Question (Wine & Tax)

[Ratcatcher]

I understand how WET works (as an aside Liberal Senator Eric Abetz wrote to the Hobart Mercury congratulating himself and the Liberal Party for easing the WET burden on small wineries after the last election which did assist a lot of Tassie wineries - Hello! It was your party that actually introduced this unfair tax and finally after 6 years decided to modify it slightly when the wine industry had been pointing out it's deficiencies for 5 years - don't congratulate yourself for that)

Anyway, back to my original question.

How are wineries "penalised" for holding wines back before release? How does that work?

[Guest]

I don't think wineries are penalised for holding wines back before release. I think that may have been an issue with Sales Tax but not with GST/WET.

It is all well and good to blame the Government for introducing WET but the lobbying effort by the wine industry leading up to the introduction of GST wasn't exactly persuasive

[Ratcatcher.]

Sorry, but I've read in several books, magazines and websites how it costs wineries money in tax to hold wines in their cellars before releasing them and it's only been since the introducton of GST/WET

I just want an explanation of how it works. I'm hoping someone with some facts could give me an explanation rather than someone just eagerly defending the Government.

BTW - what evidence do you have about the wine industry lobbying not being persuasive. That seems a pretty glib remark with no substance to back it up.

Even if they weren't very persuasive prior to it's intro (and I don't accept that they were) they had certainly been pointing it out to the Libs for the past 5.5 years. They could have "fixed" it 4.5 years ago rather than 6 years down the track.

Anyway, I wasn't criticising them for introducing it. Just criticising them for expecting us to congratulate them for belatedly amending it.

You should have a read of Jame's Halliday's article about it on the winepros site.

[707]

Ratty, I'm sure one of our winemaker forumites will give the correct story.

I think that taxes on held wines was one of the reasons companies like Yalumba stopped making VP in the Hawke government days so it's been around a while.

[Ratcatcher]

I think it may have something to do with Capital Gains Tax but I'm not sure. But I'm pretty sure it's only been the case for 5-6 years so it must have been some change to CGT.

[TORB]

In the old days, the taxes were paid when the wine was sold. Keating or Hawke, I can't remember which one, changed the rules and made it paid when it was made, ie about the time it went to barrel. That put cash flow pressure on the winery who had to find the tax money far earlier which in turn made many of them look for ways to get the product out the door faster.

GST pay only be payable on sale, but the WET is probally payable when its made and the WET is a far higher tax than the GST.

As to the "wine industry lobbying not being persuasive" just ask any of the 90% of winemakers that were swearing about it at the time. Without exception, ever winemaker I spoke to about it , and it was quite a few, thought it was a pretty weak effort.

[smithy]

For smaller wineries with sales under 1 Million "Wholesale" we are now WET exempt. This equates to 2 Million cellardoor /mailorder sales. Bigger wineries have the first Million WET exempt, then a sliding scale with the state cellar door rebate only kicking in .

WET is 29% on the nominal wholesale value (half cellardoor) Being 14% state and 15% federal tax.

As everything else its plus GST.

My understanding is that tax on stock has gone by the wayside, what you are taxed on is increasing the value of your stocks (like everyone else)
It is a bit tough if your'e trying to build up stock so you can sell wines with a bit of age on them.

The only people to get around increased value of stock is the cheesemakers (Blessed are the....) , and we could argue that wine industry should get the same sort of hand. But to be perfectly frank, for little wineries to be GST only is the best position we've ever had in the last 20 years, so I'm not bitching!

Cheers
Smithy

[smithy]

For smaller wineries with sales under 1 Million "Wholesale" we are now WET exempt. This equates to 2 Million cellardoor /mailorder sales. Bigger wineries have the first Million WET exempt, then a sliding scale with the state cellar door rebate only kicking in .

WET is 29% on the nominal wholesale value (half cellardoor) Being 14% state and 15% federal tax.

As everything else its plus GST.

My understanding is that tax on stock has gone by the wayside, what you are taxed on is increasing the value of your stocks (like everyone else)
It is a bit tough if your'e trying to build up stock so you can sell wines with a bit of age on them.

The only people to get around increased value of stock is the cheesemakers (Blessed are the....) , and we could argue that wine industry should get the same sort of hand. But to be perfectly frank, for little wineries to be GST only is the best position we've ever had in the last 20 years, so I'm not bitching!

Cheers
Smithy

[Guest]

Smithy has nicely answered the timing of GST/WET so I won't go into that. Maybe someone can add to the old Sales Tax rules. I should think that wine makers would have adopted the common practice of having a wholesale company and a "retail" company to lessen the Sales Tax impost. That would however have brought forward the time of payment and been a deterrent to holding wine for ageing.

Capital Gains Tax would not apply to the holding of or sale of wine by a wine maker.

Ratty, that was not a glib statement about the lobbying effort, I was very much involved with the tax reform process but not for the wine industry. I took an interest in what was happening to the wine industry beacause I like wine

Quoting from a submission to the Government at the time the tax reforms were being developed by the Winemakers Federation of Australia:

"The Tax Package announced the creation of a Wine Equalisation Tax (WET) to replace the difference between the current 41 per cent wholesale sales tax and the proposed GST. This position, which amounts to a revenue neutral position is supported by industry."

If I recall correctly, the original exemption for small wineries was one that Meg Lees fought for rather than the industry though I daresay she is well connected to the small winemakers in South Australia.

[smithy]

If my memory serves me properly....ANTS came in on 1.7.00 didn't it.

That was a lot of bottles ago!

Under the old sales tax rules every sale was a seperate sale.

Wholesale was Wholesale value plus sales tax
Cellar door was subject to sales tax on half the cellar door sale price, with a cieling below which you didn't pay on CD sales.

Lobbying government on taxes goes way back (even before Meg Lees!)
and the Australian Winemakers Federation has been at the front of the fight on tax. What happened with the WET was that the government/ treasury split the industry on the form the tax was to be applied. There was a huge bunfight over Volumetric or Value based tax sytems.
Volumetric would have been a huge advantage for smaller wineries selling at top end who didn't have good cellardoor mailorder sales. Especially Tassie and WA based wineries.

They wanted an advantage in the eastern wholesale market which their prices and the sales tax system priced them out of. Didn't they put up a figt! Treasury did the divide and conquer bit.... and we had a WET which was even higher than the sales tax scheme it was supposed to replace!

Cheers
Smithy

[Ratcatcher]

8)



My understanding is that tax on stock has gone by the wayside, what you are taxed on is increasing the value of your stocks (like everyone else)
It is a bit tough if your'e trying to build up stock so you can sell wines with a bit of age on them.

So in summary, you produce 2000 cases of wine at a value of $20/bottle but if you hold them back for 5 years before release and their value has increased to $30/bottle you have paid tax on $20 in the year of production and then pay tax on the $10 increase over the 5 years that you are holding onto them? Is that right?

So it's essentially a cash flow problem? You keep paying tax on wines for 5 years and don;t get any return until the 5th year.

If that's not right, them I'm still not getting it. If I'm on the wrong track can someone set it out in really simple terms.

[Ratcatcher]

Further to my little aside about Senator Abetz, this is from James Halliday's article on Winepros about lobbying to have WET removed from small producers.

"The proposal is that the first 600 000 litres of each winery (or group) would be exempt. The cost to the government would be $104 million, or 16 per cent of current WET receipts. By chance, the additional tax collected by the government as a consequence of the change to the GST/WET structure, said by the government to be revenue neutral, was in fact $100 million. So it is no more than giving back a windfall tax take."

So what the Libs have done is collected an extra $100 million per year from the wine industry and indirectly from wine consumers for 5 years and then decided to give it back and then expected the industry and the public to thank them and congratulate them for being so generous. I could have swallowed all this if Abetz hadn't had the gall to brag about it and expect to gain politically from giving back something that he had taken away in the first place.

To me it's like a retailer over charging you for something for 5 years, getting caught out, and then expecting you to thank him for now charging you the correct price after taking advantage of you for 5 years and then expecting you to remain loyal to his business.

So yes it's good that they've finally done it but don't expect us to thank you for ripping $500 million out of the wine industry for 5 years to finance the other areas where you have spent money to obtain votes.

BTW when do the changes take effect? 1/7/05? Will small producers be able to reduce their prices slightly?

[Guest]

Ratcatcher,

Basically paying tax on stock on hand is like paying tax on extra money sitting in your bank a/c at the end of the financial year.Its called profit.
Lucky for us its not based on ultimate price but on cost of production, doing it properly is to use Full Absorbtion Costing where all the costs are shared over the production.

So if at the 30th June 05 you have $150,000 in stock (at cost) and last year $100,000 : you have an extra $50,000 to pay tax on.

Same principal with farmers having an extra 50 head of cattle.

You don't want to look at whose best or worse when it comes to wine taxation (both are shockers!) and in my head full of cr@##@p I have most of the history and who did what.

Incidentally, Yalumba ditched there VP cheap when Hawkey did the Excise thing on fortified wine....very bad times in Rutherglen letme tell you!

Cheers
Smithy

[Bob]

Hi all,

Maybe someone can help me with a question.

I have wine shipped once or twice a year (11 cases at a time) from Oz to Japan, and the retailer deducts the GST and WET (on the last shipment it amounted to a discount of 24.3% off the total retail price). From what forumites have been saying here, it appears that changes are being made in the WET. Can anyone tell me if that means less discount, i.e, higher cost for me?

The high value of the A$ (it was 66 yen when I started shiping from Oz and it is now about 80 yen) is already putting a bit of a pinch on my wine budget. Thanks.

[smithy]

Sorry Bob, The WET was given back to smaller producers to cushion them from changed market enviroment and to fund growth.

Specifically it is not to discount our wines to make them more attrctive to purchasers than the bigger wineries.
Should smaller producers use this to pass it on to consumers the tax office can say we didn't need it anyway and reapply it!

In other words Bob you won't get your wine any cheaper--sorry


Cheers
Smithy

[Bob]

Thanks Smithy, but I wasn't expecting to get my wine cheaper, just hoping that it won't end up costing me more. Or just as bad, that changes in the WET would push me more toward big wine 'companies' than small winemakers.

What I mean is, if the changes mean that I get the GST + WET discounted from a $20 bot of say Seppelt but only the GST discounted from a $20 bot of say Warrabilla (my retailer hasnÂ’t had it, so I have yet to try any, but I've heard good things; maybe a restaurant will have it when we're in Melb in May?) so that the Seppelt costs me about $15 and the Warrabilla costs me about $18 (plus $11 ship and customs for either), then I'll be tempted to go for the bigger wineries; maybe not for a single bot, but in overall volume, meaning a bigger portion of the 16 or so cases shipped directly each year.

I guess it is pretty wimpy to let my pocket rule my palate, but I'm afraid it just does.

[smithy]

Bob
In theory you won't see any changes in price due to the WET changes.
You will see changes in price due to the Southcorp/ Fosters moves...Biggies! And it will have flow on effects to us all... after all they have wines at all pricepoints and we will see lines dumped/ labels gone and wineries closed.

We sell very little wholesale because up to 1.10 .04 we recieved pretty close to twice the price for cellardoor mailorder than wholesale. Now its a lot more even with the WET changes.

Cheers
Smithy

[bacchaebabe]

Bob,

Just think your question needs a bit of clarification. These taxes are only applicable in Australia, not if they are exported, I believe. So you are getting a rebate or not paying the tax in the first place.

It shouldn't change how much you pay, as the base cost of the wine has not changed and it is a percentage of that.

With the GST, it's like getting it duty free. If the WET is applied, you don't pay it and if it isn't applied because it's a small winery, you don't pay it either and nor do we.

If you look at Gavin's retail site, there are local prices and export prices (which are cheaper due to no GST and WET). If the amount of WET is reduced, it will only have a local effect on the price as you don't pay it anyway.

[Guest]

What a load of ignorant rubbish. Ratcatcher, your initial premise and your conclusion unjustified by any interim contribution are both wrong.

[Guest]

What a load of ignorant rubbish. Ratcatcher, your initial premise and your conclusion unjustified by any interim contribution are both wrong.

[Bob]

If the WET is applied, you don't pay it and if it isn't applied because it's a small winery, you don't pay it either and nor do we..

Kris,

Thanks for the info, but it still seems to me that changes in the WET might change my buying patterns.

If the WET is not included in the local Oz price of wines from small wineries, it seems that if I see a wine from a large winery and one from a small winery both priced in Oz at $40, the one from the large winery will cost me about $30 after rebate of both the GST and WET, but the one from the small winery will cost me about $36 after rebate of only the GST (because there is no WET included in the local price).

I have been counting on the GST+WET rebate to offset the shipping ($9/bot when shipping 11 cases at a time) and import duties (about $2/bot), enabling me to buy the wine at almost the same price as in Oz. If there is no WET rebate, it is going to seem more expensive.

Maybe the small wineries have such a better qpr that I should not worry about the loss of the WET rebate, but there is a part of my mind that will be hard to convince.

[Ratcatcher]

Well Anonymous Guest you've added so much to the discussion with those comments. It must have taken ages for you to prepare such well presented arguments. They had so much substance to them you've completely changed my mind on this issue.