Are green runners and natural sausage casings GST-free as ingredients for food for human consumption?
For source of ATO view, refer to the Detailed food list.
A supply of food is GST-free under section 38-2 of the A New Tax System (Goods and Services) Tax Act 1999 (GST Act) if the product satisfies the definition of food in section 38-4 of the GST Act, and the supply is not excluded from being GST-free by section 38-3 of the GST Act.
Food is defined in subsection 38-4(1) of the GST Act to include ingredients for food for human consumption (paragraph 38-4(1)(b) of the GST Act).
Before determining whether 'green runners' and 'natural sausage casings' are GST-free under section 38-2 of the GST Act, it is necessary to establish what we mean by the term 'runners', 'green runners' and 'natural sausage casings'.
Runners and green runners
Runners are the small intestines after the operation of running (removal from the mesentery and fat).
Green runners are the runners after stripping of ingesta as defined in the Australian Standard for Hygienic Production of Natural Casings for Human Consumption (Draft).
Natural sausage casings
Natural sausage casings are the sub-mucosal layer of intestines obtained from green runners after cleaning and placing in a preservative as defined in the Australian Standard for Hygienic Production of Natural Casings for Human Consumption (Draft).
What is an ingredient for food?
'Ingredient' is not defined in the GST Act. However, the Macquarie Dictionary defines 'ingredient' as 'something that enters as an element into a mixture'.
Ingredients for food for human consumption under paragraph 38-4(1)(b) of the GST Act are only GST-free if they are in a form or condition that does not require processing or treatment to be used as an ingredient.
Green runners require processing and treatment before they can be used as natural sausage casings. These processes include passing the green runners through crushers that break the mucosal and muscular layers and expel those layers. The green runners may pass through a de-threader that removes any final layers, leaving them clean. Additional processes may also be carried out before they are packed and ready for use.
As green runners require further processing before they can be used as an ingredient, they are not covered under the definition of food in paragraph 38-4(1)(b) of the GST Act and are not GST-free under section 38-2 of the GST Act. Therefore, a supply of green runners will be a taxable supply under section 9-5 of the GST Act.
Natural sausage casings do not require further processing and are therefore an ingredient for food for human consumption and are GST-free under section 38-2 of the GST Act.
The ATO is aware that there has been some uncertainty and inconsistency within the industry in relation to the tax treatment of green runners. As a result of discussions with industry representatives, the ATO will allow suppliers of green runners until 1 July 2002 to comply with this advice.