Packaging products are generally subject to GST when they are purchased. You can claim a GST credit for any GST included in the price of packaging for your business.
When packaging is supplied with or around food and it is 'normal and necessary' for the sale of the food, the GST treatment of the packaging is usually the same as the GST treatment of the food (that is, the packaging around GST-free food is also GST-free).
Example: Packaging
Richard is a breakfast cereal manufacturer. He buys 50,000 cardboard boxes from a paper manufacturer for $22,000, including $2,000 GST. The sale is subject to GST as the boxes do not contain any food. Packaging is not 'packaging for food' until it contains, and is sold with, food.
Richard then packs breakfast cereal in the cardboard boxes and sells boxes of breakfast cereal to a retailer for $100,000. The sale of the breakfast cereal is GST-free. The packaging (cardboard box) is also GST-free as it contains the breakfast cereal and is considered normal and necessary packaging for food.
If Richard packs the cereal in re-usable plastic containers, the containers are taxable, as they are not considered normal and necessary packaging for the breakfast cereal.
End of exampleNormal and necessary packaging
Normal and necessary packaging of GST-free food is GST-free.
Where the purpose of packaging is simply to contain, protect and promote food, it is seen as a 'normal and necessary' part of the supply of the food. For individual items, 'normal and necessary packaging' includes tins, bottles, jars and boxes. For a group of items, 'normal and necessary packaging' includes the carton or box that contains a number of individual items.
Packaging that is not ordinarily considered normal and necessary will be considered to be normal and necessary (and, therefore, GST-free) when it is packaging GST-free food and is:
- not charged at a separate price, and
- the cost price of the packaging is the lesser of:
- $3 excluding GST, or
- 20% of the wholesale value of the total sale.
This includes items that would attract GST if sold separately, such as:
- paper and plastic bags you supply free of charge to a customer for groceries
- containers, spoons, straws or similar objects if they:
- are provided free to help purchasers prepare or consume the food
- have no lasting value (for example, they are disposable).
Packaging that is more than what is considered normal and necessary for the sale of the food is taxable. For example, if you supply breakfast cereal in a re-usable plastic container, the container is taxable. The sale would be:
- partly taxable (container)
- partly GST-free (cereal).
Special promotional food packaging (for example, a rack for spices) is not normal and necessary. Promotional items that accompany food and packaging are also not normal and necessary (for example, drink containers and recipe books of lasting value). You must work out separately the tax on:
- promotional items accompanying the food
- packaging and items that are usually supplied separately.