Bills Digest No. 20, 2017–18
PDF version [647KB]
Phillip Hawkins
Economics Section
17
August 2017
Contents
Purpose of the Bill
Structure of the Bill
Background
Schedule 1—Changes to the WET
What is the Wine Equalisation Tax
(WET)?
Who pays it?
What are WET credits?
What is the WET producer rebate?
Summary of proposed changes
Concerns about the current WET and
producer rebate
Consultation process
Schedule 2—superannuation tax changes
Administration arrangements
Committee consideration
Senate Standing Committee for the
Scrutiny of Bills
Policy position of non-government
parties/independents
Position of major interest groups
Schedule 1—Changes to the WET
Schedule 2—Superannuation tax changes
Financial implications
Statement of Compatibility with Human
Rights
Parliamentary Joint Committee on
Human Rights
Key issues and provisions
Schedule 1—Changes to the WET
Schedule 1, part 1—Reforms to
eligibility requirements
Application provisions
Transitional provisions
Schedule 1, part 2—Reduction in the
WET rebate threshold
Schedule 2—Superannuation tax changes
Date introduced: 22
June 2017
House: House of
Representatives
Portfolio: Treasury
Commencement: Sections
1 to 3 on Royal Assent. Schedules 1 and 2 on the first 1 January, 1
April, 1 July or 1 October after Royal Assent.
Links: The links to the Bill,
its Explanatory Memorandum and second reading speech can be found on the
Bill’s home page, or through the Australian
Parliament website.
When Bills have been passed and have received Royal Assent,
they become Acts, which can be found at the Federal Register of Legislation
website.
All hyperlinks in this Bills Digest are correct as
at August 2017.
Purpose of
the Bill
The Treasury Laws Amendment (2017 Measures No. 4) Bill
2017 (the Bill) seeks to:
- amend the A New Tax System
(Wine Equalisation Tax) Act 1999 (WET Act) to improve the
integrity of the wine equalisation tax (WET) producer rebate rules by:
- introducing
additional eligibility criteria for the wine equalisation tax (WET) producer
rebate:
- requiring
that producers maintain ownership throughout the wine-making process
- requiring
that 85 per cent of the final product originated from source product that was
owned by the producer and
- requiring
producers to satisfy branding and packaging requirements
- creating
a stronger link between entitlement to the WET producer rebate and WET being
paid
- providing
that a purchaser of wine is only able to claim a WET credit for WET included in
the purchase price of that wine if it makes a taxable dealing with the wine
- reducing
the WET producer rebate cap from $500,000 to $350,000 from 1 July 2018
- amending
the timing of the application of the associated producers rule and
- repealing
the earlier producer rebate rule
- amend the Income Tax
Assessment Act 1997 (ITAA 1997) to provide for mandatory transfers
into a MySuper compliant product within an existing superannuation fund without
creating an income tax liability for those balances and the assets which
support those balances.[1]
This responds to the requirement for superannuation funds to transfer the
existing balances of superannuation fund members who are in default products to
a MySuper product by 1 July 2017.[2]
Structure
of the Bill
The Bill consists of two Schedules:
- Schedule
1 seeks to amend the WET Act:
- Part
1 amends the eligibility criteria for accessing the WET, WET credits and
the WET rebate
- Part 2
lowers the maximum WET rebate amount from $500,000 to $350,000 per financial
year and
- Part
3 tightens the ‘associated producer’ rules to capture an association at any
time within a financial year, not just at the end of a financial year
- Schedule 2 seeks to amend the ITAA 1997 to provide for
Capital Gains Tax ‘roll-over’ relief in the case of mandatory transfers of
accrued default superannuation fund balances to a MySuper compliant product with-in
an existing superannuation fund, and have that rollover also apply to the
assets which support those balances. This is to ensure that superannuation fund
members are not adversely affected as a result of compulsory balance transfers
under the MySuper arrangements.
Background
Schedule 1—Changes
to the WET
What is the
Wine Equalisation Tax (WET)?
The WET is a tax of 29 per cent on the final wholesale
value of the wine,[3]
which is usually the sale between the final wholesaler of the wine and the
retailer. WET is also payable on imports of wine and some retail sales (for
example, cellar door sales and retail sales of bulk-packaged wine).[4]
The WET basically applies to grape wine, grape wine products, alcoholic drinks
made from cider, mead and other fruit and vegetable wines as long as they
contain more than 1.15 per cent alcohol by volume.[5]
Who pays
it?
WET is a once-only tax on the value of wine for
consumption in Australia. WET affects wine manufacturers, wholesalers and
importers. It is levied at the wholesale end of the supply chain. WET is designed
to be paid on the last wholesale transaction before the retailer, which is
usually between the wholesaler and retailer. But it may apply in other
circumstances—such as cellar door sales or tastings—where there hasn't been a
wholesale sale.
The WET element becomes part of the retailer’s cost base
and is passed on to the end consumer. The retailer gets no entitlement to an
input tax credit for WET paid—it is simply part of their purchase cost. Wine
tax amounts payable are reported to the Australian Taxation Office (ATO) on a
business’s activity statements (BAS), and WET credits are claimed on the BAS as
well. A producer rebate scheme was introduced in 2004 to alleviate the impost
of WET, and entitles wine producers to a rebate of 29 per cent of the tax on
domestic sales.[6]
The rebate can be claimed through the BAS, but a maximum claim applies,
currently $500,000. The rebate has been particularly helpful for smaller
producers.
Some wholesale sales of wine are exempt from WET; for
example if the buyer intends to sell the wine to another wholesaler, use it as
a material in a manufacturing process (for example in the manufacture of other
wine) or when the buyer intends to make a ‘GST-free’ supply of that wine.[7]
These sales are exempt from WET if they are made ‘under quote’ that is, the
buyer quotes their ABN in an approved form when purchasing the wine.[8]
Quoting is not mandatory and a quote does not have to be accepted by the
supplier of the wine.[9]
What are
WET credits?
Buyers of wine are currently entitled to claim a
credit for WET paid in a number of circumstances. These circumstances include if
WET has been overpaid, if the same wine has been taxed twice, if the buyer
didn’t quote their ABN when they were entitled to, or if the buyer paid WET and
subsequently exported the wine for a price that did not include the WET.[10]
What is the
WET producer rebate?
Producers of wine may be entitled to rebate of WET
paid up to a maximum amount of $500,000 per financial year. The WET rebate was
introduced in 2004 with a cap of $290,000 which was increased to $500,000 in
2006. The rebate was intended to provide support to small and regional wine
producers.[11]
For the purposes of the rebate, a producer is currently
defined as an entity that is registered or that is required to be registered
for GST and who makes wine or supplies the source product[12]
to another entity to make wine on their behalf.[13]
To claim the WET rebate a producer must have either:
- been liable to pay WET or
- sold wine in a dealing that would have incurred WET had the buyer
not quoted at the time of the sale, unless the buyer notified the producer that
they intended to make a GST-free supply of the wine or the producer
subsequently claims a wine tax credit.[14]
In this way, WET need not have been paid on the wine for
the producer to claim a WET rebate.
Since 1 July 2005, New Zealand producers have also been
eligible to receive the WET rebate.[15]
Summary of
proposed changes
This Bill implements proposed changes to the WET rebate
and WET credits announced by the Government on 2 December 2016.[16]
The proposed changes were initially announced in the 2016–17 Budget[17]
and amended by the Government following a period of consultation.[18]
The changes in the Bill seek to address concerns about the
integrity of the WET rebate by lowering the WET rebate cap from $500,000 per
financial year (the equivalent of a full rebate on $1.7 million of wine) to
$350,000 per financial year (equivalent to a full rebate on $1.2 million of
wine) from 1 July 2018 and tightening the eligibility requirements for the
WET rebate.[19]
The tightening of the eligibility requirements for the WET rebate includes both
a narrowing of the definition of ‘producer’ and removing the WET rebate for
bulk and unbranded wine products. The proposed changes in the Bill also limit
the circumstances in which wine buyers are entitled to WET credits.
Concerns
about the current WET and producer rebate
A 2015 Senate inquiry into the Australian Grape and Wine
industry (the Senate Committee inquiry) heard a range of views on the WET rebate
and the taxation of wine in general. The final report noted concerns about the
integrity of the WET rebate. For example, it noted statements from the
Australian Taxation Office and the Australian National Audit Office about
‘contrived arrangements’ that have allowed some grape growers, brokers and
intermediaries to inappropriately access the WET rebate, including arrangements
that have allowed for multiple WET claims for the same wine.[20]
In a submission to the inquiry, the Winemakers’ Federation
of Australia (WFA) and Wine Grape Growers Australia (WGGA) raised three
specific concerns about the WET rebate, namely:
1) The
ability of brokers, intermediaries and uncommercial arrangements to access the
entitlement [the WET rebate];
2) The
role of the rebate in delaying the correction to the supply/demand imbalance by
underpinning the conversion of uncommercial grapes into bulk wine and
ultimately low-equity cleanskins and home brands; and
3) The ability of New Zealand entities to access the entitlement on
unfair and preferential terms.[21]
The submission argued against the abolition
of the WET rebate but made a number of recommendations for reform;
including restricting eligibility for the WET rebate to
Australian producers (including abolishing the New Zealand producers’ rebate)
and removing the eligibility of bulk and unbranded wine to gain access to the rebate.[22] The Bill does not propose removing the producer rebate for New Zealand
producers but the same producer requirements and limitations on claiming a
rebate for the production of bulk unbranded wine will apply.
The Foundation for Alcohol Research and Education (FARE),
advocated abolishing the WET producer rebate altogether and ultimately supports
replacement of the WET with an excise based on the alcohol content of the wine (a
‘volumetric tax’, as applies to other forms of alcohol).[23]
The final report of the Committee recommended that the
producer rebate be phased out over five years, and the savings be allocated to
a structural adjustment assistance program.[24]
A dissenting report from Coalition Senators Sean Edwards and Bill Heffernan
recommended reducing the WET rebate to a maximum of $150,000 over a period of
five years rather than a full phase-out.[25]
Senator Xenophon recommended retaining the WET rebate and supported the
proposals of the WFA submission in his dissenting report.[26]
The Australian Greens’ dissenting report advocated immediately phasing out the
WET rebate for bulk and unbranded wine, and also advocated moving to a
volumetric tax to link the taxation arrangements to the alcohol content of the
wine, not the value of the wine, thereby reducing incentives to produce cheaper
bulk wine.[27]
Consultation
process
Following the 2016–17 Budget proposal, the Treasury
released an implementation paper and held consultations on reforms to the WET
rebate.[28]
As a result of this process the Government made changes to its original proposal
which were announced on 2 December 2016 and are incorporated into this
Bill.[29]
The primary difference between the Bill, as introduced,
and the 2016–17 Budget measure is that the Budget measure proposed reducing the
WET rebate threshold to $350,000 from 1 July 2017 and then further reducing it
to $290,000 (equivalent to a full rebate on $1 million of wine) from 1 July
2018.[30]
The Bill only reduces the WET rebate threshold to $350,000. The Government has
stated that the decision to reduce the cap to $350,000 instead of $290,000 was
taken to ‘ensure that the wine industry is supported to further grow and invest’.[31]
This likely reflects an attempt to allay some of the concerns of the winemaking
industry. The WFA and WGAA supported the threshold remaining at $500,000, and
views the rebate as ‘an important source of revenue for small and medium
winemakers’ and provides support to regional and rural Australia.[32]
The implementation paper also discussed limiting
eligibility for the WET rebate by introducing a requirement to ‘own or lease’ a
winery or a requirement to own certain wine-making assets.[33]
The Bill proposes to redefine a producer, and add the requirement to maintain ownership
of at least 85 per cent of the source product for the wine. The WFA indicated
in its submission to the Treasury consultation that, although ‘strict’, it
supported an 85 per cent ownership requirement but suggested that it be based
on a rolling four-year average to ‘smooth out agricultural uncertainties in
grape production’ or to add an exceptional circumstances provision in case of a
severe climactic event.[34]
While the 85 per cent ownership requirement is in the proposed Bill, these
other suggestions have not been adopted.
Schedule 2—superannuation
tax changes
MySuper funds were introduced from 1 January 2014 as a low
cost and simple superannuation product to replace existing default funds.[35]
Superannuation funds were required to transfer the existing balances of their
default members to MySuper funds by 1 July 2017.[36]
Typically, the transfer of assets from one superannuation
fund to another will trigger a capital gains tax (CGT) event (section 104‑10
of the ITAA 1997)
and the realisation of a taxable capital gain or a loss for the transferring
fund.
To address this concern that mandatory transfers into
MySuper accounts could result in a CGT event and possible financial detriment
to the account holder, the Superannuation Laws
Amendment (MySuper Capital Gains Tax Relief and Other Measures) Act 2013
(the Superannuation Laws Amendment Act 2013) provided optional roll-over
of Capital Gains Tax for balances compulsorily transferred into MySuper
accounts with different superannuation providers. These asset roll-overs
allow the capital gains treatment of an asset to be rolled over from a default
superannuation fund to a MySuper compliant fund without incurring a capital
gains tax liability.[37]
The Superannuation Laws Amendment Act 2013 also
allowed for the limited transfer of accrued capital losses to the new MySuper
account.[38]
This allows for accrued capital and tax losses for assets held in a
superannuation fund to be transferred to the MySuper product. These accrued losses
can be used to offset future capital gains.[39]
On 29 June 2015, the then Assistant Treasurer announced
that the Government would extend asset roll-overs to transfers within the same
superannuation fund.[40]
The Bill proposes extending some of these arrangements to
mandatory transfers of default superannuation accounts into MySuper accounts
within the same superannuation fund. The proposed Bill would retrospectively
allow superannuation account holders whose balances have already been
transferred to a MySuper fund to elect an asset roll-over and potentially
receive a refund of tax already paid (see Administration arrangements). It does not allow for the transfer of capital losses. The relief would
also be available to interposed entities (such as trusts) that transfer the
assets pursuant to the mandatory transfer.
Item 6 of Schedule 2 to the Bill also
inserts subsection 311-12(4) into the ITAA 1997, which req uires
the transfer to have been from a default product to a MySuper product with an
investment structure that is substantially the same (the ‘replicate structure
provision’). This requirement is additional to the conditions for transfers to
a MySuper product in a different fund.
Administration arrangements
The application of these proposed amendments will apply to
transfers of superannuation amounts on or after 29 June 2015 and before 1
July 2017. The ATO has provided detail on the administrative arrangements for
tax returns already lodged during the period until application of this proposed
amendment, if the Bill is passed. Taxpayers who did not anticipate the law
change and transferred their account balances into a MySuper account and
incurred a capital gains tax liability will be able to lodge a request for an
amended assessment and may be entitled to a tax refund and interest on any
overpayment of tax.[41]
Committee consideration
Senate
Standing Committee for the Scrutiny of Bills
The Senate Scrutiny of Bills Committee had no comment on
the Bill.[42]
Policy
position of non-government parties/independents
Labor supports the Bill.[43]
Independent Cathy McGowan stated that she was ‘absolutely
delighted’ to support the Bill and was particularly supportive of the WET
amendments.[44]
At the time of writing, the positions of other non-government
parties and independents is not known.
In relation to the proposed WET amendments, it is
understood from the views of senators on the Senate Committee review that there
is broad agreement on the need to reform the WET rebate. However, as made clear
in the dissenting reports from the final report of the Senate Committee inquiry,
the non-government Parties and independents may have different views on the appropriate
scope of these reforms.
Position of
major interest groups
Schedule 1—Changes
to the WET
The WFA is supportive of the proposed amendments to the WET
Act in Schedule 1 and has urged parliamentarians to support the proposed
legislation. In a press release on 23 June 2017 the WFA stated:
These amendments will remove distortions to the supply/demand
balance for wine grapes by improving the integrity of the tax system and
continue to deliver the economic conditions needed for investment in the
production of high-quality Australian wines across all of our 65 regions ... I
urge all Members of Parliament and Senators to support these amendments as they
pass through both Houses during the Spring sitting weeks ...[45]
While their position on this specific Bill is not clear,
organisations such as FARE have advocated for abolishing the WET and the WET rebate
altogether and support moving to a volumetric tax.[46]
Schedule 2—Superannuation
tax changes
The Tax Institute welcomed the proposal to extend income
tax relief to transfers within a fund but raised two specific concerns to
proposal as outlined in the Minister’s media release (prior to the release of
the Bill):
- Concerns that transfers of capital gains losses would not be
available to the same extent available to transfers to different superannuation
accounts. The Tax Institute submitted that loss transfers should be permitted
for transfers within a superannuation fund.[47]
- Concerns
with the replicate structure provision. The Tax Institute argues:
Given the intention of the relief is to facilitate the
introduction of new and simpler MySuper products, and eliminate more costly
investment structures, this requirement seems a counterproductive fetter on
investment efficiency. Superannuation funds should be able to utilise the
simpler investment structures that best suit the MySuper product being made
available.[48]
The arrangements presented in the current Bill do not
appear to specifically address these concerns but the Explanatory
Memorandum to the Bill states:
... the condition [replicate structure provision] will be
satisfied if the difference in investment structure is necessary for the
product to satisfy the requirements to be a MySuper product ...[49]
Financial
implications
According to the Explanatory Memorandum to the Bill, the
proposed amendments to the WET Act in Schedule 1 of the Bill will
increase revenue by $300 million over the 2016–17 Budget forward estimates
period.[50]
The changes to the ITAA 1997 in Schedule 2 of the
Bill are expected to have an unquantifiable financial impact.[51]
Statement of Compatibility with Human Rights
As required under Part 3 of the Human Rights
(Parliamentary Scrutiny) Act 2011 (Cth), the Government has assessed the
Bill’s compatibility with the human rights and freedoms recognised or declared
in the international instruments listed in section 3 of that Act. The Government
considers that the Bill is compatible.[52]
Parliamentary
Joint Committee on Human Rights
The Parliamentary Joint Committee on Human Rights stated
that the Bill does not raise human rights concerns[53]
Key issues
and provisions
Schedule 1—Changes
to the WET
Schedule 1 of the Bill has three parts. Part 1
requires a number of additional criteria to be met for a wine producer to be
eligible for a WET rebate or for a WET credit and Part 2 lowers the
maximum producer rebate from $500,000 per financial year to $350,000 per
financial year.
Schedule 1,
part 1—Reforms to eligibility requirements
Item 1 inserts an additional provision into the WET
Act that amends and clarifies the quoting arrangements for wine dealings. This
removes the exemption from WET available to wine dealings made under quote, if
the buyer of the wine uses the wine in a way which was not specified in their
original quote, where that original quote signalled an intention to deal with
the wine in a way that would have been WET exempt. Specifically, if the buyer:
- uses the wine as a material in manufacture or other treatment or
processing, whether or not it relates to or results in other wine
- makes
a supply of the wine that will be GST-free
or
- deals
with the wine by sale to an entity that will quote for the sale
this would result in an ‘assessable dealing’ with the
wine.
Item 3 inserts a provision which provides that an
exemption from WET is not available to a purchaser if they purchase the wine
under quote but the seller of the wine purchased the wine for a price that
included WET.
However, it appears that the buyer would still be able to
claim credit for the WET paid, if entitled to do so under the amended WET
credit eligibility criteria under Part 4 of the WET Act.[54]
Items 4 to 6 remove a number of circumstances where
WET credits are currently available. Under the amendment a purchaser will only
be entitled to a WET credit if the purchaser of the wine actually makes a
‘taxable dealing’ with that wine.[55]
This includes the removal of WET credits availability for
circumstances where the purchaser of the wine paid WET even though they would
have been entitled to an exemption had they purchased the wine under quote.
Item 8 repeals the previous criteria for accessing
the WET rebate and replaces it with additional requirements that must be
satisfied for a producer to be eligible for a producer rebate. The additional
requirements are:
- Proposed paragraph 19-5(2)(e) and proposed subsection 19-5(3):
the producer has ownership of the grapes (or other relevant source product for
making wine, cider, perry, mead or sake) for at least 85 per cent of the wine
(by volume), and maintained this ownership through the entire wine-making
process from before crushing of the grapes, to bottling and selling of the wine.
The source products for wine are set out in proposed subsection 19(4); essentially
to meet the definition of ‘source product’ they must be unprocessed, that is, fresh
grapes (or other product), not dried grapes or grape juice.
- ATO
Taxpayer Alert TA 2013/2 highlighted issues of wine producers claiming multiple
producer rebates by arranging for another entity to be the producer of some of
its wine, or selling wine to other entities who blend the wines with other
wines. This proposed amendment would appear to tighten the definition of
producer, thereby limiting such confected arrangements.[56]
- Proposed paragraph 19-5(2)(f) requires that wine must be
packaged in a container not exceeding five litres (or 51 litres for cider
and perry)—defined in proposed paragraph 19‑5(7)(a)—and is branded
with a trademark that is owned by and identifies, or is readily associated with,
the producer of the wine—proposed paragraphs 19-5(7)(b) through (f).
- This
change removes eligibility for the WET rebate from bulk and unbranded wine. It
is designed to reduce the ability of winemakers to produce large quantities of
low quality, unbranded wine which industry stakeholders have stated has harmed
the international brand image of Australian wines.[57]
Items 9 and 10 remove current exceptions and
requirements to access the producer rebate which are superseded by the new
eligibility requirements.
- Item 9 repeals section 19-10 of the WET Act which
sets out specific circumstances where a producer would not be entitled to the
WET rebate. The current WET Act includes general criteria for accessing
the WET rebate and provides these specific exceptions. In contrast the Bill
would introduce specific eligibility criteria.
- Item 10 repeals section 19-17 of the WET Act which
limits WET rebate eligibility in the circumstances that WET rebates have
already been claimed in respect of a particular wine which is used to
manufacture other wine (for example, by blending multiple wines). This Bill
removes the blending of wines to create a new wine as a circumstance where a
WET rebate can be claimed.
- This
proposed amendment does not apply to fortified wine that was manufactured using
wine that was owned by the producer of the fortified wine and stored in tanks
or barrels (but not bottles) immediately before 1 January 2018 (subitem 21(3)
of Schedule 1 to the Bill).[58]
Items 11 and 12 remove offence provisions which
currently apply under the WET Act.
- Item 11 repeals section 19-28 as a consequence of removing
eligibility for the WET rebate for the manufacture of wine by blending wines.
- This
proposed amendment also does not apply to fortified wine that was manufactured
using wine that was owned by the producer of the fortified wine and stored in
tanks or barrels (but not bottles) immediately before 1 January 2018 (subitem
21(3)).
- Item 12 repeals subsection 19-30 which makes it an offence
to quote for a purchase of wine (making a sale exempt from WET) with the
intention of making a GST-free supply of the wine, without notifying the
producer of this intention at or before the time of the purchase. Item 3
specifically removes the exemption from WET where a buyer does not act
according to their quote.
Item 17 tightens the definition of producer. The
current definition in the WET Act states that a producer is a producer
of rebatable wine if they manufacture the wine; or if they supply the source
product for manufacturing wine. The Bill changes the second part of this to
require that the producer supplies the source product to a manufacturer who
manufactures the wine on their behalf (essentially maintaining
ownership of the source product and the wine throughout the production process).
Application
provisions
All amendments in Part 1 apply to all assessable dealings
from the 2018–19 financial year onwards (subitem 19(1)).
The amendments will also apply to assessable dealings in
wine where the crushing of the source product for more than 50 per cent of the
wine (by volume) occurred on or after 1 January 2018 (or for mead and
sake, the fermentation of the source product for more than 50 per cent of
the final product occurred on or after this date) (subitem 19(2)).
Transitional
provisions
Transitional provisions have been included and will apply
so as to provide the industry with sufficient time to adjust to the changes.[59]
Transitional arrangements apply for wine where more than
50 per cent of the crushing process commenced prior to 1 January 2018. The proposed
85 per cent ownership rule is taken to be satisfied if:
- the assessable dealing (sale of the wine) occurs prior to 1 July
2023 and the wine clearly displays the vintage date of the wine and the wine
was bottled prior to 1 July 2018 (subitem 20(2))
- the assessable dealing occurs prior to 1 July 2025 and on 1
January 2018 the wine was being manufactured into fortified wine or had already
been manufactured into fortified wine and packaged in the container it is in at
the time of the assessable dealing (subitem 20(3)).
In regard to these transitional arrangements, the producer
is taken to be the owner of the source product if the wine is fortified wine,
the fortified wine was manufactured from wine stored in barrels or tanks immediately
before 1 January 2018 (but not yet bottled) and the producer owned the
stored wine prior to 1 January 2018 (subitem 21(1)).
Schedule 1,
part 2—Reduction in the WET rebate threshold
Part 2 of Schedule 1 of the Bill changes the
maximum WET rebate in a financial year from $500,000 to $350,000. As the WET is
charged at a rate of 29 per cent of the final sale price of the wine, this
effectively reduces the maximum WET rebate claimable in a financial year from
the equivalent of a full rebate of the WET on $1.7 million of wine sales to
$1.2 million of wine sales.
If two or more producers are ‘associated producers’ then
under subsection 19-15(3) of the WET Act as amendment by item 23
of Schedule 1 to the Bill, a single maximum WET rebate of $350,000 applies to
the group of associated producers as a whole.
The changes to the WET rebate threshold in Part 2 will
apply from the 2018–19 financial year.
Changes to the associated producer rules
Part 3 of Schedule 1 amends the test for associated
producers so that the test applies to an association at any time during the
financial year, rather than just at the end of a financial year. The purpose of
this amendment is to prevent artificial restructuring prior to the end of the
financial year to avoid the associated producer threshold for the WET rebate.[60]
The amendments in Part 3 will apply in all financial years
starting after commencement of Schedule 1.
Schedule 2—Superannuation
tax changes
Schedule 2 of the Bill amends Division 311 of the Income
Tax Assessment Act 1997 to allow for asset roll-overs from default
superannuation to MySuper compliant funds within the same superannuation
provider.
As discussed above, the purpose of an asset roll-over is
to avoid a superannuation fund having capital gains or other taxation amounts
incurred when a default superannuation account balance is mandatorily
transferred into a MySuper compliant fund. This ensures that the superannuation
account holder does not suffer adverse financial impacts.
Item 6 inserts proposed section 311-12
that details the four conditions that must be satisfied to allow asset
roll-overs within a fund.
- Proposed subsection 311-12(2) (the first condition)
requires that the transferring entity must either hold the default members’
superannuation account balance or provide a product which supports the default
fund.
- For
example, a life insurance company can be a transferring entity if, before the
transfer, it had issued a complying life insurance policy to the default fund.[61]
- Proposed subsection 311-12(3) (the second condition)
requires that the asset rollover applies to the mandatory transfer of an
accrued default amount into a MySuper compliant fund.
- An
accrued default amount is broadly speaking an amount held in the fund that is
invested in the funds default investment strategy. A superannuation account
holder may, for example, elect to invest a proportion of their superannuation
fund in a more aggressive investment strategy. This proportion would not
satisfy the second condition.
- Proposed subsection 311-12(4) (the third condition)
requires that the investment structure of the default fund and the MySuper fund
is ‘substantially’ the same.
- This
requires the default product and the MySuper product to invest in the same
entities, for example if a default fund is invested in a pooled superannuation
trust, the MySuper account must also be invested in a pooled superannuation
trust.[62]
- However,
according to the Explanatory Memorandum, the condition does not require a
‘MySuper fund to replicate the investment structure of the default product’ if the
difference ‘is necessary for the product to satisfy the requirements to be a
MySuper product’.[63]
- Proposed subsection 311-12(5) (the fourth condition)
requires that the account balances were transferred between 29 June 2015
and 1 July 2017, the deadline for a transfer to a MySuper fund.
The remaining amendments in Schedule 2 of the Bill are
primarily consequential amendments required to give effect to the amendments in
Item 6.
[1]. Tax
relief is currently provided for these types of transfers into a different
super fund, but not for transfers within the same fund structure. As a
result, default members of some super funds may experience adverse and
unintended consequences when their account balances are transferred.
[2]. MySuper
is a superannuation product, and part of the Stronger Super reforms announced
in 2010 by the Gillard Government for the Australian superannuation industry.
MySuper replaced existing default funds since 1 January 2014 with the
requirement that employers must only pay default superannuation contributions
to an authorised MySuper product. See: B Shorten (Minister for Financial Services and
Superannuation), Government
super reforms mean more money in retirement, media release, 16 December
2010; Australian Securities and Investment Commission, Money Smart, ‘My
Super’, ASIC website, 27 June 2017.
[3]. The
Wine Equalisation Tax applies to a number of products in addition to grape wine
including wine made from fruits and vegetables, cider and perry (which is a
cider-like beverage made from fermented pears), mead and sake. Unless otherwise
specified, wine in the context of this Bills Digest should be taken to mean all
products covered by the Wine Equalisation Tax.
[4]. Australian
Taxation Office (ATO), ‘When
you have to pay WET’, ATO website, 13 February 2017.
[5]. Treasury,
Wine
equalisation tax rebate: discussion paper, The Treasury, Canberra,
August 2015, p. 4.
[6]. Explanatory
Memorandum, Treasury Laws Amendment (2017 Measures No. 4) Bill 2017, p. 53.
[7]. The
most common examples of GST-free supplies of wine include exports from
Australia or wine supplied in hospitals, religious services or education
courses; ATO, ‘GST-free
supplies’, ATO website, 13 February 2017.
[8]. ATO,
Wine Equalisation Tax Ruling, WETR
2009/1, Wine equalisation tax: the operation of the wine equalisation
tax system, ATO, Canberra, 22 May 2013, p. 43.
[9]. Treasury,
Wine
equalisation tax rebate: discussion paper, op. cit., p. 4.
[10]. ATO,
Wine Equalisation Tax Ruling, WETR
2009/1, op. cit., p. 49.
[11]. Explanatory
Memorandum, Treasury Laws Amendment (2017 Measures No. 4) Bill 2017, p. 53.
[12]. Source
product may include grapes, or other fruit, vegetable, rice or honey from which
wine is manufactured.
[13]. ATO,
Wine Equalisation Tax Ruling, WETR
2009/2, Wine equalisation tax: operation of the producer rebate for
other than New Zealand participants ATO, Canberra, 3 February 2016, p. 5.
[14]. Ibid.,
pp. 10–11.
[15]. Senate
Rural and Regional Affairs and Transport References Committee, Australian
grape and wine industry, The Senate, Canberra, 12 February 2016,
p. 14.
[16]. K
O’Dwyer (Minister for Revenue and Financial Services) and A Rushton (Assistant
Minister for Agriculture and Water Resources), Backing Australia’s
wine industry, media release, 2 December 2016.
[17]. Australian
Government, Budget
measures: budget paper no.2: 2016–17, p. 43.
[18]. The
Treasury, ‘Wine
equalisation tax rebate: tightened eligibility criteria’, Treasury website,
2 September 2016.
[19]. Explanatory
Memorandum, Treasury Laws Amendment (2017 Measures No. 4) Bill 2017, p. 7.
[20]. Senate
Rural and Regional Affairs and Transport References Committee, Australian
grape and wine industry, op. cit., pp. 22–23.
[21]. Winemakers’ Federation of Australia (WFA) and Wine Grape Growers
Australia (WGGA), Joint submission to the Senate Rural and Regional
Affairs and Transport References Committee, Australian grape
and wine industry, Attachment
7, September 2015, p. 3.
[22]. Ibid., pp. 3–4.
[23]. Foundation
for Alcohol Research and Education (FARE), Submission
to the Senate Rural and Regional Affairs and Transport References Committee, Australian grape and wine industry, May 2015, p. 4.
[24]. Senate
Rural and Regional Affairs and Transport References Committee, Australian
grape and wine industry, op. cit., p. 34.
[25]. Ibid.,
pp. 73–75.
[26]. Ibid.,
pp. 83–84.
[27]. Ibid.,
pp. 77–79.
[28]. Australian
Government, Wine
equalisation tax rebate: tightened eligibility criteria: implementation paper,
Treasury, Canberra, September 2016.
[29]. O’Dwyer
and Rushton, Backing
Australia’s wine industry, op. cit.
[30]. Australian
Government, Budget
measures: budget paper no. 2: 2016–17, p. 43.
[31]. K
O’Dwyer, Wine
equalisation tax rebate changes, Fact sheet, 2 December 2016, p. 2.
[32]. WFA,
Submission
to the Treasury, Wine equalisation tax rebate: tightened eligibility
criteria: implementation paper, 7 October 2016, pp. 15–16.
[33]. Australian
Government, Wine
equalisation tax rebate: tightened eligibility criteria: implementation paper,
op. cit., pp. 6–7.
[34]. WFA,
Submission
to the Treasury, op. cit., pp. 10–11.
[35]. Australian
Securities and Investment Commission (ASIC), ‘MySuper’,
ASIC’s MoneySmart website, 27 June 2017.
[36]. Explanatory
Memorandum, Treasury Laws Amendment (2017 Measures No. 4) Bill 2017, p. 41.
[37]. Explanatory
Memorandum, Superannuation Laws Amendment (MySuper Capital Gains Tax
Relief and Other Measures) Bill 2013, p. 13.
[38]. K
Swoboda, Superannuation
Laws Amendment (MySuper Capital Gains Tax Relief and Other Measures) Bill 2013,
Bills digest, 158, 2012–13, Parliamentary Library, Canberra, 2013.
[39]. Explanatory
Memorandum, Superannuation Laws Amendment (MySuper Capital Gains Tax
Relief and Other Measures) Bill 2013, op. cit., pp. 11–12.
[40]. J
Frydenberg (Assistant Treasurer), Income
tax relief for MySuper transfers within a fund, media release, 29 June
2015.
[41]. ATO,
‘Income
tax relief for MySuper transfers within a fund’, ATO website, 12 May 2016.
[42]. Senate
Scrutiny of Bills Committee, Scrutiny
digest, 8, 2017, The Senate, 9 August 2017, p. 41.
[43]. A
Leigh, ‘Second
reading speech: Treasury Laws Amendment (2017 Measures No. 4) Bill 2017’,
House of Representatives, Debates, 16 August 2017, p. 10.
[44]. C
McGowan, ‘Second
reading speech: Treasury Laws Amendment (2017 Measures No. 4) Bill 2017’, House
of Representatives, Debates, 16 August 2017, p. 25.
[45]. T
Battalegne (Chief Executive, WFA), Bright
new era for the Australian wine industry, media release, 23 June 2017.
[46]. Foundation
for Alcohol Research and Education (FARE), Submission
to the Senate Rural and Regional Affairs and Transport References Committee,
op. cit., pp. 20–21.
[47]. S
Healey (President, The Tax Institute), MySuper
transfers within a fund, 25 August 2015, pp. 1–2.
[48]. Ibid.,
p. 2.
[49]. Explanatory
Memorandum, Treasury Laws Amendment (2017 Measures No. 4) Bill 2017, p. 47.
[50]. Ibid.,
p. 3.
[51]. Ibid.,
p. 5.
[52]. The
Statement of Compatibility with Human Rights can be found at pages 39–40
(Schedule 1) and page 52 (Schedule 2) of the Explanatory Memorandum to the
Bill.
[53]. Parliamentary
Joint Committee on Human Rights, Report,
7, 2017, 8 August 2017, p. 36.
[54]. Explanatory
Memorandum, Treasury Laws Amendment (2017 Measures No. 4) Bill 2017, p. 28.
[55]. Ibid.,
p. 29.
[56]. ATO,
Taypayer Alert, TA
2013/2, Wine equalisation tax (WET) producer rebate schemes, ATO,
Canberra, 8 October 2013.
[57]. Explanatory
Memorandum, Treasury Laws Amendment (2017 Measures No. 4) Bill 2017, p. 58.
[58]. The
definition of fortified wine for these purposes is set out in the Australia New Zealand
Food Standards Code: Standard 4.5.1: Wine Production Requirements (Australia
Only). Fortified wine means the ‘product consisting of wine to which has
been added grape spirit, brandy or both’.
[59]. A
Ruston (Assistant Minister for Agriculture and Water Resources), Wine
equalisation tax rebate: improving integrity, media release,
23 June 2017.
[60]. Explanatory
Memorandum, Treasury Laws Amendment (2017 Measures No. 4) Bill 2017, p. 34.
[61]. Ibid.,
p, 44.
[62]. Ibid.,
p. 46.
[63]. Ibid.,
p. 47.
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