ATO Examines Australian Wine Tax Arrangements

by Mary Swire, Tax-News.com, Hong Kong

02 April 2009

Australia's Tax Commissioner Michael D’Ascenzo has warned the wine industry that the Australian Taxation Office (ATO) is examining two arrangements that attempt to reduce the amount of Wine Equalization Tax (WET) paid, or to claim the WET producer rebate.

”We know these arrangements are in the market and are warning wine growers, producers and retailers to be cautious about entering into these arrangements as they may be ineffective under the law,” Mr D’Ascenzo explained.

Use of uncommercial indirect marketing arrangements to reduce WET

Under this arrangement, a wine retailer uses an interposed (and non-arms length) marketer to buy wine from suppliers in an attempt to reduce their WET liability. The wine retailer then sells the wine through its retail outlets as an agent for the marketer.

The marketer calculates the liability for WET using the half retail price method rather than on the wholesale selling price which results in a lower tax liability.

Uncommercial contract winemaking arrangements to claim the WET producer rebate

In this arrangement, growers of grapes (or fruit or vegetables) enter into a contract with a winemaker to convert their produce into wine.

Under the contract the grower retains the rights to the produce until the wine is sold via a pre-arranged sale to the winemaker. The grower attempts to claim the WET producer rebate which is only available to producers, not growers.

The ATO has assured those who are unsure about their WET obligations that they can seek independent advice, or request a private ruling from the Tax Office.

Further to this, it has been revealed that taxpayers who have entered into such an arrangement who disclose their involvement to the Tax Office before they are contacted for an audit will be entitled to a reduction in any penalties that may apply.

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