By Millie Muroi
What’s in a name?
In this case, it could be the survival of a fledgling industry and billions of dollars in tax revenue, as the Tax Office risks being defeated by something seemingly as simple as defining “beer”.
Sauce Brewing’s Mike Clarke said the ATO’s ruling would stifle innovation.Credit: Wolter Peeters
A shake-up of the definition of beer by the tax office could drive up prices for seltzers, ginger beers and even lagers, as well as stifle innovation by craft brewers in an industry dominated by two major players.
It has been sparked by the ATO trying to separate seltzers – which typically taste like alcoholic flavoured mineral water – from traditional beers, even though the two can be manufactured using a similar process.
A draft ruling by the ATO in September said that for a drink to be considered a beer, it had to meet the “conventionally understood” definition: bitter taste, mid-to-low-level alcohol content, and with taste, smell and appearance derived from its beer base, which comes from the fermentation of grains, most commonly barley.
Whether a beer is indeed called a beer matters so much to brewers because of the tax the government charges on alcoholic beverages.
Excise duty rates applied to beers are lower than for “other excisable beverages”, which include spirits and pre-mixed drinks. Currently, beer attracts an excise rate of between $2.22 and $36.98 per litre of alcohol, while other drinks are taxed at between $58.48 and $66.67 per litre of alcohol.
In the 2019 financial year in Australia, excise taxes raised $6.9 billion, with beer excise generating $2.6 billion of that total.
In a letter to the Tax Office seen by this masthead, Independent Brewers Association chief executive Kylie Lethbridge said it was an “insulting” reduction of the industry, and that new beer styles were constantly being developed.
“[The change means] on any given day, a tax officer would have the power to determine what product is beer – presumably absent any qualifications in brewing,” she said.
The ATO will rule on which of (left to right) hard seltzer, XXXX, Mountain Goat and Sauce Brewing’s Galazacca products count as a beer.Credit:
Alcoholic seltzers and drinks initially brewed as a beer but then altered would fall under “other excisable beverages”, according to the ruling.
The narrow definition could also have unintended consequences for some of the nation’s most popular lagers, Lethbridge said.
“Lagers are formulated with very low bitterness, very low flavour, and use production techniques to ‘strip them of their taste’ … to the point that they too could be understood to push the boundaries of what could conventionally be understood as beer,” she said.
Industry sources said XXXX and Great Northern are in that category. Both brewers were contacted for comment.
The proposed changes would take effect in February 2025, and independent brewers say they could jeopardise long-term plans.
Mike Clarke, founder and chief executive of inner west Sydney’s independent Sauce Brewing Co, developed “brewed cocktails” – cocktails that are brewed rather than distilled – to diversify his business and cater to changing tastes.
But the ATO’s draft ruling could mean years of work testing, trialling and marketing the products will go down the drain, Clarke said.
“They’ll have to dump and start again,” he said. “They’ll have to relaunch their products and sell them at higher prices.”
Independent brewers compete against industry giants including Carlton & United Breweries.Credit: Louie Douvis
Clarke said the changes would stifle innovation when craft beer brewers were already struggling to compete against two industry giants: Japanese companies Asahi and Kirin, which own Australia’s largest breweries Carlton & United Breweries and Lion Nathan respectively.
“How can any business have the confidence to build new products and invest in their business when the ATO changes the rules?” he asked.
Wayward Brewing Co founder Peter Philip said his life savings were on the line and that the ruling would drive small breweries into the ground.
“The past three years have been a life-and-death battle to stay afloat, and it is not an exaggeration to say that this recent proposal from the ATO will push these businesses further towards the brink of permanent closure,” he said.
Wayward Brewing Co owner and founder Peter Philip.Credit: Max Mason-Hubers
Philip said independent brewers such as his helped develop innovative products including those with less alcohol.
“The ATO wish to make themselves the arbiters of what is and isn’t beer,” he said. “All we’re asking for is genuine engagement from the ATO and the federal government to address these issues and the spiralling cost of excise taxes.”
An ATO spokesperson said the draft ruling replaced an earlier proposal, which was withdrawn following industry consultation.
“The draft determination was developed to help manufacturers of certain beer-based beverages, including beer-based seltzers, to correctly classify their beverages for excise taxation purposes,” they said. “The ATO is currently considering all feedback.”
Lethbridge said local beermakers had to innovate to gain their hard-earned market share against large foreign-owned breweries.
“They should not be punished for trying to legally compete in a market that the federal government has failed to ensure is genuinely fair and competitive to small breweries,” she said.
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