ATO Interpretative Decision

ATO ID 2001/563

Goods and Services Tax

GST and the sale of medicinal herbs
FOI status: may be released

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Issue

Is the entity, a herb grower, making a GST-free supply under section 38-2 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), when it sells medicinal herbs?

Decision

No, the entity is not making a GST-free supply under section 38-2 of the GST Act when it sells medicinal herbs. The entity is making a taxable supply under section 9-5 of the GST Act.

Facts

The entity is a herb grower. The entity sells medicinal herbs to buyers who use them for a range of purposes, from food manufacture to herbal medicines. The herbs are labelled and marketed as being medicinal herbs.

The entity is registered for goods and services tax (GST). The supply satisfies the other positive limbs of section 9-5 of the GST Act.

Reasons for Decision

A supply of food is GST-free under section 38-2 of the GST Act if it satisfies the definition of food in section 38-4 of the GST Act and does not come within any of the exclusions listed in section 38-3 of the GST Act.

Herbs can have both culinary and medicinal uses. Therefore, it is necessary to determine if herbs are food for the purposes of the GST Act.

Food is defined in section 38-4 of the GST Act to include:

•: food for human consumption (whether or not requiring processing or treatment) (paragraph 38-4(1)(a) of the GST Act);
•: ingredients for food for human consumption (paragraph 38-4(1)(b) of the GST Act);
•: goods to be mixed with or added to food for human consumption (including condiments, spices, seasonings, sweetening agents or flavourings) (paragraph 38-4(1)(e) of the GST Act).

As the phrase 'food for human consumption' is not defined in the GST Act, it takes on its ordinary meaning. It is considered that the ordinary meaning of the phrase 'food for human consumption' would exclude products that are principally consumed for medicinal or therapeutic purposes.

The entity is selling medicinal herbs which have been labelled and marketed as being medicinal herbs. It is clear that the intention of the entity is to sell herbs which are intended to be used primarily for their medicinal or therapeutic properties, not as (or in) food for human consumption.

Therefore, the sale of medicinal herbs is not a supply of food for GST purposes. Accordingly, the entity is not making a GST-free supply under section 38-2 of the GST Act when it sells medicinal herbs.

The entity is registered for GST and the supply satisfies the other positive limbs of section 9-5 of the GST Act. Furthermore, the supply is neither GST-free under Division 38 of the GST Act nor input taxed under Division 40 of the GST Act. Therefore, the entity is making a taxable supply under section 9-5 of the GST Act when it sells medicinal herbs.

[Note: The mere fact that a herb is edible is not sufficient in itself for the herb to qualify as GST-free food. Nor is it appropriate to consider what purpose the purchasers are acquiring the herb for use as, or the fact that it could possibly be used in a tea preparation. What is necessary is to determine what the entity is selling. If the supplier is supplying culinary herbs then the supply is GST-free. Where the herbs being supplied are principally grown for their medicinal properties, are promoted as 'medicinal herbs' or are principally consumed for their medicinal or therapeutic properties, the supply is not a supply of food for GST purposes.]

Date of decision: 7 August 2001

Legislative References:
A New Tax System (Goods and Services Tax) Act 1999
   section 9-5
   Division 38
   section 38-2
   section 38-3
   paragraph 38-4(1)(a)
   paragraph 38-4(1)(b)
   paragraph 38-4(1)(e)
   Division 40

Related ATO Interpretative Decisions
ATO ID 2001/562

Keywords
Goods & services tax
GST free
GST food
Food for human consumption
Ingredients for food
Supplies & acquisitions
Taxable supply

Siebel/TDMS Reference Number: CW215447

Business Line: Indirect Tax

Date of publication: 7 November 2001

ISSN: 1445-2782

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