WET Alert – Government’s Preliminary Position on What Constitutes a Winery
The Government’s preliminary position would limit WET Producer rebates to producers who:
- control (40% plus ownership) or lease (with a 3 year term) premises;
- a.where fermentation, clarification, blending or aging occurs; and
- b.which use 5 or more tonnes of grapes per annum; and
- sell the resultant wine, as a branded product, in a container not exceeding 5 litres.
Government’s Implementation Paper
Following our Alerts earlier this year, the Government has released an Implementation Paper for tightening the eligibility criteria for claiming Producer rebates. The proposed criteria will limit the rebate to producers who:
- sell branded wine, packaged in a container not exceeding 5 litres; and
- own or lease a winery (subject to the possible alternatives referred to below).
What is a Winery?
The Government proposes that a ‘winery’ would be limited to premises where:
- fermentation, clarification, blending or aging occurs; and
- the quantity of fresh grapes used in the manufacture of wine is not less than 5 tonnes in a year.
This definition would therefore exclude premises where only crushing or packaging occurs.
Owning or Leasing Requirement
The ownership requirement will be based on control. This would generally require a producer to have a 40% or greater stake in a winery. However, a producer may be able to demonstrate it has sufficient control over a winery in other ways, even if its interest is less than 40%.
The Government accepts that different types of leases – such as multiple, joint or sub-leases – may be acceptable. Even a multi-year lease, which allows the producer to use the winery for a few weeks each year when they harvest their vintage, may qualify. The onus will be on the producer to show that the lease is a proper commercial arrangement, and not simply a device to access the rebate. The Government has not specified a fixed term for such leases, other than to say that a 3-year lease may be sufficient, but a longer period may ultimately be more appropriate.
The Government accepts that the requirement to own or lease a winery may exclude many producers with a material stake in the wine industry. That requirement could therefore be contrary to the policy intent behind the Producer rebate. The Government has therefore raised two possible alternatives.
- Significant Interest Test
This would require producers to have a ‘significant interest’ in the winemaking industry, such as having a winery, vineyard, cellar door, winemaking equipment, regional business premises or employees in regional Australia. The Government has noted that the industry does not have a unanimous position as to what constitutes a significant interest. In addition, the ‘significant interest’ test may be difficult to implement and administer, may be easily circumvented, and could increase the complexity of the law in this area.
- Retention of Grape Ownership Test
- This would require producers to:
- (a) retain ownership of the grapes throughout the winemaking process; and
- (b) own or lease a winery, vineyard or cellar door. If this approach is adopted, the terms ‘vineyard’ and ‘cellar door’ would need to be defined.
Virtual Winemakers Likely Miss Out
It is likely that virtual winemakers, with no interest in physical assets, would no longer be entitled to Producer rebates, even though they own the grapes and wine throughout the process and have a substantial investment in a brand.
Cider, Perry, Mead, Sake, Fruit & Vegetable Wine and Grape Wine Products
The Government plans to apply the same principles to the production of cider, perry, mead, sake, fruit and vegetable wine and grape wine products. However, the requirement that the winery must use 5 or more tonnes of fresh grapes in the manufacture of wine may need to be adjusted. In addition, the packaging requirement (no more than 5 litres) may need to be increased to 51 litres (as some of these products are sold to hotels in 51 litre kegs).
The Government has requested submissions on the eligibility criteria outlined in the Implementation Paper by 7 October 2016.
If you would like to discuss how the proposals in the Implementation Paper could affect your wine business, or if you would like us to assist you make a submission, please do not hesitate to contact us.
This Alert is intended as an alert only. It does not purport to be comprehensive advice. Readers should seek professional advice before acting in relation to these matters.