The Federal Government has effectively nobbled the practice of cellaring wines on a commercial basis, according to a recent determination from the ATO. As part of the tax reform package the Wine Equalisation Tax (WET) is being deployed to increase the prices of commercially cellared wine well beyond realistic levels. Unless the new guidelines are quickly changed, this could certainly herald the end to commercial investment in Australian wine within this country. The new determination distinguishes to a very large degree between retail and wholesale sales of cellared wine, ie whether the wine is being sold to someone who (a) intends to drink it or (b) someone who intends to sell the wine again. Speaking personally, as a modest collector of Australian wine, I only buy wine to drink. But I do sell wine that fails to live up to expectations. So at what rate should these providers be taxed when they sell to me and the hundreds like me, and and what level of tax should I pay for the wine? An example provided by the ATO features the sale by a commercial cellaring facility of a bottle of Penfolds Grange 1990. If it is being sold retail, ie to someone who has said they will drink 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, since the sales tax rate in 1994 was 22% and the amount of sales tax then paid was $33. This is clearly bearable and fair. But what happens if the commercial collector wishes to sell to a retailer or restaurant, which represent the two major markets for this type of business? The $500 bottle of Grange increases by a WET of $145, making $645, to which the 10% GST IS THEN ADDED, creating a massive final price of $709.50, which the restaurateur or retailer will probably choose not to pay. One can only imagine how this will magnify in the final price to the actual consumer of the wine! Almost adding insult to injury, the seller receives a generous rebate of the sales tax previously paid on the wine, all of $33!! So, all of a sudden a wine that would cost a restaurant $500 will now cost it $709.50. Blind Freddy could tell in an instant that the market won’t bear this sort of a hike, which is applied on a relative basis across all price points. What are the likely outcomes of this classical piece of dislocated Canberra thinking? The only way that commercially cellared wines will appear at retail or on restaurant lists is if the people selling them are able to fudge the issue of whether they were sold on a ‘retail’ or ‘wholesale’ basis. Clearly this aspect of the matter is massively ambiguous. One could reasonably expect older vintage wines to disappear from restaurants and retail, unless the retailer buys the wines young and cellars them using their own resources. History would suggest that this is not a viable option for the vast majority of participants. One would assume that when retailers and restaurants buy wine at auction, the suppliers of these wines to the auction houses will be pinged in the same way. For if this were not to be the case, the Federal Government will have handed the wine auction industry a grossly unfair competitive advantage over restaurants and retailers with respect to the sales of previously cellared wine. In all, the Federal Government has in all likelihood put those involved in the commercial cellaring of wine out of business. This will greatly reduce the volume of older wine on the market, diminish the industry’s ability to promote itself, reduce the industry’s appeal to potential investors and may even ultimately serve to reduce the share prices of wine companies. Therefore this issue concerns everybody, not just those who might be investing in stocks of Australian wine for future sale. For detailed analysis of these and other issues facing wine show results and wine trends, simply subscribe to Jeremy Oliver’s OnWine Report, using the button on the left of your screen.
