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Edited version of your written advice
Authorisation Number: 1012814828781
Ruling
Subject: Goods and services tax (GST) and food for invalids
Question
Is GST payable on your sale of X, where supplied in the following formats?
• (certain weight) tins.
• single serve sachet (certain weight)
• ready to drink (ie. premixed with a liquid)
Answer
No.
Relevant facts and circumstances
You are registered for GST.
You manufacture and sell (via pharmacies and distributors to nursing homes, home health care, hospitals and other medical practitioners) a product referred to as X.
X is a powdered product that can be mixed with a variety of liquid products to form a beverage designed to increase a person's nutritional intake. The product has been designed as a sole source of nutrition for people with increased nutritional requirements, people suffering from illnesses or recovering from surgery and other similar issues.
The product is sold in (certain weight) tins. The product is also intended to be sold in a single serve sachet format (certain weight) and in a ready to drink format (ie. premixed with a liquid).
Food Standards Australia and New Zealand (FSANZ) is responsible for developing, varying and reviewing standards and for developing codes of conduct with industry for food available in Australia and New Zealand covering labelling, composition and contaminants. FSANZ is a statutory authority under Commonwealth law and is an independent, expert body.
FSANZ has developed some standards for the Code in relation to the category 'food for special medical purposes' (FSMP). The relevant standard number is standard 2.9.5.
FSMP regulated by standard 2.9.5 are principally formulated food products, used under the supervision of medical or other health professionals (eg. dieticians, nurses, pharmacists), for the dietary management of individuals with either ongoing chronic medical or disability conditions or during acute phases of illness, injury or disease.
X packaging and marketing satisfy the requirements of FSANZ standard 2.9.5 including clearly stating that the product is FSMP and is for use under medical supervision.
Information on website flyer ((certain weight) tin format):
X is helpful for people with various health problems.
Relevant legislative provisions
A New Tax System (Goods and Services Tax) Act 1999 subsection 7-1(1)
A New Tax System (Goods and Services Tax) Act 1999 section 9-5
A New Tax System (Goods and Services Tax) Act 1999 section 9-40
A New Tax System (Goods and Services Tax) Act 1999 section 38-2
A New Tax System (Goods and Services Tax) Act 1999 section 38-3
A New Tax System (Goods and Services Tax) Act 1999 section 38-4
Reasons for decision
Summary
GST is not payable on your sales of the products because they are GST-free supplies of food.
Detailed reasoning
GST is payable by you on your taxable supplies.
You make a taxable supply where you satisfy the requirements of section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), which states:
You make a taxable supply if:
(a) you make the supply for *consideration; and
(b) the supply is made in the course or furtherance of an *enterprise that
you *carry on; and
(c) the supply is *connected with Australia; and
(d) you are *registered, or *required to be registered.
However, the supply is not a *taxable supply to the extent that it is *GST-free
or *input taxed.
(*Denotes a term defined in the GST Act)
A supply of food is GST-free in accordance with section 38-2 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), if it satisfies the definition of food in section 38-4 of the GST Act and it does not come within any of the exclusions in subsection 38-3(1) of the GST Act.
According to paragraph 38-4(1)(c) of the GST Act, the definition of food includes beverages for human consumption. Your product, when sold in a ready to drink format is a beverage for human consumption.
According to paragraph 38-4(1)(d) of the GST Act, the definition of food includes ingredients for beverages for human consumption. Your product, when sold in a powdered format is an ingredient for a beverage for human consumption.
Under paragraph 38-3(1)(d) of the GST Act, a supply of a beverage, or an ingredient for a beverage, other than those specified in the table in clause 1 of Schedule 2 to the GST Act (Schedule 2), is not GST-free.
Item 13 in the table in clause 1 of Schedule 2 to the GST Act lists beverages, and ingredients for beverages, of a kind marketed principally as food for infants or invalids.
The Macquarie Dictionary (6th Edition) defines 'invalid' as 1. An infirm or sickly person. Stedman's Medical Dictionary (27th Edition) defines 'invalid' as 1. Weak; sick. 2. A person partially or completely disabled.
We consider that foods that are FSMP under FSANZ standard 2.9.5 are foods of a kind marketed principally as food for invalids, as
• they are principally formulated food products, used under the supervision of health professionals, for the dietary management of individuals with either ongoing chronic medical or disability conditions or during acute phases of illness, injury or disease; and
• these individuals rely either fully or partially on FSMP to meet their specific nutritional requirements that cannot be satisfied by a normal diet; and
• there are inherent risks associated with the consumption of FSMP, although these risks are generally minimised by the supervision and guidance provided by a health professional.
We consider that the products in question are of a kind marketed principally as food for invalids because:
• the products in question are FSMP; and
• the products have been designed as a sole source of nutrition for people with increased nutritional requirements, people suffering from illnesses or recovering from surgery and other similar issues; and
• you sell via pharmacies and distributors to nursing homes, home health care, hospitals and other medical practitioners; and
• X packaging and marketing satisfy the requirements of FSANZ standard 2.9.5 including clearly stating that the product is FSMP and is for use under medical supervision.
Therefore, two of the products are an ingredient for beverages of a kind marketed principally as food for invalids and the other product is a beverage of a kind marketed principally as food for invalids. Hence, the products in question are covered by item 13. Therefore, the exclusion at paragraph 38-3(1)(d) of the GST Act does not apply. None of the other exclusions in subsection 38-3(1) of the GST Act apply. Therefore, your sales of the products in question are GST-free under section 38-2 of the GST Act. Hence, GST is not payable on your sale of these products.
Your sale of the product in powdered form is also GST-free as an ingredient for food for human consumption.
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