In the 2016 Federal Budget the Treasurer stated that the Government would introduce amendments to the Wine Equalisation Tax (WET) legislation that would have effect from 1 July 2019. These amendments would, amongst other things, ‘tighten’ (ie, restrict) the rules regarding the eligibility of wine producers to access the WET rebate. Between then and early this calendar year, Treasury called for responses and undertook consultation as to the extent and form of these amendments. Various industry bodies, wine producers and others (including ourselves at DW Fox Tucker Lawyers) provided comments.
Following that consultation, in April of this year Treasury published exposure legislation giving effect to Treasury’s proposed reforms and on the final sitting day before winter Parliamentary recess (ie 22 June 2017) final legislation was introduced and read for a second time in the House of Representatives. The key changes with application date to assessable dealings from 1 July 2018 were as follows:
We do not provide detailed commentary on these changes.
Instead, in response to a number of similar questions being asked by our clients, we thought to highlight the rules regarding the application and transition of the existing rules to the new rules.
For example:
For example, in a practical context can vintage 2016 or 2017 wine be sold after 1 July 2018 and still get the benefit of the WET rebate if:
In order to answer these questions it is necessary to consider the transitional provisions, noting that when any taxation law is amended, particularly one which is a tightening or a narrowing of existing rules that have application on a future date, separate provisions are introduced to deal with the change so as to potentially soften the immediacy of any detrimental impact.
Whilst the position under the exposure draft legislation and its accompanying explanatory memorandum was, in our opinion, confused, the final Bill as tabled before Parliament provides further clarification.
The application and transitional provisions note that the amendments to WET rebate eligibility apply to assessable dealings in wine from the FY2019 financial year (ie from 1 July 2018). They go on to provide that the amendments also apply to assessable dealings in circumstances where the crushing of the source product for more than 50% of the wine occurred on or after 1 July 2018 (thereby presumably picking up wine produced from the 2018 vintage).
Under the exposure draft this raised for us the question as to whether either:
Diagrammatically:
(Interpretation A)
OR
Diagrammatically:
(Interpretation B)
It was not clear as to which of these two interpretations Treasury intended in drafting the exposure draft provisions. On a literal reading of the draft application provisions, we believed that, on balance, Interpretation A is the most accurate.
However it would have been inequitable in our opinion for there to be no grandfathering of existing product in tank and of wine from the current 2017 vintage to enable its eligibility. Otherwise, there would arguably be an unfair level of retrospective taxation.
The final bill as tabled before Parliament to some extent expands the transitional application of the provisions and provides further specifics, noting that it appears a hybrid of the above interpretations. That is, broadly speaking – with respect to 2017 year and earlier year vintage wine (excluding fortified wine), the 85% ownership of source product requirement does not apply to wine:
However, notably the earlier producer rebate rule continues to apply to wine to which this transitional rule applies.
So… what does this mean…? Does it mean that the new WET eligibility rules don’t apply at all to 2017 year and earlier year vintage wine existing product in tank if more than 50% of the wine was crushed before 1 January 2018? No, for there is no complete grandfathering of that wine stock. That is, for 2017 year and earlier year vintage wine the bottling and trade mark requirement remains.
Diagrammatically, therefore the new WET rules apply in broad terms as follows:
Consequently, wine producers that have existing wine stock on hand that is unlikely to meet the bottling and trade marking requirements under the new rules, knowing that it will not otherwise be grandfathered post 1 July 2018 might best consider whether they are able realise their stock before then.
John Tucker
Director
p. +61 8 8124 1807
e. Email me
This communication provides general information which is current as at the time of production. The information contained in this communication does not constitute advice and should not be relied upon as such. Professional advice should be sought prior to any action being taken in reliance on any of the information. Should you wish to discuss any matter raised in this report, or what it means for you, your business or your clients' businesses, please feel free to contact us.