Tax change a crushing blow to smaller wineries

THE AUSTRALIAN, JUNE 17, 2016

The federal government’s move to end tax rorts in the wine industry could have the unintended consequence of forcing the closure of some cellar doors, winemakers have warned.

A $1 billion subsidy known as the wine equalisation tax rebate was slashed in the May budget in a move aimed at ending rorting by “virtual winemakers”.

But small to medium-sized wine prod­ucers, who called for changes to the WET to level the playing field for all wine producers, are now crying foul, warning that the measure has gone too far.

Adelaide Hills winemaker Neil Jericho said new rules on winery ownership would ­destroy innovation, create ineffic­iencies and lead to a surplus of fruit as smaller winemakers went out of business. “We buy our own fruit, we have contracts with growers, we buy our own barrels and do everything,” he said. “In each wine region there’d be at least 50 people that do it the same way.”

The WET, a tax of 29 per cent of the wholesale value of wine, was introduced in 2000 with the GST to replace the 41 per cent wholesale sales tax. Of great concern to those in the industry is the new tax rebate eligibility criteria, requiring wine merchants to either own or lease a winery and sell packaged, branded wine domestically.

Small- to medium-sized prod­ucers fear that the definition of what qualifies as a winery under the new rules may exclude them from accessing the rebate, because many outsource their grape crush­ing and processing.

The owner of the Clare Valley’s Skillogalee, Dave Palmer, said he would lose $150,000 off his bottom line in the first year, with many others facing simil­ar cuts to the rebate. “That’s equivalent to three fulltime positions and we haven’t got three jobs we don’t need,” he said. “There is a chance that we will go under.”

Tasmanian winemaker Sam Connew from Stargazer wine is heading a national group of small and emerging winemakers arguing against eligibility being tied to asset ownership. “It’s a capital-intensive industry and we don’t need any more wineries in this country, so to ­require that people invest in a winery is counter-­productive,” Ms Connew said.

Financial adviser Des Caulfield warned the changes could force the closure of cellar doors. In the Adelaide Hills there were over 50 cellar doors but just seven wineries, with planning ­restrictions making it unlikely any more could be built, he said.

“These changes will hit the smaller producers hardest as the rebate in many cases represents almost all of (their) profit,” he said.

Assistant Agriculture Minister Anne Ruston said she would consult the industry after the election but would not rule out limiting the definition of a winery to a site that processes grapes.