By Stephanie Koumbarakos (Trainee Lawyer) and Jack Stuk (Principal Solicitor)
Mixologists of bespoke cocktail or craft beer are taking their talents from the bar and delivering it to consumers to enjoy at home with handcrafted and locally produced alcoholic drinks being bottled for retail sale.
This shift to production for retail sale may not be covered by liquor licences. Instead, these businesses may need to be licenced under the excise legislation and may be required to pay excise duty on their product. Failing to comply with the excise licencing regime may attract substantial fines from the Australian Tax Office (ATO) and both directors and managers may be personally liable for unpaid excise duty.
What is excise duty?
Excise duty is a tax on ‘excisable goods’ which are alcohol, tobacco and fuel and petroleum products.[1] The relevant legislative framework includes the Excise Act (Cth) 1901, Excise[2] Tariff Act (Cth) 1921 and the Excise Regulations 2015 (together the ‘Excise Acts’[3]).
Who is a ‘manufacturer’ required to be licenced under the Excise Acts?
Manufacturers of excisable goods are required to be licensed.[4]
You may be a ‘manufacturer’ if you manufacture excisable goods such as cocktails and craft beer. To ‘manufacture’ is defined broadly and in a circular fashion under the Excise Acts to include ‘all processes in the manufacture of excisable goods and, in relation to beer, includes the provision to the public at particular premises of commercial facilities and equipment for use in the production of beer at those premises’.[5]
Relevant considerations in determining whether something has been manufactured include:
- the creation of something that previously did not exist;
- the thing brought into existence is different from that which it is made or results;
- change in form;
- differences in utility;
- improving the goods;
- subjective intention to manufacture (relevant but not determinative); and
- application of skill, knowledge or labour.[6]
Liability for excise duty
A ‘manufacturer’ is liable to pay excise duty on excisable goods if delivering the excisable goods for ‘home consumption’.[7] The meaning of ‘delivery into home consumption’ is broad and will cover most circumstances where excisable goods are consumed in Australia.[8] However, some exceptions apply such as to the mixing of spirits and slushie syrup in a frozen cocktail machine behind a bar.[9]
What are the possible consequences for manufacturing excisable goods without a licence and failing to pay excise duty?
The ATO has the power to impose substantial penalties for manufacturing excisable goods without a licence.
If found to be knowingly or recklessly manufacturing excisable goods without a manufacturers licence, a corporation may be fined $105,000 (at current penalty rates) or five times the amount of duty that would have been payable on those goods if manufactured with a licence.
Personal liability of directors and managers for failure to pay excise duty
Directors or managers of a company that ‘manufactures’ excisable goods without a licence who are in possession, custody or control of excisable goods and fail to prevent those goods to be consumed in Australia without the payment of excise duty may also be personally liable to repay an amount equal to the excise duty payable on the goods.[10] This amount may be substantial depending on the volume of excisable goods produced and the length of time a business has been producing those goods.
An individual without a manufacturers licence (or other permission) in possession, custody or control of excisable goods in respect of which excise duty has not been paid, may face 2 years imprisonment or the greater of a fine of $105,000 (at current penalty rates) or five times the amount of duty that would have been payable on those goods.[11] The same consequences may apply to an individual found to be intentionally selling excisable goods and also moving excisable goods in respect of which excise duty has not been paid.[12]
If you have any questions about excise licencing or liability for excise duty, please don’t hesitate to Jack Stuk (Principal Solicitor, jstuk@khq.com.au) or another member of the KHQ Food and Beverage team.
[1] Excise Act 1901 (Cth) s 4.
[2] Excise Act 1901 (Cth) ss 59, 61C.
[3] Excise Act 1901 (Cth) s 4.
[4] Excise Act 1901 (Cth) s 25.
[5] Excise Act 1901 (Cth) s 4.
[6] Australian Taxation Office, Excise: the meaning of the expression ‘manufactured or produced’ for the purposes of the Excise Acts, ER 2012/1, 1 October 2014.
[7] Excise Act 1901 (Cth) s 54.
[8] Caltex Australia Petroleum Pty Ltd v Commissioner of Taxation [2008] FCA 1951.
[9] Australian Taxation Office, Excise: iced alcoholic beverage (slushie), ATO ID 2010/130, 9 June 2010.
[10] Excise Act 1901 (Cth) s 60, Australian Petroleum Supplies Pty Ltd v Giuliano (2001) 49 ATR 1035.
[11] Excise Act 1901 (Cth) s 117.
[12] Excise Act 1901 (Cth) ss 117A, 117B.
