Edited version of your private ruling

Authorisation Number: 1012454148064

Ruling

Subject: GST and food

Question

Is your supply of a product GST-free?

Answer

No.

Relevant facts and circumstances

· You are registered for goods and services tax (GST).

· You are to sell a product (Product).

· The Product:

o is a type of vegetable that will be sold in a container with its root system still attached to pro-long shelf life

o has a small amount of soil around its roots

o can be consumed immediately once purchased

o is kept fresh prior to sale by applying a small amount of water

· You receive the Product from the supplier fully grown.

· The Product will be displayed for sale along with fruits and vegetables.

· You will market the Product as something that has a long shelf life.

· Research on the Product via several websites shows that:

o The Product, when packaged in a plastic container and with its roots intact, continues to allow moisture and nutrients to be taken up.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999

Section 38-2

Section 38-4

Subsection 38-4(1).

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 it is not excluded by section 38-3 of the GST Act.

Food for GST purposes is defined in section 38-4 of the GST Act to include food for human consumption (paragraph 38-4(1)(a)). However section 38-4 excludes from the definition plants that are under cultivation that can be consumed (without being subject to further process or treatment) as food for human consumption (paragraph 38-4(1)(i)).

In your case, you are to sell the Product. The Product will be sold in a container, with its root system still attached, to pro-long its shelf life. The product has soil around its roots and is kept fresh prior to sale by applying water. It can be consumed immediately once purchased. As a result of how it is sold, it is necessary to determine whether the Product is a plant that is under cultivation.

The phrase 'plant under cultivation' is not defined in the GST Act or any other Act. Accordingly, it is appropriate to examine the ordinary meaning of that phrase. To achieve this we can refer to both the Explanatory Memorandum to the A New Tax System (Goods and Services Tax) Bill 1998 (EM) and to the Macquarie Dictionary (1997).

The EM states the following in relation to 'plants under cultivation':

The exclusion for plants under cultivation will ensure that plants are not sold GST-free where they are still in a growing medium. For example, leaves of an herb plant can be picked and used as an ingredient in food even though the plant is growing in a container. Herbs when sold in bunches and not as part of a living plant will be GST-free. A lettuce that is grown hydroponically will be GST-free when picked and sold to a customer.

The Macquarie Dictionary defines the word cultivate to mean:

1. to bestow labour upon (land) in raising crops; till; improve by husbandry.

…

3. to promote or improve the growth of (a plant, etc.) by labour and attention.

…

The statement provided by the EM has been applied to form the ATO view on farm to food product transformation; Goods and Services Tax Industry Issue - Food Industry Partnership - Farm to 'food' product transformation (Food Product Transformation Ruling).

Paragraph 2 of the Food Product Transformation Ruling states:

…fruit, vegetables, herbs and spices will not be considered food for human consumption until such time as they have been harvested

Example 1 given in the ruling then states:

The leaves of a herb plant can be picked and used as an ingredient for food even though the plant is growing in a container. These plants will not be GST-free. However, herbs when sold in bunches and not as part of a living plant will be GST-free.

In this case, the Product has not been completely removed from its growing medium; the Product is still in a container with a small amount of soil around its roots. This is not the case for herbs that are wrapped then sold in a bunch or hydroponically grown lettuces that have been removed from their hydroponic system.

Further, we consider that prior to its sale, the Product is a living plant that still has some capability of taking up moisture and nutrients (albeit on a reduced scale) and a possibility of growth.

We also consider that by watering the plant, you are cultivating the plant, that is, through your labour you are keeping it alive.

Given this, and following the guidance provided by the Food Product Transformation Ruling and the Macquarie Dictionary, we consider the Product is being cultivated then sold as a living plant (and not something that has been removed from a living plant). As such, we consider that the Product has not yet been harvested for human consumption.

As a result, the Product is a plant under cultivation and therefore specifically excluded from the definition of food under section 38-4 of the GST Act. Section 38-2 of the GST Act therefore cannot be applied to the supply of the Product.

Consequently, you are making a taxable supply under section 9-5 of the GST Act when you supply the Product to your customers.

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