“The WET is a tax that affects Australian wine importers, producers and wholesalers and eligible NZ winemakers. It is an historic relic, introduced in conjunction with the GST,” writes wine columnist RICHARD CALVER. 

In the recent pre-election Budget the federal government announced a minor change to the way in which wine is taxed.

Eligible wine producers currently receive a Wine Equalisation Tax (WET) rebate of up to $350,000. This cap will increase to $400,000 from July 1 2026. 

But what on earth does this mean and what is the WET? 

The WET is a tax that affects Australian wine importers, producers and wholesalers and eligible NZ winemakers. 

It is an historic relic, introduced in conjunction with the GST to maintain a tax treatment for wine roughly consistent with the previous wholesale sales tax regime that was in place before 2000.

There is a rebate from the tax that applies to wine producers. A rebate is a tax offset: in other words, the amount of the rebate is deducted from the tax payable rather than reducing taxable income (which would normally be described as a tax deduction). 

WET is linked to the dealing with (inclusive of wine made available for tasting) or selling wine. 

The tax is calculated on the value of the wine. WET is levied at 29 per cent of the wholesale value of wine. 

The tax applies where the business is or should be registered for GST. This is where a business has a turnover of $75,000 or more. GST is then calculated on the price of wine you sell/deal with inclusive of the WET, so there is another tax on the taxable component of the wine. Wine importers pay WET despite any GST registration requirements. 

There are some complex rules to adhere to if the wine producer makes retail sales (eg, directly from the cellar door). 

These are an average wholesale price calculation or the half retail price method. The latter method of calculation is mandatory if wine is made from something other than grapes (eg, plum wine or sake as it is made by fermenting rice). That calculation requires you to work out 50 per cent of the retail sale price inclusive of WET and GST and then you multiply that amount by 29 per cent to get to the tax payable.

The average wholesale price method is complex because the wine business is required to calculate the relative proportion of each type of wine sold, and also any discounts, incentives or similar that may reduce the wine’s selling price.

The producer rebate that is due to increase to $400,000 applies if the wine business meets certain eligibility criteria. Again, this is governed by some detailed rules. First, different criteria apply depending on when the winemaking process started. The wine business needs to determine whether your wine is:

•  2018 and later vintage wine (more than 50 per cent of the grapes used to make the wine were crushed from January 1 2018)

•  2017 and earlier vintage wine (more than 50 per cent of the grapes used to make the wine were crushed before January 1 2018).

For simplicity, let’s just focus on the 2018 and later vintage wine. To be eligible the business must meet these four requirements:

• Be the producer of the wine, noting that you are not a producer if you simply purchase bulk wine and bottle it for sale.

• Be liable to pay WET or sell the wine under quote to a purchaser who declared in the quote that they will be liable for WET on a subsequent dealing in the wine.

• Own the source product (for example, whole unprocessed grapes, apples, pears, other fruit or vegetables, honey, and rice) that makes up at least 85 per cent of the total volume of the wine throughout the wine making process; and

• Sell the wine in a container with a capacity of five litres or less (which may differ for some products eg, 51 litres for cider) that is suitable for retail sale and branded by a trademark owned by the business or an associated entity.

Tax on alcohol in Australia, inclusive of the WET, is crying out for reform. Indeed, the Henry Tax Review (2010) said: “Current tax and subsidy arrangements for alcohol are complex, and distort production and consumption decisions with no coherent policy justification. 

“In particular, the wine equalisation tax, currently designed as a value-based revenue-raising tax, is not well suited to reducing social harm.” Amen.