Did you know that wine production contributes over $45 billion annually to the Australian economy? With over 160,000 full and part-time workers, the Australian wine industry is considerably huge.
When it comes to the production of wine, not a lot of people know about the associated taxes. Sure, you must have heard about goods and services tax, but do you know about WET or wine equalisation tax?
Wine equalisation tax (WET) is levied on wine consumption in Australia, and it affects wine producers, importers and wholesalers. For people who are new to the sale and purchasing of wine, the wine equalisation tax can be quite confusing.
So, to help you know everything about WET, including how much you need to pay when to pay it and other information, we have decided to prepare a guide for you.
What is wine equalisation tax (WET)?
As per the ATO (Australian Taxation Office), any individual who produces wine imports wine into Australia or sells wine wholesale is liable to pay wine equalisation tax. It is calculated on the taxable value of the wine.
Wine equalisation tax or WET is levied at 29% of the wine’s wholesale value, and in the majority of cases, you will only have to pay WET if you are registered for GST.
WET is designed to be paid on the last wholesale sale of wine, which is generally between the wholesaler and the retailer. It may be applicable in other circumstances as well, for instance, cellar door sales or tastings, where there has been no wholesale sale.
Along with this, it is also payable on imports of wine (irrespective of the fact that whether the individual is registered for GST or not). As a wine wholesaler, you aren’t just subject to paying wine equalisation tax. There are other wine taxes as well, such as GST (goods and services tax) and excise tax.
When should you be registered for GST?
Most goods and services consumed or sold in Australia are subject to GST (which is currently 10%). The businesses (registered for GST) need to collect this extra tax from the customers and then pay it to the ATO when the due date comes.
In Australia, a business needs to register for GST if:
- The GST turnover exceeds $75,000 ($150,000 for non-profit organisations);
- The business provides taxi or limousine travelling services;
- Fuel tax credits are being claimed for the business.
If none of the above is applicable to you or your business, registration for GST is not mandatory. Along with this, in case your business changes due to which you no longer require the WET labels on your BAS (Business Activity Statement), you can go to ATO’s official website and cancel your WET registration.
On what products do you have to pay wine equalisation tax (WET)?
You might be surprised to know this, but not all alcoholic beverages or products sold in Australia are charged with wine equalisation tax. Only specific types of wine products with a volume of more than 1.15% of ethyl alcohol qualify for it, including:
- Grape wine (wine cocktails, vermouth, creams, sparkling and fortified wine)
- Wine to be fortified mustn’t have a volume of less than 22% alcohol and would be subject to WET.
- Fruit and vegetable wines
- Sake (an alcoholic beverage that is made by fermenting rice)
- Fermented beverages similar to wine (Perry, mead, cider)
It is worth noting that alcoholic drinks like spirits and beer aren’t a part of WET. However, they might be subject to other taxes besides the wine equalisation tax, such as excise and customs duties.
How is wine equalisation tax (WET) calculated?
You will have different methods to calculate wine equalisation tax depending on the type of sale.
Wholesale sales
When it comes to the wholesale sales of wine or wine products, the following method can be used:
The price of goods to be sold x 29%
The WET amount needs to be clearly shown on the buyer’s invoice to let them know that they are liable to pay wine equalisation tax.
If an earlier wholesale sale has taken place before the wine reaches the retailer, it is exempt from wine equalisation tax if the sale is either GST-free or the transaction happens under quote. An example of such a sale would be a sale from a winery to a distributor.
In specific circumstances, the buyer of the wholesale may quote their ABN (Australian Business Number), and in those particular cases, the sale may be exempt from wine equalisation tax (WET).
Retail sales
Retail sales can be made to the following:
- bottle shops;
- wine clubs;
- consumers (cellar door sales);
- hotels;
- cafes;
- restaurants and bars.
For determining wine equalisation tax on a retail sale, you will have to determine the notional wholesale selling price. You can calculate the notional wholesale selling price by the ways: half retail price and average wholesale price.
It is worth noting that for grape wine, any of these two method can be used. However, you cannot use the average wholesale price method for wine other than grape wine.
Half retail price method
Calculating the notional wholesale selling price using this method requires
- Working out 50% (half) of the retail value
- For retail sales, it is 50% of the sale price, which includes GST and WET.
- For your own use, it is 50% of what the price would have been if you decided to sell the wine by retail (including GST and WET).
- Multiplying this amount by 29% to figure out the WET payable.
The average wholesale price method
This method can only be used for grape wine, and that too, when the wholesale sales (in the relevant tax period) make a total of at least 10% by value of all the sales of grape wine, that is:
- Made from the same grape varieties or a blend of varieties as the grape wine (related to the retail sale or own use);
- Of the same vintages as the grape wine (related to the retail sale or own use).
In this method, the calculation takes into account the average of the prices of the wholesale sales along with the relative proportion of every kind of wine you sell. You will also have to consider the payments that may also reduce the selling price of the wine, such as incentives, discounts and rebates.
Wine producer rebate scheme
As an Australian wine producer, you may apply for the wine producer rebate (if you meet the eligibility criteria). The ATO lets wine producers claim a WET rebate or tax credit on the amount paid on a wine dealing or the amount of wine equalisation tax they would be required to pay if the buyer did not quote their ABN.
The producer rebate scheme applies to every product subject to wine equalisation tax, whether sold by retail, wholesale or applied to own use. The maximum amount a wine producer can claim is $350,000 per year (from 1 July 2018 onward).
For eligibility, different criteria are applied as per the winemaking process.
2018 and later vintage wine
In order to be eligible to claim the wine producer rebate, you have to:
- produce wine
- be liable to pay wine equalisation tax
- sell the wine in a container whose capacity is either five litres or less (51 litres for cider and perry) that is appropriate for retail sale and is also branded by a trade mark you own
- own the source product (unprocessed grapes, pears, apples, other fruit or vegetables, rice or honey) that makes up at least 85% of wine’s total volume
2017 and earlier vintage wine sold or dealt with from 1 July 2018
To be eligible for the wine equalisation tax (WET) producer rebate on 2017 and earlier vintage wines, you need to fulfil the above-mentioned criteria (for 2018 and later vintage wines). Along with those, you must:
- have owned the wine before 1 January 2018
- sell or deal with the wine before 30 June 2023
- Either placed the wine in the container before 1 July 2018 or sell or deal with the wine in a container displaying the vintage of the wine
Reporting and paying wine equalisation tax (WET)
You can report and pay WET amounts to the ATO and claim any credits in your BAS (Business Activity Statement) or annual GST return.
WET payable has to be reported at 1C ‘Wine equalisation tax’ on your BAS, and to claim a credit, you will have to complete WET refundable at 1D ‘Wine equalisation tax refundable’.
If these labels are absent on your BAS, you will have to register for WET.
Those who report and pay GST annually will need to report WET only when they complete their annual GST return. You must remember not to complete the WET section of your BAS in case you report and pay GST using the pre-printed instalment amount, as you have included your WET in this amount already.
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