Government Threatens the Commercial Cellaring of Australian Wine

The Wine Equalisation Tax WET is much, much worse for Australian wine than simply a tax at retail level. While it’s possible to justify some measure of tax payable on wine at retail, the Australian Taxation Office ATO and the Federal Government have combined to discriminate heavily against wine being sold on the secondary market. Not only have they effectively put some of those involved in the commercial collecting of wine out of business, but they have also handed the wine auction industry a unique competitive advantage in the process.

Since commercially cellared wine is now more difficult to sell in any quantity, the likely upshot of this fiscal ineptitude will be a reduction in the amount of Australian wine cellared for re-introduction to the marketplace in future years. This will greatly reduce the volume of older wine on the market, diminish the wine industry’s ability to promote itself, reduce its appeal to potential investors and may even ultimately serve to reduce the share prices of wine companies. Australia is sorely hindered by the lack of mature wine available for sale and it’s likely that the present limited stocks of older vintage wines will soon disappear from restaurants and retail outlets.

At stake is a determination that when licensed collectors sell wine to retailers or restaurants in a wholesale situation the full 29 WET is applied, before the 10 GST. Only the GST applies, however, if the sale is to a private individual. Conversely, if an auction house sells to a restaurant or retailer only the 10 GST is applied to the price of the sale, plus another 10 GST on commissions, transport, insurance and storage fees. But the GST only applies to these other fees when wine is sold to private individuals.

Not only does this create the ludicrous situation whereby wholesale prices for cellared wine are far greater than retail prices, but the auctioneers are effectively handed a 29 price advantage, the amount of the WET.

Queensland-based wine collector Craig Caulfield operates a large commercial cellaring operation managed by his brother, Glenn. Or, more accurately, did. ‘I can’t figure whether it’s a mistake or discriminatory action’, he says. ‘I put away rather a lot of wine to sell through restaurants, but this decision changes everything. The ATO is telling me to become a retailer, but I’d need a larger depth of stock to do that. When I asked for an exemption, since we said we’d have to close the business, they just said ‘Too bad’.’

‘The Government is basking in the glory that the GST has gone down reasonably well, but there are a lot of stories that aren’t that well known. This decision is helping auction houses no end, so the only angle we can look at is export.’

To explain the numbers involved in this issue, an example provided by the ATO itself features the sale by a commercial cellaring operation of a bottle of Penfolds Grange 1990. If it is being sold retail, ie to someone who has said they will drink it or keep it, only the 10 GST is applied to the sale of the wine. If the selling price exclusive of GST is $500 it automatically increases to $550, inclusive of tax. Furthermore, the seller is entitled to claim back a sales tax credit on the wine based on the rate existent at the time at which is was purchased. If the Grange had been purchased by the present seller in 1994 at a price of $300, the seller is entitled to a credit of $12, based on a calculation involving the sales tax rate in 1994 of 22 and the amount of sales tax actually paid of $33.

This is clearly bearable and fair. But with a wholesale sale the $500 bottle of Grange increases by a 29 WET of $145, making $645, to which the 10 GST is then added in the sort of classic tax-on-tax situation which is supposed to be unconstitutional. All this combines to create a massive final price of $709.50, which the restaurateur or retailer will probably choose not to pay. One can only imagine how this would magnify in the final price to the actual consumer of the wine. The market will not bear this sort of a hike, which is applied on a relative basis across all price points.

Most commercial wine collectors will have bought most of their premier wines at retail, and in doing so have already paid the 41 sales tax on each bottle. They are however still eligible for a rebate on part of the sales tax previously paid on the wine – a massive $33. Some compensation!

Restaurateurs can evade this scenario by initially buying the wine from the collector as a private individual, only paying the 10 GST and avoiding the WET. If he or she then changes mind and decides to list the wine, that’s fine provided another 10 GST is paid when the wine is sold to another private individual, the restaurant’s customer. Please login to post comment