Budget Changes To End Wine Tax Exploitation

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21
Jul

Budget Changes To End Wine Tax Exploitation

21.07.16

In the 2016 budget, the government announced much awaited reforms to the WET producer rebate.  This should be welcomed by the wine industry, especially smaller wine producers who have aggressively pushed for changes over the past two years.

 

The WET rebate was originally designed to support small regional wine makers by allowing them to claim up to $500,000 of the tax they paid on wholesale wine.  Unfortunately the rebate opened up an avenue for larger companies and individuals to exploit the tax system, an issue that has been addressed by reforms in the 2016 budget.

 

The major changes to the WET rebate are as follows:

  • The WET rebate cap will be reduced from the current $500,000 per annum to $350,000 on 1 July 2017 and to $290,000 on 1 July 2018. This reinstates the original $290,000 WET rebate cap which was introduced by the Howard government in 2004 before it was raised to $500,000 by former treasurer Peter Costello in 2006 due to lobbying by larger wine makers to expand the WET rebate scheme.
  • Tightened eligibility criteria will be introduced to apply from 1 July 2019.  In particular, wine producers must own a winery or have a long-term lease over a winery and sell packaged, branded wine domestically in order to receive the rebate. This will mean that virtual winemakers, including large wine distributors and wholesalers who buy bulk wines and blend to manufacture new wines, may no longer be entitled to the rebate. Currently these winemakers are able to utilise the WET rebate to reduce the wholesale price, as they do not have the infrastructure costs of maintaining vineyards.

 

The final details on the tightened eligibility criteria, including the definition of a winery, is yet to be finalised.  Based on the guidance to date, it would appear that the intention of the revised legislation would be to exclude unbranded and bulk wine from the regime.  

 

New Zealand winemakers will still be entitled to claim the WET rebate under the new tightened criteria. This may anger their Australian counterparts but it is understood that to remove NZ from the rebate scheme, the government would have had to abolish the rebate entirely and introduce a pure grant program. The government was also concerned if they locked New Zealand out of the scheme, it could place Australia in breach of its trade deals.

 

Also in a win for the domestic wine industry, the government will provide $50 million over four years to the Australian Grape and Wine Authority in an effort to promote Australian wine overseas and wine tourism within Australia. The funding will be provided from 1 July 2016 and will open the way to utilize new opportunities through free trade agreements and will increase current wine exports, which constitute around 60 per cent of wine produced in Australia.

 

These changes could affect the profitability of certain wineries and impact their current business model, pricing and operational strategies.  Wineries will eagerly await the final details of the tightened eligibility criteria to ensure they are still eligible to receive the rebate and assess the impact on their winery business.

 

If you have any questions in relation to the above, please contact your ESV engagement partner on 02 9283 1666 to discuss this further.