What future for the WET rebate?

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A recently released discussion paper by the Federal Treasury has thrown the Wine Equalisation Tax (WET) Rebate into the Tax Reform debate. The discussion paper examines the operation of the WET Rebate and how it is being manipulated within the wine industry and seeks input on a range of possible ways to sustainably support the wine industry into the future.

Why is the government concerned?

The WET Rebate was initially introduced in 2004 to support small Australian local and regional wine producers by offsetting the 29 per cent WET liability. Under the WET rebate, small wine producers are able to claim up to $500,000 per year. However the amount of WET rebates claimed has since increased by over 60 per cent, with a number of examples of artificial arrangements allowing producers to claim the rebate. The rebate cost taxpayers $300m last financial year.

One such example is the build up of virtual winemakers, who contract out the production and blending process of the wine but are still able to receive the rebate. This type of non-complying practice costs taxpayers hundreds of millions of dollars annually, with Treasury estimating this could rise to over $350 million by 2016. In addition, there is also the issue of millions of dollars of rebates being claimed annually by New Zealand wine producers. This subsidy is estimated to cost Australian taxpayers over $25 million each year.

The ATO is already on the case and handing out significant penalties for breaches of the law, however the structural and legal issues behind the arrangements remain. The Government is committed to working with leading industry groups like the Australian Winemakers Federation and other key stakeholders to plan a reform path for the rebate.

Potential solutions

One potential solution to these schemes is to abolish the rebate altogether or replace it with a grant scheme. The discussion paper also discusses potentially banning bulk winemakers or unbranded wine producers from accessing the scheme, or restricting eligibility so that only legitimate wine producers are able to access the rebate.

Please contact your ESV Engagement Partner on 9283 1666 as soon as possible if you wish to obtain a copy of the discussion paper and are interested in making any comments/suggestions in respect of the discussion paper. Otherwise, we will keep you updated on the WET rebate reforms and any new developments as they unfold.

ESV is the Auditor for the Association of Australian Boutique Winemakers Inc and is keen to offer assistance to our members.