GST is applied at various stages in the food supply chain. GST is applied where the food item is either:
- not for human consumption at that particular stage in the supply chain
- taxable under GST law.
If you are a GST-registered business, you can claim GST credits for any GST you pay in the price of food items you purchase in carrying on your enterprise. However, you can't claim GST credits for food supplied as an 'entertainment expense' that is non-deductible for income tax.
Example: when GST is applied in the food supply chain
A plant nursery sells punnets of lettuce seedlings to a market gardener. The seedlings are taxable as they are plants under cultivation, even though the lettuce is ultimately for human consumption. At this stage in the supply chain:
- the plant nursery charges GST and pays it to us
- the market gardener can claim a GST credit for the GST included in the price of the seedlings.
The market gardener then grows the lettuce, picks it and sells it to the wholesaler. The lettuce is GST-free as it is now a food for human consumption.
The wholesaler sells the lettuce, GST-free, to a retailer.
The retailer sells the lettuce GST-free to a consumer and GST-free to a restaurant.
The restaurant prepares the lettuce as part of a salad that a consumer eats on the premises. The price of the salad to the consumer is taxable. The restaurant pays the GST charged in the price of the salad to us.
This example is illustrated in Figure 1.
Figure 1: Food supply chain