In Summary…
- New eligibility criteria for claiming producer rebates and new quoting/WET credit rules will apply to the 2018 vintage.
- New 85% ownership requirement will apply to 2017 and earlier vintages sold after 30 June 2023.
- Grapes purchased on a ‘retention of title’ basis will not satisfy the 85% ownership requirement.
- Supply chains involving multiple wholesalers may prevent producers claiming the rebate.
- Pooling of grapes will also likely prevent producers claiming the rebate.
Main Issues with WET Reform
A large number of practical issues regarding the WET reforms were raised during the recent Finlaysons Wine Roadshow. We set out below what we consider to be the 5 main issues raised.
1. New eligibility criteria and quoting rules will apply to 2018 vintage
If the crushing of grapes for more than 50% of a wine (measured by volume) occurs on or after 1 January 2018, the new eligibility criteria for claiming producer rebates will apply to that wine—even if it is sold prior to 1 July 2018. The Tax Office has also confirmed to Finlaysons that the new quoting and WET credit rules will apply to such wines.
The upshot is that the WET reforms will apply to 2018 vintage wines from 1 January 2018.
This will mean that bulk wine made from the 2018 vintage will not be eligible for the producer rebate even if sold before 1 July 2018. Bulk wine producers may therefore need to consider either blending 2018 bulk wine with earlier vintages or bottling 2018 bulk wine (with their own label), if they potentially want to be eligible to claim rebates on sales of that wine.
2. 2017 and earlier vintages (excluding fortified wine) sold after 30 June 2023
The ‘85% ownership of source product’ requirement will not apply to 2017 and earlier vintages provided: (1) the producer owned the wine immediately before 1 January 2018; (2) the wine is sold on or before 30 June 2023; and (3) the wine was bottled on or before 30 June 2018 or labelled with a vintage date as being for the 2017 or an earlier year.
Although this is quite a concession for table wines, some concern has been raised with respect to ‘Museum Releases’ and ‘Sparkling Wines’ that will be released after 30 June 2023.
In particular, producers may not be eligible to claim producer rebates on those wines if they have not retained sufficient records to prove that at least 85% of those wines (by volume) originated from grapes the producers owned before crushing, and that they continued to own the resultant juice/wine from those grapes throughout the winemaking process.
The Tax Office will hopefully release guidance in the near future on the record-keeping requirements in such circumstances.
3. Retention of Title (ROT) clauses in grape supply contracts may prevent producers claiming producer rebates
After some confusion following the release of the WET reforms, it now seems settled that grapes purchased on a ‘retention of title’ basis will not be treated as owned until payment for those grapes has been made. Producers that purchase grapes, on that basis, to make wine, will therefore not own the source product (i.e. grapes), used to make their wine, before crushing. Accordingly, those producers will not satisfy the 85% ownership requirement, and will not be eligible to claim producer rebates on that wine.
Grape supply contracts will therefore need to be drafted to ensure that title passes before crushing, even if payment terms are delayed.
4. Multiple wholesaler supply chain may prevent producers claiming producer rebates
If a producer sells to a wholesaler under quote, who in turn sells to another wholesaler under quote, the producer will not be eligible to claim a producer rebate on the supply it makes to the first wholesaler. However, the final sale from the second wholesaler to a retailer will still be subject to WET. This could create a number of distortions and place particular pressure on the distributor model.
It may be possible to restructure the manner in which quotations are issued to avoid that outcome. However, as that would involve multiple parties altering their existing administrative arrangements, it may be difficult to achieve in practice. Consideration would also need to be given to whether the anti-avoidance rules could apply to prevent producer rebates being claimed under such a restructure.
5. Pooling of grapes/wine may prevent producers claiming producer rebates
It is possible that producers who pool grapes and/or wine to make a particular product will fail the 85% ownership requirement with respect to the resultant wine and will not be eligible to claim producer rebates with respect to that wine. We hope the Tax Office will provide further guidance as to how they will deal with this issue in the near future.
We trust the above provides a useful summary of a number of the ‘headline issues’ that have been raised by or with Finlaysons.
We expect the legislation will give rise to a number of other practical questions.
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.
