THE following article was published on the Stock & Land, written by Simon Evans and Edmund Tadros.
The Australian Taxation Office (ATO) has called in the Australian Federal Police (AFP) after uncovering rorts in the wine tax system, in which rebates cost taxpayers more than $300 million a year.
In the ATO’s sights are grapegrowers and some small wine producers who, it believes, are claiming multiple rebates against the wine equalisation tax (WET) by entering into artificial transactions between related corporate entities, and milking the scheme to prop up their operations.
More than 2500 wine companies are operating in Australia, and hundreds of smaller operators are uneconomic and would go broke without the rebate, which is supposed to pay out a maximum of $500,000 a year to individual producers.
Deloitte partner Stephen Harvey, the accountancy firm’s national wine industry leader, said some grapegrowers were setting up corporate entities with the specific purpose of claiming multiple $500,000 WET rebates, in some cases 10 times over. “That’s the biggest rort in the system,” he said.
Some of Australia’s oldest family-owned wine companies are frustrated by the rorts and are demanding action.
Mitchell Taylor, the managing director of Taylors Wines, is the chairman of a group of 12 family-owned companies known as Australia’s first families of wine, which include Brown Brothers, Henschke, Yalumba and Tyrrell’s Wines.
He has been lobbying in Canberra for loopholes to be closed quickly.
“It’s got to be tightened right up,” Mr Taylor said.
“A lot of grapegrowers are getting it and it’s starting to get double-counted.”
Mr Taylor said the rebate was being paid to “virtual” wine companies that never actually produce wine.
Strong stance on handouts
The ATO and AFP investigation comes as the federal government takes a hard line on handouts for uneconomic businesses, including car maker GM Holden and fruit processor SPC Ardmona, which is owned by Coca-Cola Amatil.
The wine rebate has been in operation since 2004 and was designed to assist legitimate wine producers to build their businesses. It is part of the broader WET, which reaps about $1 billion a year in taxes before rebates.
The WET was introduced when Australia shifted to a GST in 2000.
Authorities are increasingly frustrated at the abuse of the system, as the increase in rebate claims rises faster than the taxes being collected.
ATO Deputy Commissioner, Indirect Tax, James O’Halloran said where there was inappropriate claiming “we will continue to deny rebate claims and obtain the return of past overpayments”.
“Some cases are being reviewed to determine whether participants should be subject to criminal sanctions,” Mr O’Halloran said.
The AFP has been involved in an investigation of one set of claimants.
The WET and rebates have unusual quirks. Supermarket and liquor giant Woolworths, for example, legitimately claims a $500,000 rebate each year. It is classified as a wine producer because it owns the Dorrien Estate winery, run by the Cellarmasters operations. It produces some of the many private label brands sold in its liquor stores, such as Dan Murphys and BWS, which sell more than $7 billion in wine, beer and spirits each year.
In another quirk, under WET more than 200 New Zealand wine companies claim a combined $25 million in rebates even though they are competing against Australian wine companies for sales to Australian drinkers.
ATO data shows the total rebates paid to local producers increased by 43 per cent from $199 million in 2006-07 to $284 million in 2011-2012.
In contrast, the net WET collected from these producers increased by only 11 per cent in the same period, from $633 million to $701 million.
Federal Treasury figures out this week reveal the cost to taxpayers of the WET rebate will rise to $320 million in 2013-14 from $300 million last year, and is expected to cost $370 million a year by 2017.
The Winemakers’ Federation of Australia, led by former Australian Securities and Investments Commission chairman Tony D’Aloisio, also wants changes to the WET scheme but has initially trained its sights on having New Zealand wine producers cut out. They have been eligible for rebates since 2005 under a trade agreement.