Issue
Where the owner of grape wine supplies to a contract winemaker the grape wine and other materials and specifications necessary for the contract winemaker to manufacture a grape wine product, is the owner of the grape wine from which the grape wine product is made the 'producer' of the grape wine product for the purposes of Division 19 of the A New Tax System (Wine Equalisation Tax) 1999 (WET Act)?
Decision
Yes. Where the owner of grape wine supplies to a contract winemaker the grape wine and other materials and specifications necessary for the contract winemaker to manufacture a grape wine product, the owner of the grape wine from which the grape wine product is made is the 'producer' of the grape wine product for the purposes of Division 19 of the WET Act.
Facts
An entity (the owner) supplies grape wine and other materials to a contract winemaker.
The owner also provides a 'recipe' for making a grape wine product.
The contract winemaker produces a grape wine product on behalf of the owner, to the owner's specifications, using the owner's grape wine and other materials.
The contract winemaker does not own the supplied grape wine and other materials.
Reasons for Decision
Division 19 of the WET Act sets out the circumstances where wine producers are entitled to a rebate for certain dealings with wine. The rebate is provided in the form of a wine equalisation tax (WET) credit.
Section 19-5 of the WET Act provides that you are entitled to a producer rebate for rebatable wine for a financial year if you are the 'producer' of that wine.
The term 'rebatable wine' is defined in section 33-1 of the WET Act to mean grape wine, grape wine products, fruit or vegetable wine, cider or perry, mead or sake, all of which are separately defined in Subdivision 31-A of the WET Act.
In this case, the product that is manufactured is a 'grape wine product' as defined by section 31-3 of the WET Act.
'Producer' is defined in section 33-1 of the WET Act as: producer, of rebatable wine, means an entity that manufactures the wine or supplies to another entity the grapes, other fruit, vegetables or honey from which the wine is manufactured
The definition of 'producer' focuses firstly on whether the entity 'manufactures' the wine, and secondly on whether the entity provides the 'grapes, other fruit, vegetables or honey, from which the wine is manufactured'.
The term 'manufacture' is defined in section 33-1 of the WET Act. The definition expands the ordinary meaning of manufacture to include: ... (a) production (b) combining parts or ingredients so as to form an article or substance that is commercially distinct from the parts or ingredients (c) applying a treatment to foodstuffs as a process in preparing them for human consumption but does not include any prescribed combination of parts or ingredients.
Where a grape wine product is produced from grape wine, a new commercially distinct product has been made.
As the contract winemaker manufactures the grape wine product on behalf of the owner, they satisfy the description of 'producer' as defined in the WET Act.
However, section 19-5 of the WET Act provides that a producer will only be entitled to a producer rebate for wine where the producer is liable to WET for a taxable dealing with the wine, or would have been liable to WET had the purchaser not quoted in relation to the wine at or before the time of sale.
The Assessable Dealings Table in section 5-5 of the WET Act sets out all of the dealings with wine that can be liable to WET. In this case, the contract winemaker provides the owner with contract winemaking services and facilities only (as opposed to the grape wine product itself). This is not an assessable dealing. As such, despite being a 'producer' of the grape wine product, the contract winemaker will not be eligible to claim the rebate.
The owner does not physically manufacture the grape wine product. However, the owner provides the requisite materials and specifications for the grape wine product to be manufactured, and the engagement of the contract winemaker is akin to engaging an employee to undertake the physical tasks of manufacture. Although the owner does not carry out any of the physical processes of manufacture personally, by causing the grape wine product to be manufactured on their behalf, the Commissioner considers the owner to have undertaken the manufacture.
The second limb of the definition of 'producer' sets out specific raw materials a person may provide to another entity; namely 'grapes, other fruit, vegetables or honey from which the wine is manufactured'. The Commissioner is of the view that the purpose of this second limb is to avoid any doubt about whether an entity that provides these things to another entity to be made into wine on their behalf is a producer of the wine for the purposes of Division 19 of the WET Act. The existence of the second limb does not automatically preclude forms of contract winemaking other than those set out in the second limb of the definition from being considered to be manufacture.
The Commissioner considers that where a person causes grape wine product to be manufactured by providing to a contract winemaker the grape wine and other materials and specifications necessary for the manufacture of the wine, the person 'manufactures' the grape wine product. Therefore, where the owner of grape wine supplies to a contract winemaker the grape wine and other materials and specifications necessary for the contract winemaker to manufacture a grape wine product on their behalf, the owner of the grape wine from which the grape wine product is made is a 'producer' of the grape wine product for the purposes of Division 19 of the WET Act.