Finlaysons Tax & Revenue Associate Tom Hendrick discusses what constitutes “wine” for tax purposes and its regulation under the Food Standards Code: Wine or Wine Product? Labelling and Tax Ramifications – WET regime or excise regime? Tom presented a seminar on this topic for Legalwise at the recent 6th Annual Wine Law Conference.
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Let me start by asking you a deep, philosophical question:
What is wine?
If you’re my friend Alex, it’s either “red” or “white”. If you’re Anna, it could be a genuine champagne,[1] port[2] or prosecco.[3] And for Matthew we’re talking about a full bodied Moscato.
But if you’re like me—an insufferable lawyer (specifically, a tax lawyer)—then “wine” takes on its statutory meaning.[4] Which is always a good phrase to casually drop into dinner party conversation I find.
Assuming that no one at the dinner table stops me at this point, I continue by saying that “wine” could mean “grape wine”, “grape wine product”, “fruit or vegetable wine”, “cider”, “mead” or “sake”. In which case, and very technically speaking, “grape wine” is:
(1) a beverage, that, (a) is the product of the complete or partial fermentation of fresh grapes or products derived solely from fresh grapes; and (b) contains between 1.15% and 22% alcohol by volume. (2) A beverage does not cease to be the product of the complete or partial fermentation of fresh grapes or products derived solely from fresh grapes merely because grape spirit, brandy or both grape spirit and brandy, have been added to it. [Emphasis added.][5]
For the remaining guests who haven’t excused themselves from the conversation, the Food Standards[6] and Wine Equalisation Tax (WET) legislation determine how wine is made, sold and taxed in Australia. Interestingly (at least to me), the two types of legislation also define “wine” differently. Therefore, it is possible to have products taxed as “wine” but not able to be sold under the Food Standards at all. On the other hand, something may be sold as wine but may not meet the definition of “wine” for tax purposes.
Very briefly (too late!), alcoholic beverages that do not meet the very specific definition of “wine” under the WET legislation will be taxed under the Excise legislation[7] and will require a “licence to manufacture” from the ATO.[8]
If this all sounds complicated, then you might want to crack open a bottle of wine, as we haven’t even discussed what a “beverage” is yet!
Wine is a beverage
As above, “wine” is “a beverage”, which is not defined in the legislation and therefore takes on its ordinary meaning.
Justice Lockhart in the case of Bristol-Myers,[9] clearly had a lot of fun deciphering this legal question; as can be seen from his opening line and his references to Shakespeare sonnets sprinkled throughout. In that case, “Sustagen Gold” (a liquid-food milk-based breakfast snack, complete with box and straw) was found to be a “beverage”, as opposed to a food, for Sales Tax purposes (now GST). In particular, a beverage is:
… a drink of any kind … liquid which is swallowed to quench thirst or for nourishment.”[10]
Contrast with: “gravy, sauce, syrup or soup” – which are “borderline substances” which may be considered “beverages” through the power of “modern marketing techniques” as “fashion and standards of life change”.[11]
Wine is the product of fermentation of products derived solely from fresh grapes
In a recent Federal Court decision,[12] Justice Davies settled a long held debate about what is “wine” for tax purposes, stating at [59]:
… Critically, the statutory definition of “grape wine” does not impose any requirements as to the appearance, state or other characteristics of the final product, other than the requirement that for the beverage to be produced from the fermentation of fresh grapes or products derived solely from fresh grapes…
In other words, there is no ordinary meaning of “wine” or “essential character test” (as the ATO argued). What the clean language of the WET legislation says is, exhaustively, “wine” for tax purposes.[13] In that case, a clear, colourless, odourless, but (importantly) grape based product was “grape wine” under the WET legislation.
If this strikes you as odd, remember that “wine” includes “grape wine”, “grape wine product”, “fruit or vegetable wine”, “cider”, “mead” or “sake”. A wide host of beverages other than “red” or “white” table wine fall into this regime; like irish creams, imitation liqueur cocktails, dandelion wine, etc.[14]
Any questions?
In addition to the definition of “grape wine”, the other subcategories of “wine” mentioned above have their own specific and peculiar meanings under the WET and Food Standards legislation.
Depending on how the product is made (and sometimes even advertised!) it may fall foul of the WET, Excise or Food Standards legislation.
Furthermore, this article does not consider the legal implications of selling wine, which entails a whole other level of complexity.
If you (unlike my dinner party guests) are interested to learn more amount the laws surrounding alcoholic beverages, please feel free to contact me.
Tom Hendrick is an Associate in Finlaysons’ Tax and Revenue Team in Adelaide. Tom joined Finlaysons after working as a tax technical officer with the Australian Tax Office (ATO) for two years. He has a unique skill set, having worked on public / private rulings and tax disputes from both sides of the fence. Throughout his career he has advised taxpayers all across Australia, as well as ATO staff and other government departments. Tom also works on a range of state and federal tax matters and assists clients with tax-effective structuring, rulings, audits and objections. Tom is also an Emerging Leader of The Tax Institute and an active member since 2015. Connect with Tom via tom.hendrick@finlaysons.com.au or via LinkedIn
Disclaimer
The information in this paper is of a general nature only and is not intended to be a complete and definitive statement of the law. It does not address the specific circumstances of any particular entity. It is not intended to be, and should not be regarded as, legal advice.
[1] Register of Protected GIs and Other Terms, Part 1, France: “champagne”.
[2] Register of Protected GIs and Other Terms, Part 1, Portugal: “Port or Porto…”.
[3] See Wine Australia Article: https://www.wineaustralia.com/news/articles/prosecco-what-is-the-deal
[4] For plain English commentary on “wine” for WET purposes, see the ATO’s WETR 2009/1; https://www.ato.gov.au/law/view/document?ocid=WTR/WT20091/NAT/ATO/00001
[5] A New Tax System (Wine Equalisation Tax) Act 1999 and Regulations 2000, sections 31-1, 31-2, and regulation 1-2.01.
[6] Australia New Zealand Food Standards Code.
[7] See “other excisable beverage” under The Schedule to the Excise Tariff Act 1921. For plain English commentary, see Chapter 12 of the ATO’s Excise Guidelines for the Alcohol Industry: https://www.ato.gov.au/law/view/document?DocID=SAV%2FALCOHOL%2F00013. Note: the current rate for “other excisable beverages is $84.54 per litre of alcohol (not $83.84 as indicated). Rates are subject to change twice a year.
[8] See Chapter 2 of the Excise Guidelines for the Alcohol Industry.
[9] Bristol-Myers Company Pty Ltd v FCT (1990) ATC 4554.
[10] Ibid, [4556].
[11] Ibid, [4557].
[12] DBHL v FCT (2018) ATC 20618.
[13] Ibid, [72].
[14] See for example, paragraph 20A of WETR 2009/1.
