Wine structure deserves attention

Mr Frydenberg said a lower Australian dollar had increased its competitiveness while free trade agreements recently signed with China, Japan and Korea have created new exciting opportunities.

But he said in order to capitalise on these new opportunities abroad, a strong, sustainable and innovative industry was needed at home.

“One issue that is frequently raised as an obstacle to this goal is the operation of the Wine Equalisation Tax rebate,” he said in an opinion article in the Australian Financial Review last week.

“The rebate is an arrangement that came into force in 2004 and now allows wine producers to claim a rebate of up to $500,000 per annum for the specific purpose of assisting smaller producers throughout the wine regions of Australia.

“While some 3880 entities pay the WET, remarkably, only 20 entities were responsible for 89 per cent of the net WET revenue.

“But what is really at issue is the way the rebate is currently operating.

“The amount of the rebate claimed has increased more than 60 per cent in recent years and there are numerous examples of contrived arrangements being put in place to claim the rebate.

“For example, a producer with $10 million of sales that has maximised its rebate of $500,000 can change their contracts with growers to enable the grower to maintain ownership of the grapes through the production process and thereby become eligible for the rebate.

“The producer subsequently charges a higher processing fee to the grower, in effect to take a share of the grower's WET rebate.”

Mr Frydenberg said other “contrived schemes” were outlined in the government's discussion paper released last week.

He said they relate to the pricing and blending of wine and the so called 'virtual wine production processes' where an entity claims the rebate but does not own a vineyard, plant or equipment, nor operate a cellar door.

“The ATO is already on the case and is handing out significant penalties for breaches of the law, but there are still significant structural and legal issues that need to be addressed,” he said.

“Leading industry groups like the Australian Winemakers Federation have identified these concerns and the government is now working with them and other key stakeholders to plan a reform path for the rebate.

“This task will be assisted by the establishment of a consultative group with representatives from across the major wine producing states who will work with the Australian Treasury.

“It is hoped, in the end, a pragmatic and workable solution can be found which will preserve the integrity of our tax system and strengthen Australia's world leading wine industry.”