• Issue 3

    Grain, cereal and sugar cane

    For source of the ATO view, refer to:

    Grain, cereal and sugar cane are not considered food for the purposes of the GST Act until they have been processed or treated resulting in an alteration of their form, nature or condition (paragraph 38-4(1)(h) of the GST Act).

    What sort of processing treatment do grains, cereals and sugar cane need to undergo before they can be considered 'food'?

    Generally grain, cereal and sugar cane will be considered food once they have been milled, machine dressed, cleaned and/or sprouted or processed in some other way. Harvesting is not considered to be a process or treatment that alters the form, nature or condition of the product. After the grain, cereal or sugar cane has been treated or processed resulting in an alteration in form, nature or condition, they can be classed as food. The supply however will be GST-free only where it is food for human consumption or ingredients for food for human consumption (section 38-4 of the Act).

    (See GSTB 2001/1 for a detailed discussion of dried pulses.)

    Example 1

    There are grains, which include peas, beans, chickpeas, and lentils that once they are harvested, have only to be packaged and/or cleaned before they are supplied for consumption.

    The cleaning of the grains is regarded as a process or treatment resulting in an alteration of the form, nature or condition of the grains. If the cleansing treatment results in the grains being of a grade or quality suitable for human consumption, then the supply of the grains as food will be GST-free under section 38-2 of the GST Act. It then needs to be ascertained whether these grains are food for human consumption or ingredients for food for human consumption.

    End of example

     

    Example 2

    A sugar cane grower sells sugar cane to a mill. As the cane has not been subject to any processing or treatment, GST is payable on the sale even though the sugar is ultimately for human consumption. However, the mill is entitled to input tax credits for the GST included in the price of the sugar cane.

    The mill processes the sugar cane and sells the raw sugar to a refinery. GST is payable on the sale as the sugar is still not fit for human consumption. However, the refinery is entitled to input tax credits for the GST included in the price.

    The refinery processes the raw sugar and sells the refined sugar to a wholesaler. The price does not include GST, as the sugar is now food for human consumption. Because there is no GST, no input tax credits arise in relation to the purchase of the sugar.

    The wholesaler sells sugar to a retailer, again without GST included in the price. The retailer sells the sugar to consumers and the sale is GST-free.

    End of example
      Last modified: 05 Aug 2016QC 16451