• Issue 25

    Tea

    What is considered to be a 'tea' for the purposes of item 5 of Schedule 2 of the GST Act?

    For source of ATO view, refer to the Detailed food list.

    Generally a supply of food will be GST-free in accordance with Section 38-2 of the GST Act. 'Food' is defined in subsection 38-4(1) of the GST Act and includes:

    '(c) beverages for human consumption; (d) ingredients for beverages for human consumption;...'

    However, food (including beverages) will not be GST-free where the provisions of section 38-3 of the GST Act apply. Paragraph 38-3(1)(d) of the GST Act operates to subject the following foods to GST:

    'a beverage (or an ingredient for a beverage), other than a beverage (or ingredient) of a kind specified in the third column of the table in clause 1 of Schedule 2;...'

    Therefore, beverages for human consumption are only GST-free to the extent that they are specified in clause 1 of Schedule 2 of the GST Act.

    In this case the relevant item is item 5 of Schedule 2 of the GST Act which states:

    'tea (including herbal tea, fruit tea, ginseng tea and other similar beverage preparations)...'

    will be GST-free.

    Although, it should be noted that tea that is in a ready to drink form will be subject to GST - clause 2 of Schedule 2 of the GST Act.

    'Tea' is not further defined in the GST Act and is therefore given its ordinary meaning. The Macquarie Dictionary defines tea as:

    '1. the dried and prepared leaves of the shrub, Thea sinensis, from which a somewhat bitter, aromatic beverage is made by infusion in boiling water.... 5. any of various infusions prepared from the leaves, flowers, etc., of other plants, used as a beverage or medicines.'

    It is therefore determined that tea can be consumed both as a beverage and as a medicine. However, for the purposes of the GST Act, the definition of food is referring to those beverages that are primarily consumed for the purposes of increasing bodily liquid levels, to quench thirst or to give pleasure. It does not cover beverages or ingredients for beverages that are primarily consumed for medicinal or therapeutic purposes.

    Therefore, item 5 of Schedule 2 of the GST Act is limited to those teas that have the essential character of a beverage, which by way of item 5 is extended to include substitutes for those teas (for example,. herbal teas, fruit teas, ginseng, etc). Therefore item 5 of Schedule 2 of the GST Act excludes teas consumed primarily for medicinal or therapeutic reasons.

    How do we determine whether tea is a beverage or a medicine for the purposes of the GST Act?

    In all cultures, plants are traditionally accredited with real or imagined medicinal properties, and there has always been an overlap between 'medicinal' teas and traditional herbal teas.

    It is therefore relevant to use the 'essential character' test adopted under the former wholesale sales tax regime. The Australian Taxation Office adopts the view that the essential character of goods assists in determining their GST classification. This involves ascertaining what the goods essentially are, as distinct from merely identifying one of a number of characteristics the goods might have. This approach relies upon deciding what is the basic nature of the goods and involves consideration of what the goods are made of and what they might be used for. Therefore, teas consumed for medicinal or therapeutic purposes have an 'essential character' of a medicine, not a beverage.

    In Issue No 1, we have dealt with the issue of whether products that can be consumed as food but also have other uses are considered to be food.

    The GST status of a product depends on whether it is a supply of food as defined in the GST Act. The mere fact that a product may be consumed as a tea preparation is not sufficient for it to qualify as a GST-free food. Therefore, a product with a GST-free food use will not retain its GST-free status if, in the course of its supply, the supplier differentiates it from the GST-free food product.

    In determining whether a supply is a supply of GST-free food, it is not only the physical characteristics of the product that are important but also the nature of the supply. It cannot be said that a supply of a product, which is promoted as a medicinal tea preparation, is a supply of food, even if it is identical in substance to the GST-free food product. The nature of the supply has changed. The product is primarily sold for medicinal purposes.

    A tea preparation will be considered to be differentiated for medicinal or therapeutic use where any of the following are satisfied:

    • the product has been designated as a medicinal or therapeutic tea preparation;
    • the labelling, invoicing, marketing or promotional material identify it as sold and purchased for a specific remedial purpose;
    • the directions for consumption (for example, dosage), are similar to those that would be issued with a medicinal product; or
    • the product is listed under the Therapeutic Goods Act.

    Example 1

    Ginseng tea is comprised of ground ginseng root. In many cultures, it is commonly consumed as an alternative to black tea.

    However, it is also thought that ginseng tea has medicinal properties and that its consumption relaxes and stimulates the nervous system, lowers blood sugar levels, alleviates stress and insomnia.

    Where ginseng tea has the essential character of a beverage and the supplier has not differentiated the product as a medicinal tea preparation, then the supply of ginseng tea will be GST-free.

    Alternatively, where the supplier has differentiated the product as a medicinal tea preparation, and the label contains a dosage and/or makes specific remedial claims, the ginseng tea preparation, in this instance, will be subject to GST. This is the case even though ginseng tea is specifically included in item 5 of Schedule 2 of the GST Act.

    End of example

     

    Example 2

    Good for You Teas Pty Ltd, a herbal tea manufacturer, imports herbal tea into Australia. They do not make specific therapeutic claims on the labels or promotional materials of their herbal tea preparations. There are no specific medicinal type dosages contained on the labels. These products are sold to supermarkets and some health food stores.

    Where the herbal tea products supplied by Good for You Teas Pty Ltd, have the essential character of a beverage and are supplied as an ingredient for a beverage for human consumption they will be GST-free.

    However, they will be subject to GST where they have been differentiated as a medicinal tea preparation (that is, they make therapeutic claims).

    End of example

     

    Example 3

    Slippery elm is found in the white inner bark of the elm tree, and is available in capsules, powder and as a tea. Slippery elm makes specific therapeutic claims and is consumed primarily for medicinal reasons. It is clearly evident that the marketing of the product demonstrates that it is competing with other medicines and therefore has the essential character of a medicine and not a beverage. Even though it is consumed after being infused in boiling water, slippery elm is not considered to be food in accordance with section 38-4 of the GST Act, and therefore it is subject to GST.

    End of example
      Last modified: 05 Aug 2016QC 16451