ATO ID 2011/92: Wine equalisation tax: addition of unfermented grape juice to grape wine
Date of decision: 8 November 2011
Business line: Indirect Tax

Issue
Is a beverage, a grape wine, as defined in section 31-2 of the A New Tax System (Wine Equalisation Tax) Act 1999 (WET Act), if it is a product consisting of:

Decision
No, a beverage is not a grape wine, as defined in section 31-2 of the WET Act, if it is a product consisting of:

Facts
Low sugar grape juice is the product of either: Low sugar grape juice is added to a grape wine. The blend is then fortified by the addition of grape spirit. The percentages by volume of the constituents in the finished beverage are: The finished beverage is 22% alcohol by volume.

Reasons for decision
Summary: Section 31-2 of the WET Act defines grape wine as: Regulation 31-2.01 of the A New Tax System (Wine Equalisation Tax) Regulations 2000 (WET Regulations) states: For paragraph 31-8(1)(a) of the Act, a beverage mentioned in paragraph 31-2(1)(a) of the Act must not contain more than 22% by volume of ethyl alcohol. The product in question meets the requirement of regulation 31-2.01 of the WET Regulations. Paragraph 31-2(1)(a) of the WET Act refers to the 'complete or partial fermentation of fresh grapes, or products derived solely from fresh grapes'. A literal reading of the provision would mean that no unfermented grape juice could be present for a product to meet the definition. Further, other than grape spirit and brandy, the definition is silent on whether or not grape wine may include things other than fresh grapes or products derived solely from fresh grapes that have been fermented to an extent. A literal and narrow reading would mean that only grape spirit and brandy can be added to the fermented fresh grapes or products derived solely from fresh grapes. The current section 31-2 of the WET Act was included in the WET Act under the A New Tax System (Indirect Tax and Consequential Amendments) Act 1999 . Relevantly paragraph 1.236 of the Explanatory Memorandum to the A New Tax System (Indirect Tax and Consequential Amendments) Bill 1999 states: Grape wine will cover traditional products such as table wine, sparkling wine and grape wines fortified by the addition of grape spirit and brandy. The Commissioner is aware that the Australian New Zealand Food Standards Code (Food Standards), Standard 4.5.1 - Wine Production Requirements allows for additives to be used in the production of grape wine. While not directly relevant to the WET Act, Standard 4.5.1 is instructive in relation to what is seen as traditional products. Applying a literal reading to the definition such that nothing can be added to the fermented fresh grapes or products derived solely from fresh grapes would seem to result in many traditional products not meeting the definition of grape wine. Therefore, a preferred view is that additives, which are a normal part of the production of wine, may be present in the product. The Commissioner does not seek to determine compliance with the Food Standards but notes that grape juice is an allowable additive in the production of wine. Therefore grape juice (including concentrated grape juice) could be allowed as an additive. It needs to be determined whether or not low sugar grape juice used in the production of the beverage is consistent with the normal production of wine. The final beverage consists of 60% by volume of a product known as low sugar grape juice. The percentage of low sugar grape juice is so large that the beverage is not considered to be a product of the complete or partial fermentation of fresh grapes or products derived solely from fresh grapes to which permissible additives have been added. As such, the beverage is not a grape wine for the purposes of section 31-2 of the WET Act.

Legislative references: A New Tax System (Wine Equalisation Tax) Act 1999 section 31-2 paragraph 31-2(1)(a)
Related ATO interpretative decisions: ATO ID 2007/192 | ATO ID 2009/15
Other references: Explanatory Memorandum to the A New Tax System (Indirect Tax and Consequential Amendments) Bill 1999 Australian New Zealand Food Standard Code Standard 4.5.1 - Wine Production Requirements (Australia only)
Subject references: Grape wine