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Edited version of private ruling

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Ruling

Subject: GST and classification of standardised milk

Question

Is the supply of standardised milk a GST-free supply of food pursuant to section 38-2 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer

Yes, the supply of standardised milk is a GST-free supply of food pursuant to section 38-2 of the GST Act.

Relevant facts and circumstances

You are registered for Goods and Services Tax (GST).

You are a food supplier.

You acquire raw unprocessed cow's milk from the farm gate.

You then add skim milk or cream to the unprocessed raw milk to alter the fat and protein composition of the milk to standardise the milk content. This process results in the milk becoming 'standardised milk'. Standardisation is required because differences in season and source lead to natural variations in fat and protein composition of raw cow's milk.

The standardised milk is then sold and delivered to a third party customer to undergo further processing (such as separation, homogenisation, pasteurisation) to manufacture milk or to become a finished dairy product.

The standardised milk can also be used by you to undergo further processing.

Reasons for decision

GST-Free Food

A supply of food is GST-free under section 38-2 of the GST Act if:

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

However, food does not include unprocessed cow's milk; see paragraph 38-4(1)(ga) of the GST Act.

Issue 2 of the Food Industry Partnership - issues register (accessible from our website at www.ato.gov.au) is a public ruling which sets out the Australian Taxation Office's view on milk and unprocessed cow's milk and provides that:

You advise that the unprocessed cow's milk that you acquire from the farm gate is subjected to a process referred to as standardisation. Through this process of standardisation, you add skim milk or cream to the unprocessed cow's milk to alter the fat and protein composition of the raw cow's milk to produce standardised milk with set compositions. As the standardised milk has been produced from a process of standardisation, the standardised milk is not unprocessed cow's milk and is not excluded from the definition of food by paragraph 38-4(1)(ga) of the GST Act. Accordingly, standardised milk satisfies the definition of food in section 38-4 of the GST Act.

Consideration now needs to be given to section 38-3 of the GST Act, which applies to make certain foods subject to GST.

Subsection 38-3(1) of the GST Act provides that a supply of food will be subject to GST if it is a supply of:

You advised that the standardised milk will undergo further processing by the third party customer to become a finished milk or dairy product. As such, the standardised milk is not food for consumption on the premises from which it is supplied nor is it hot food for consumption away from the premises where it is supplied and is not food of a kind specified in the GST Regulations. Therefore, paragraphs 38-3(1)(a), (b) and (e) of the GST Act do not apply.

Paragraph 38-3(1)(c) of the GST Act also does not apply as the standardised milk is not food of a kind specified in Schedule 1.

Paragraph 38-3(1)(d) of the GST Act provides that a beverage or an ingredient for a beverage is not GST-free unless specified in Schedule 2. Item 1(a) in Schedule 2 (Item 1(a)) lists milk, skim milk and buttermilk (whether liquid, powdered, concentrated or condensed). Standardised milk is milk and is covered by Item 1(a). Paragraph 38-3(1)(d) of the GST Act does not apply.

Consequently, the supply of the standardised milk is not excluded from being GST-free by section 38-3 of the GST Act.

Summary

Standardised milk satisfies the definition of food in section 38-4 of the GST Act, and is not excluded by section 38-3 of the GST Act.

The supply of standardised milk is GST-free under section 38-2 of the GST Act.

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