When is beer… “beer”? Defining alcoholic beverages differently for tax purposes

Articles


Posted By and on 25/07/22 at 10:29 AM

What qualifies an alcoholic beverage to be called ‘beer’, ‘wine’ or ‘spirits’? The answer to that question may depend on whether you are looking at the beverage in the context of food-specific regulation or tax.

Australia’s food standards and taxation regimes both include specific but subtly different definitions that beverages are required to meet in order to be considered, for example, ‘beer’. Whether any given product meets either or both of those definitions will impact on its taxation treatment, its permission to be marketed using that name, and even what ingredients can be compliantly added during its manufacture. A further complication arises when talking about new types of alcoholic beverages, such as hard seltzers, as there appears to be a grey area about whether these products can be correctly classified as “beer” or not.

This article uses the particular example of “beer” to demonstrate how a product may meet one or the other or both, and how this can impact the market viability of such a product.

Alcoholic beverages and the Food Standards Code

The Australia New Zealand Food Standards Code (the Food Standards Code) regulates the labelling and composition of food and beverage products, including importantly:

  • What can and cannot be added to certain categories of alcoholic product;
  • Whether by adding certain ingredients (in particular food additives), you are no longer able to market the product as being “beer” or “cider” or “whisky” etc.;
  • What claims you can make about such products; and
  • What must go on the label for such products.

Taking the example of “beer”, the Food Standards Code defines it as:

  • the product, characterised by the presence of hops or preparations of hops, prepared by the yeast fermentation of an aqueous extract of malted or unmalted cereals, or both; or
  • such a product with any of the following added during production:
    • cereal products or other sources of carbohydrate;
    • sugar;
    • salt;
    • herbs and spices.[1]

The Food Standards Code also provides that “a food that is sold as beer must be beer”. For a product to be marketed and sold under the label of “beer”, it must therefore satisfy the above definition, as well as prescribed limits for food additives, processing aids, vitamins and minerals that are set for “beer”.

Alcoholic beverages and taxation

Alcoholic beverages are also subject to various forms of taxation, depending on whether they are manufactured in Australia, or manufactured overseas and imported.

Beverages with an alcohol content of greater than 1.15% may be subject to excise duty (if manufactured in Australia) or customs duty (if imported). The types of beverages captured by excise regulation generally include beer, spirits, liqueurs and pre-mixed spirits, and may extend to some flavoured ciders and ‘ready-to-drink’ products.

Wine and related products are instead subject to Wine Equalisation Tax (WET). For the purposes of WET, the category of ‘wine’ includes grape wine, fruit and vegetable wines, mead, sake, and some cider and perry. WET will also generally apply to fortified wine; although if the end product contains more than 22% alcohol by volume, excise duty will be applicable instead.

As with the Food Standards Code, there are definitions for the various alcoholic beverages that may be subject to WET, or excise/customs duty. Ensuring that a product meets these various taxation definitions (thus attracting a more favourable taxation outcome) is often the difference between a viable product and one that cannot compete on price on the Australian market.

How is “beer” defined for the purpose of excise?

“Beer” is defined by Australia’s excise legislation as a brewed beverage that:

  • is the product of the yeast fermentation of an aqueous extract, being predominantly an aqueous extract of cereals:
    • whether the cereals are malted or unmalted; and
    • whether or not the aqueous extract contains other sources of carbohydrates; and
  • contains:
    • hops, or extracts of hops, such that the beverage has international bitterness units of not less than 4.0; or
    • other bitters such that the beverage has a bitterness comparable to that of a beverage mentioned in subparagraph (i); and
  • contains not more than 4.0% by weight of sugars; and
  • has not had added to it, at any time, artificial sweetener; and
  • may have had added to it, at any time, other substances, including flavours, but only if, in the case of substances that contain alcohol (other than spirit distilled from beer), the alcohol did not add more than 0.5% to the total volume of the final beverage; and
  • may have had added to it, at any time, spirit distilled from beer, but only if that spirit did not add more than 0.5% to the total volume of the final beverage; and
  • contains more than 1.15% by volume of alcohol.

As you can see, the above definition of “beer” is completely different from that contained in the Food Standards Code. For example, it is a requirement under the Food Standards Code definition that the product contains hops or preparations of hops, but no such requirement exists for excise purposes.

How do the two definitions interact?

Although there is some interaction between the two definitions – for example, the Food Standards Code definition was considered when the excise/taxation definition was amended in 2009 to include bitterness and sugar level requirements – it is clear that the two definitions are distinct and separate. It is therefore possible for a product to be considered “beer” for the purposes of taxation, but not in terms of food standards regulation (and vice versa).

By way of example, there are some beers manufactured overseas that, instead of hops, use other bittering agents such as pine needles or heather. As long as they meet the conditions for the excise definition, including having a bitterness level of not less than 4.0 international bitterness units, they can be taxed as “beer” on import to Australia. However, these beverages could not be compliantly marketed as beer in Australia due to their lack of hops.

This may be a feature and not a bug for many new alcohol products hitting the markets, such as hard seltzers, which – if manufactured in the correct way – could attract a move favourable excise outcome and would never want to brand themselves as beer. Similar examples exist in the “fruit wine” and cider categories, where consumers are looking for lower carbohydrate alternatives that may meet WET definitions but not the Food Standards Code definition.

It is therefore important when formulating or importing an alcoholic beverage for the Australian market to consider your options for classifying the product with respect to both food standards and taxation regulation, as this can have significant implications for its composition, production process, and marketing, as well as its applicable rate of taxation.

In other words, meeting or not meeting any of these legal definitions can significantly impact the market viability of a product.

If you could use some assistance with the regulation of alcoholic beverages, please reach out to KHQ’s Food & Beverage team.

Want articles on Food & Beverage regulations delivered straight to your inbox? Click here to subscribe.

[1] Standards 1.1.2-3(2) and 2.7.2-2

KHQ Lawyers - Madeline Wyre

Madeline Wyre Lawyer

Madeline commenced as a graduate lawyer in 2020 after completing a Juris Doctor at the University of Melbourne. Before moving to Melbourne, Madeline completed a Bachelor of Arts (Law & Society and... Read More

KHQ Lawyers - Charles Fisher

Charles Fisher Principal Solicitor

Since completing his Bachelor of Laws and Legal Practice and Bachelor of Arts in 2006, Charles has spent the entirety of his legal career staring at the Food Standards Code (among many other pieces... Read More