4 April 2001, the beer rates were further subdivided to take account of package size (that is whether or not exceeding 48 litres) in order to reduce the impact of GST on draught beer sold across the bar. As a result six separate rates now apply to commercially brewed beer.

APPENDIX: 6.4 Measurement of Alcoholic Strength

(sections 2.6 and 2.7.1 in this chapter)

Excise Determination 2003/1

Commonwealth of Australia Gazette (No. GN 12, 26 March 2003

Excise Act 1901

I, MARGOT RUSHTON, Assistant Commissioner Excise in the Australian Taxation Office and Delegate of the Commissioner of Taxation, make this Determination under section 77FB of the Excise Act 1901 .

1 Name of Determination

This Determination may be cited as the Excise Act (Alcoholic strength of beer) Determination No. 1 of 2003.

2 Commencement

This Determination commences on and from the date of publication of the Determination in the Gazette .

3 Definitions

In this Determination:

• beer means a beverage that meets the definition of beer in the Schedule to the Excise Tariff Act 1921 ;
• CEO means the Commissioner of Taxation;
• strength means the percentage by volume of alcohol at 20 degrees Celsius.

4 Application of Determination

This Determination applies to beer entered for home consumption on or after the date of commencement of the Determination.

5 Measuring equipment

(a) You must ascertain the alcoholic strength of beer by one of the following processes:

1. by the use of gas chromatography;
2. by the use of near infra red spectrometry; or
3. by distillation followed by the gravimetric measurement of the distillate or by measurement in a density meter.

(b) If the brewery produces less than 100,000 litres pf beer in a financial year, a hydrometer and a formula approved by the CEO may, with permission, be used to measure beer's alcoholic strength.

(c) You must calibrate the accuracy of the measuring instruments (eg, volumetric glassware, hydrometer, pycnometer, thermometer), at intervals of one year or less, against standard instruments that have been certified by an independent authority approved by the National Association of Testing Authorities (NATA). The standard instruments must be calibrated at intervals of five years or less.

6 Sampling and analysis

(a) You must ascertain the alcoholic strength of the beer by analysing samples of the product after it has reached its full alcoholic strength and is ready for packaging or has been packaged. Sufficient samples must be taken from each run to ensure the strength measured in accordance with paragraph 6(b) accurately reflects the true strength of the beer.

(b) You must analyse the samples with the approved calibrated equipment. The alcoholic strength of the beer is taken to be the average of the strength of all the readings. The alcoholic strength calculated is to be expressed as the volume that would be the volume of that alcohol if the alcohol were measured at a temperature of 20 degrees Celsius. Calculation by reference to the specific gravity of alcohol is to be made on the basis that, at a temperature of 20 degrees Celsius and in a vacuum, the specific gravity of alcohol in relation to water is 0.79067.

7 Permitted variations

For the purposes of working out the excise duty payable:

0. If the actual strength of beer, other than beer subject to secondary fermentation, exceeds the nominated or labelled strength by more than 0.2%, the strength is the actual strength.
0. If the actual strength of beer subject to secondary fermentation exceeds the nominated or labelled strength by more than 0.3%, the strength is the actual strength.

Dated                 August 2003

MARGOT RUSHTON

Delegate of the Commissioner of Taxation

1 See Glossary at Chapter 13 for `bitters'.

2 Section 61 of the Excise Act

3 Section 5 of the Excise Tariff Act.

4 Section 6A of the Excise Tariff Act.

5 Section 60 of Excise Act.

6 Section 78 of the Excise Act and Regulation 50 of the Excise Regulations.

7 Section 50 of the Excise Act.

8 Section 77FB of the Excise Act.

9 Section 106 and 107 of the Excise Act.

10 The under bond area means the licensed excise manufacturing area as shown in the plans attached to the licence.

11 PSP means a Periodic Settlement Permission issued under section 61C of the Excise Act.

12 Section 77A of the Excise Act.

13 Section 77A of the Excise Act.

14 Paragraph 77B(1)(c) of the Excise Act.

15 Paragraph 77B(1)(e) of the Excise Act.

16 Subsection 77B(2) of the Excise Act.

17 Periodic Settlement Permission issued under section 61C of the Excise Act.

18 Paragraph 50(1)(k) of the Excise Regulations

19 A container that has the capacity to have packaged in it more than 2 litres of beer - Section 77A of the Excise Act.

20 Regulation 56 of the Excise Regulations

21 Subregulation 52(1) of the Excise Regulations

22 See definition of `total production' at final paragraph of section 5.2

23 Section 78 of the Excise Act.

24 Paragraph 50(1)(a) of the Excise Regulations.

25 Sub regulation 51(1) of the Excise Regulations.

26 Sub regulation 51(2) of the Excise Regulations.

27 Sub regulation 52(1) of the Excise Regulations.

28 Sub regulation 52(2) of the Excise Regulations.

29 Section 61A of the Excise Act.

30 Section 77D of the Excise Act

31 Regulations 51 & 52 of the Excise Regulations.

ATO references:
NO NAT 14790-04.2006