ATO consultation: Excise implications for brewers and other alcohol producers - Updated Draft Determination
Understanding the taxation changes
Following our earlier article on the Australian Taxation Office’s (ATO’s) Draft Excise Determination regarding the addition of water to beer, the ATO has now taken further steps to clarify its position. These developments are particularly relevant for brewers and alcohol producers navigating the complexities of excise classification and compliance.
In this latest update, the ATO has:
- Withdrawn its previous Draft Excise Determination on the addition of water to beer (ED 2024/D1W); and
- Issued a new Draft Excise Determination (ED 2024/D2) concerning the same topic, now also providing the Commissioner’s view as to the “integral attributes of beer”.
The key issue is the classification of the alcoholic beverage for excise purposes. That is, when is a beer as defined, not a beer? While there is a statutory definition of beer in the Excise Tariff Act 1921 it’s not an exhaustive one, which leaves room for the interpretation of what constitutes a beer.
In this updated Draft Excise Determination, the ATO is attempting to address its view of the apparent mischief of some manufacturers which make alcoholic beverages from a beer base and pay excise at the (lower) beer rate rather than the higher excise rate for “other excisable beverages”.
There is a considerable difference between the two excise rates (current, August 2025 rates):
- Beer in individual containers that has an alcoholic volume in excess of 3.5 per cent attracts an excise rate of $62.56 per litre of alcohol over 1.15 per cent by volume,
- Other excisable beverages attract $105.98 per litre of alcohol.
What’s new?
The ATO appears to have moved away from a focus on the connection between the fermentation process of beer and the final product (that is, concerned with how the beverage is manufactured) and is now looking to the nature of the final product (“conventional understanding of beer”) to guide excise classification.
The position draws on the decision in Divas Beverages Holdings Ltd v Commissioner of Taxation [2018] FCA 576, which while concerning a wine based product, dealt with the classification of a fermented beverage for wine equalisation tax purposes, ultimately finding the end product was determinative of the classification of the product, rather than examining the product at an intermediate stage of manufacture (supported by Esso Australia Resources Pty Ltd v The Commissioner of Taxation [2011] FCA 360 & [2011] FCAFC 154 in a petroleum excise context).
The ATO had initially looked at a formulaic approach to the final product (e.g. if the unfermented content exceeds the fermented content, then the product is not beer), their current position examines the final beverage’s integral attributes.
The ATO is no longer seeking industry consultation on this draft determination and expects to finalise this determination in December 2025.
How BDO can help
If you have concerns about how these draft positions may impact your business or would like assistance to make an unsolicited submission to the ATO, contact our customs, international trade & excise team to discuss how we can support you.
