For Australians wanting to distil their own alcohol, it is important to know that you have to pay tax on the alcohol you produce. Similar to driving a car, an individual must obtain a licence if they wish to distil alcohol. A licence is issued by The Australian Tax Office and can be obtained for free of charge.
Using a still to make spirits in Australia is illegal unless an individual obtains an ‘excise manufacturing licence’. This is regardless of whether the alcohol being produced is for sale or ‘personal use’. Distilling alcohol without holding the required licence can result in being fined up to $85,000 or potentially up to two years in prison.
Craig Dangar from C&D Restructure & Taxation Advisory says that “the distilling taxes, whilst somewhat significant are a valid barrier to entry for the market and ensure a level playing field. We are here to help in understanding your obligations as they can be tough to understand” says Mr. Dangar.
Unlike spirits, the production of beer, cider or wine for personal use doesn’t require a licence and therefore it is not illegal. Distilled spirits include; rum, gin, whiskey and brandy.
The tax you pay on the distilled spirts you produce includes the spirits that you have created for your own consumption within your own home. Despite this, Australians don’t have to pay tax on the beer, wine and cider they produce to be consumed within their own home. This unique law was passed by the Australian government way back in 1901 and hasn’t been changed since its introduction.
“The the rules are pretty solid and one can argue that the lack of change reflects that home stills are not particularly common, that the rules are robust and appropriate. We would recommend that prior to buying a still or planning to distil your own that you give us a call to understand what your options are” says Mr. Dangar.
The tax is based off every bottle you buy and it is no different to the tax you pay on the spirits you make at home. The excise rate increases every 6 months and as of 1st February 2021 currently sits at $87.68.
When deciding to apply for a ‘excise manufacturing licence’, the ATO encourages Australians to take into consideration key factors regarding their house of residence. This includes considering the security of your premise and furthermore whether the right amount of excise duty will be paid when it is required to be paid. ‘Excise duty’ is payable on alcohol distilled even if it is not sold. There are also refunds available for duty amounts paid that can be claimed if eligible.
Once obtaining an excise manufacturing licence, it will be deemed valid from the day it’s granted until the following 30th September after the second anniversary of the day it was obtained, unless it is cancelled earlier. Once the individuals original excise manufacturing licence has expired it can be renewed for another three years, expiring on 30th September of the year which it is set to expire.
When an individual doesn’t have a ‘excise manufacturing licence’ you are required to obtain one from the ATO if you are wishing to; manufacture a still, buy or sell a still, import a still, have possession and custody or control of a still and to move or set up a still in your home or a commercial premise.
The application for permission to own a still with a capacity of 5 litres or more can be obtained and completed via the ATO. An individual can be fined up to $8,500 if they fail to seek permission from the ATO to own the still. You don’t need permission from the ATO to buy a still that is under 5L.
From 1st July 2017, Australians can claim a refund of 60% of the excise duty they have paid on the spirits they have distilled. The maximum refund you are able to claim is $30,000 per financial year. The claim must be made within 12 months after paying the excise duty.
There is another process that needs to followed by individuals if they are wishing to sell the liquor they have distilled, store the liquor or operate their own distillery.
“Just in the gin space there is a rapid increase in the number of operators, doing it properly is the key and we are here to help. We have walked several cottage operators through the rules, ensuring their compliance but also that they have a profitable operation” says Craig Dangar.
It is also important to stay safe whilst distilling spirits and make sure you purchase the right equipment and use the correct ingredients. It is crucial to ensure that you only produce ethanol which is safe to drink, unlike methanol which is poisonous and deadly.
Ingesting 10 millilitres of methanol can cause blindness in humans, and ingesting 100 millilitres will most likely result in death. In 2013, two men aged 54 and 49 died in Tasmania after consuming home-made spirits. One of the men who died in this tragedy had been making the spirits out of potato skins and had been sharing them with a small group of friends for a few years leading up to the fatal event.
It is important for Australians to educate themselves on the safety surrounding the creation of home-made spirits.
The team at C&D Restructure and Taxation Advisory are here to help. As part of the Vault Group we can offer the full suite of financial products and advice to help you navigate the business landscape. Schedule a meeting here via calendy or give us a call on 07 36086800.
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