When is GST applied 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 included in the price of food items you purchase in carrying on your enterprise
- can't claim GST credits for food supplied as a non-deductible 'entertainment expense'.
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 as GST-free to a retailer.
The retailer sells the lettuce GST-free to a consumer and to a restaurant.
The restaurant prepares the lettuce as part of a salad that a consumer eats on the premises. GST is included in the price of the salad charged to the consumer. The restaurant pays the GST to us.
This example is illustrated in Figure 1.
Figure 1: Food supply chain