Taxpayer Alert TA 2009/7: Uncommercial contract manufacture arrangements to claim the wine equalisation tax (WET) producer rebate
Date of issue: 1 April 2009
Status: Current


Description: This alert applies to arrangements with features substantially equivalent to the following: 1. A winemaker either purchased, or would purchase, grapes (or fruit or vegetables) from one or more growers to make wine. Such growers would not be eligible for the producer rebate. However, the winemaker may be eligible to the producer rebate subject to a maximum of $500,000 per annum. 2. The winemaker enters into contracts with the grower/s to make wine from their produce on their behalf, on the basis that the grower/s retain ownership of that produce and resulting wine. 3. At or around the time of entering into the contract with the grower/s, the winemaker commits to buy the resulting wine (possibly at a predetermined price). This removes the majority of commercial risk to the grower/s from the winemaking process, such as that which may arise from the quality of the wine produced. 4. Once the wine is made by the winemaker, the winemaker pays the purchase price and the title of the wine is transferred to them. 5. The winemaker then sells the wine to a buyer in a transaction that is or would be liable to WET (i.e. if the purchaser had not quoted their ABN). 6. Each such grower claims a wine producer rebate of up to $500,000 per annum each for the wine that they have 'sold' to the winemaker. The sum of the rebates claimed by the grower/s and the winemaker is likely to exceed the maximum that the winemaker would be entitled to claim from the production of wine in that year. 7. The basic features of this arrangement can be summarised diagrammatically as follows: | 1. A winemaker either purchased, or would purchase, grapes (or fruit or vegetables) from one or more growers to make wine. Such growers would not be eligible for the producer rebate. However, the winemaker may be eligible to the producer rebate subject to a maximum of $500,000 per annum. 2. The winemaker enters into contracts with the grower/s to make wine from their produce on their behalf, on the basis that the grower/s retain ownership of that produce and resulting wine. 3. At or around the time of entering into the contract with the grower/s, the winemaker commits to buy the resulting wine (possibly at a predetermined price). This removes the majority of commercial risk to the grower/s from the winemaking process, such as that which may arise from the quality of the wine produced. 4. Once the wine is made by the winemaker, the winemaker pays the purchase price and the title of the wine is transferred to them. 5. The winemaker then sells the wine to a buyer in a transaction that is or would be liable to WET (i.e. if the purchaser had not quoted their ABN). 6. Each such grower claims a wine producer rebate of up to $500,000 per annum each for the wine that they have 'sold' to the winemaker. The sum of the rebates claimed by the grower/s and the winemaker is likely to exceed the maximum that the winemaker would be entitled to claim from the production of wine in that year. 7. The basic features of this arrangement can be summarised diagrammatically as follows: | Figure: Uncommercial contract manufacture arrangements to claim the wine equalisation tax (WET) producer rebate | FEATURES WHICH CONCERN US | The Tax Office considers that an arrangement of the type described above gives rise to taxation issues that include whether: (a) The grower satisfies the definition of 'producer' as defined in section 33-1 of the A New Tax System (Wine Equalisation Tax) Act 1999 (WET Act). (b) The grower is eligible for a producer rebate under Division 19 of the WET Act. (c) The anti-avoidance provisions in Division 165 of the A New Tax System (Goods and Services Tax) Act 1999 may apply. (d) Any entity involved in the arrangement may be a promoter of a tax exploitation scheme for the purposes of Division 290 of Schedule 1 to the Taxation Administration Act 1953 . | (a) The grower satisfies the definition of 'producer' as defined in section 33-1 of the A New Tax System (Wine Equalisation Tax) Act 1999 (WET Act). (b) The grower is eligible for a producer rebate under Division 19 of the WET Act. (c) The anti-avoidance provisions in Division 165 of the A New Tax System (Goods and Services Tax) Act 1999 may apply. (d) Any entity involved in the arrangement may be a promoter of a tax exploitation scheme for the purposes of Division 290 of Schedule 1 to the Taxation Administration Act 1953 . | The Tax Office is currently reviewing these arrangements. Note 1: Base penalties of up to 50% of the tax avoided can apply where Division 165 is applied. Base penalties of up to 75% of the tax avoided can apply where you make a false and misleading statement to the Commissioner. Reductions in base penalty will be available if the taxpayer makes a voluntary disclosure to the Tax Office. If you have any information about the current arrangement, phone us on 1800 060 062. Tax agents wanting to provide information about people or companies who may be promoting arrangements covered by this Alert should call 13 72 86 (Fast Key Code 3 4 ). Note 2: Penalties of up to 5,000 penalty units for individuals, 25,000 penalty units for bodies corporate or up to twice the amount of consideration received or receivable may apply to promoters of tax exploitation schemes under Division 290 of Schedule 1 to the Taxation Administration Act 1953. The Commissioner can also apply to the Federal Court of Australia for restraining and performance injunctions against promoters where prohibited conduct has occurred, is occurring or is proposed. | Date of amendment Comment 3 May 2024 Updated Tax Agent tip off hotline number 19 January 2024 Updated ATO tip-off hotline numbers | Date of Issue: 1 April 2009 | Date of Effect: 1 April 2009 | Related Practice Statements: PS LA 2008/15 | Subject References: Wine Equalisation Tax Producer Rebate Wine Wine producer General anti-avoidance rule Promoter penalties | Legislative References: A New Tax System (Wine Equalisation Tax) Act 1999 Division 19 33-1 A New Tax System (Goods and Services Tax) Act 1999 Division 165 Taxation Administration Act 1953 Schedule 1 Div 290 | Contact Officer: Wayne Barford Assistant Commissioner Business Line: Excise Section: Compliance and Interpretative Assistance Phone: (02) 9374 8881





Related documents: WETD 2011/1 | PS LA 2008/15 | Division 19 | 33-1 | Division 165 | Schedule 1 Div 290

The ATO view on the arrangement described in TA 2009/7 is set out in WETD 2011/1 . This document incorporates revisions made since original publication. View its history and amending notices, if applicable. | This Taxpayer Alert describes uncommercial and collusive arrangements where one or more growers use a contract winemaker, so each such grower can attempt to claim the WET producer rebate by retaining title to their produce and resulting wine, until a pre-arranged sale to the winemaker.