Private ruling: Wine equalisation tax taxable values
Date of advice: 17 December 2018
Published: April 2019
Ruling period: 1 July 2018 to 30 June 2022
Date scheme commenced: 1 July 2018

Ruling: Q1: Where you have assessable dealing AD1a in the Assessable Dealings Table in section 5-5(4) of A New Tax System (Wine Equalisation Tax) Act 1999 (the WET Act), do the costs incurred by you in manufacturing the wine, including the container (i.e. cost of goods sold), constitute ‘ the price (excluding wine tax and GST) for which the wine was sold’ ? | A1: No, the costs incurred in manufacturing the wine (including the container) do not constitute ‘the price (excluding wine tax and GST) for which the wine was sold’ . The price of the wine is the total amount that the buyer promises, expressly or tacitly, to pay to get good title to the wine. | Q2: Where wine is given or sold in a tasting or sold by the glass, but separate title to the container from which the wine was poured does not pass to the customer, do the rules in Subdivision 9-C, specifically section 9-65, of the WET Act apply to exclude the value of the container from the taxable value of a dealing with the wine? | A2: No, section 9-65 of the WET Act does not apply to exclude the value of the container from the taxable value of dealing with wine.

Relevant facts and circumstances: 1. You are registered for goods and services tax (GST). 2. You report and remit wine equalisation tax (WET) and GST quarterly. 3. You manufacture ‘wine’ as defined in Subdivision 31-A of the WET Act (the wine). 4. The wine is bottled in containers once it has been manufactured. 5. You make wholesale sales and retail sales of the wine in containers. 6. Sometimes your wine is given away in tastings and sometimes your wine is sold by the glass. In these situations title to the container from which the wine is poured does not pass to the consumer.

Relevant legislative provisions: A New Tax System (Wine Equalisation Tax) Act 1999 Division 9

Reasons for decision: Detailed Reasoning - Detailed reasoning: The Assessable Dealings Table (the Table) in section 5-5 of A New Tax System (Wine Equalisation Tax) Act 1999 (WET Act) sets out all of the assessable dealings with wine that can be subject to WET. An entity will have a WET liability where it is registered or required to be registered for GST (other than for importations of wine), and it has an assessable dealing with wine to which no exemption applies (taxable dealing). Where an entity has a taxable dealing with wine, it will generally be subject to WET at the rate of 29% of the ‘taxable value’ of the assessable dealing. The Table sets out the ‘normal taxable value’ for each assessable dealing. The normal taxable value for a ‘*wholesale sale by an entity that *manufactured the wine in the course of any business’ (that is, AD1a) is set out as, ‘the *price (excluding wine tax and GST) for which the wine was sold’. | Detailed Reasoning - Meaning of ‘price’: The term ‘price’ is defined in section 33-1 of the WET Act as having the meaning given by section 9-75 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act). Section 9-75 of the GST Act defines ‘price’ as the sum of: (a) so far as the *consideration for the supply is consideration expressed as an amount of *money – the amount (without any discount for the amount of GST (if any) payable on the supply); and (b) so far as the consideration is not consideration expressed as an amount of money – the *GST inclusive market value of that consideration. The term ‘consideration’ is defined in section 195-1 of the GST Act and refers to the application of section 9-15 of the GST Act. Section 9-15 states that consideration includes (emphasis added): (a) any payment, or any act or forbearance, in connection with a supply of anything ; and (b) any payment, or any act or forbearance, in response to or for the inducement of a supply of anything . | Detailed Reasoning - Meaning of ‘sale’: The term ‘sale’ is defined in section 33-1 of the WET Act as including ‘barter or exchange’. Paragraphs 92 to 96 of Wine Equalisation Tax Ruling 2009/1 Wine equalisation tax: the operation of the wine equalisation tax system (WETR 2009/1), discuss the meaning of the term ‘sale’ for the purposes of the WET Act and conclude that a sale of wine occurs when ownership is transferred from one person (the seller) to another (the purchaser) for a ‘price’. Application Taking all of the above into account, the Commissioner’s view of the meaning of ‘the price for which the wine is sold’, stated in paragraph 89 of WETR 2009/1, is: | Detailed Reasoning - the total amount that the buyer promises, expressly or tacitly, to pay to get good title to the wine.: In practice, the costs incurred in manufacturing wine will usually be taken into account by the seller when determining the sale price of their product. Ordinarily, the price for which wine is sold will also incorporate a profit-margin determined by the seller. Ultimately, it is up to the seller how they determine the price for which their wine is sold and what factors they choose to take into account when determining that price. Therefore, the price for which wine is sold by a manufacturer may include the costs of manufacture or production (i.e. the cost of goods sold). However, the costs of manufacture or production will only constitute the price for which the wine is sold (and therefore the normal taxable value of assessable dealing AD1a) where those costs are equal to the amount the purchaser agrees to pay to get good title to the wine. | Detailed Reasoning - Determining taxable value: Subdivision 9-A of the WET Act provides the general rules for working out the taxable value of wine and in particular, section 9-5 provides details on how to work out the taxable value of a taxable dealing. Each element of this section should therefore be considered when determining the taxable value of a taxable dealing. Subsection 9-5(1) of the WET Act states that the general rules for calculating the taxable value of a taxable dealing are set out in the Table. The Table, which lists all of the assessable dealings that are subject to WET, also sets out the normal taxable value that must be used for each assessable dealing. Relevantly, the Table sets out the following normal taxable values for retail sales and tastings of wine (application to own use) supplied by an entity that manufactured the wine: | Detailed Reasoning - Normal taxable value: AD2a – retail sale by an entity that manufactured the wine in the course of any business The notional wholesale selling price AD3b – application to own use (AOU) by an entity that manufactured the wine in the ordinary course of business The notional wholesale selling price Subsection 9-5(2) states that where the normal taxable value in the Table refers to ‘the notional wholesale selling price’ (as is applicable to AD2a and AD3b above), Subdivision 9-B provides the rules on how to determine this value. With respect to grape wine, section 9-25 of the WET Act states that two methods may be used to determine the normal taxable value for assessable dealings AD2a and AD3b. Specifically, the half retail price method may be used (detailed in section 9-35 of the WET Act) or, in certain circumstances, the average wholesale price method may be chosen (detailed in section 9-40 of the WET Act). For all wine other than grape wine, section 9-30 of the WET Act states that the half retail price method must be used to determine the normal taxable value for retail sales and AOUs by the manufacturer of the wine. Subsection 9-5(3) provides that that in some situations certain amounts must be added to the normal taxable value amount set out in the Table. These amounts are detailed in Subdivision 9-C of the WET Act and the application of this section is discussed further below. Subsection 9-5(4) also specifically mentions that rebates, refunds and other payments or credits made by a State or Territory in respect of the wine should be disregarded when working out the taxable value of the wine. Once all of these elements are considered, the taxable value of the dealing can be accurately determined. The taxable value of the dealing is then multiplied by 29% to arrive at the amount of WET payable in respect of the dealing. | Detailed Reasoning - Subdivision 9-C: As mentioned above, Subdivision 9-C of the WET Act provides for amounts to be added to the taxable value of wine in certain circumstances. Subsection 9-65(1) provides as follows: This section dealing with situations in which a *container is associated with the wine (the contents) that is the subject of a *taxable dealing. The aim of this section is to ensure that the *taxable value will include a component for the container, even though the parties may have allocated a separate amount to the container. The Explanatory Memorandum (EM) to the WET Act provides additional guidance in relation to the interpretation of this section. The guidance in the EM concludes that generally, there is no need to add a container component to the taxable value of the wine, as the wine would usually be sold for a single price that includes a recoupment component for the container. That is, additional amounts will not be added if they would otherwise be included in the taxable value. Paragraphs 130 to 131 of WETR 2009/1 provide the following example in relation to the addition of the value of a container to the normal taxable value of a wholesale sale of wine: Specialty Gifts Pty Ltd sells wine by wholesale. They sell wine at $600 a dozen. They will also sell the wine for $60 a bottle and for an additional $60 pack it in individual handmade wooden display cases. The taxable value of the wine sold in the display cases is $120 a bottle. | Detailed Reasoning - Application: Per Subdivision 9-A of the WET Act, the starting point when determining the taxable value of wine supplied in a tasting or sold by the glass is to refer to the normal taxable value amount set out for these dealings in the Table. As mentioned above the taxable value for these dealings is the notional wholesale selling price (i.e. the half retail price or in some circumstances, the average wholesale price). Once this normal taxable value is determined, any additions to the taxable value as detailed in Subdivision 9-C need to be considered. When considering the implications of container value on the taxable value, section 9-65 needs to be considered. The application of this section does not operate to exclude the value of a container from the taxable value of dealing with wine. Instead, the section operates to add amounts to the taxable value of dealings with wine in respect of containers in certain circumstances (usually where the price for which the wine is sold does not already contain a recoupment component for the container).