ATO consultation: Tax implications for cider, perry, and beer producers

ATO consultation: Tax implications for cider, perry, and beer producers

Understanding the taxation changes

The Australian Taxation Office (ATO) is currently consulting the alcohol manufacturers and alcohol importers industry on the tax implications of adding water and other substances to cider, perry, and beer. This has been a contentious issue, with uncertainty over whether these beverages should be taxed under the Wine Equalisation Tax (WET) regime or the excise regime.

Draft determinations published

This month, the ATO has released two draft determinations: one for cider/perry (WETD 2024/D1) and another for beer (ED 2024/D1). The aim is to finalise these determinations by the proposed start date of 1 July 2024. It is crucial for affected businesses to review these changes and consider their impact carefully.

Wine equalisation tax: the addition of water to cider or perry

Under the A New Tax System (Wine Equalisation Tax) Act 1999 (WET Act), cider and perry are taxed if they meet specific statutory definitions. A critical aspect of this definition is that the beverage must be:

“…the product of the complete or partial fermentation of the juices or must of apples or pears…”

The ATO’s draft position allows for the addition of water, pre-fermentation, to reconstitute concentrated apple or pear juice to a naturally occurring undiluted level without affecting the definition. However, adding more water, pre-fermentation, could result in the beverage being taxed under the excise regime, which is based on a per litre of alcohol rate.

Furthermore, the addition of water or other unfermented substances post-fermentation should be limited so that the finished product contains at least 50% of the fermented substance. Failure to meet this threshold could lead to taxation under the excise regime.

Alcohol excise: the addition of water to beer

Beer, including ‘hard seltzers’ or ‘alcoholic seltzers’, falls under the Excise Tariff Act 1921. The statutory definition of beer permits the addition of substances during yeast fermentation. However, if the addition of water and other substances during production breaks the connection between the fermented and final product, the beverage may be subject to a higher excise rate.

Seeking industry feedback

The ATO is seeking feedback from industry stakeholders and submissions to the ATO on these determinations close on 12 July 2024.

How BDO can help

If you have concerns about how these draft positions may impact your business or would like assistance to make a submission to the ATO, contact our International Trade team to discuss how we can support you.