Edited version of your written advice

Authorisation Number: 1013103834270

Date of advice: 10 October 2016

Ruling

Subject: GST-free supply and food

Question 1

Is a supply of a product to support immune functions a GST-free supply of food under section 38-2 of the A New Tax System (Goods and Services Tax) Act 1999?

Answer

No.

Relevant facts and circumstances

The entity is registered for GST and carries on in Australia a business of selling to retail customers a product.

The product is marketed by the entity as a food product to support immune functions.

The entity advises users to take a small quantity (say, a few grams) of the product by mixing it with water, fruit juice or sports drink, once or twice daily.

The entity purchases the product in a powder form in bulk, say, X kg, and repackages into smaller bags, say, Y g packages, for sales to retail customers.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 section 9-5

A New Tax System (Goods and Services Tax) Act 1999 section 38-2

A New Tax System (Goods and Services Tax) Act 1999 paragraph 38-3(1)(c)

A New Tax System (Goods and Services Tax) Act 1999 section 38-4

A New Tax System (Goods and Services Tax) Act 1999 Schedule 1

Reasons for decision

In this reasoning, unless otherwise stated, all legislative references are to the A New Tax System (Goods and Services Tax) Act 1999 (GST Act).

GST law

The GST Act provides:

9-5 Taxable supplies

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 the indirect tax zone; 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.

38-2 Food

A supply of *food is GST-free.

38-4 Meaning of food

(1) Food means any of these, or any combination of any of these:

(a) food for human consumption (whether or not requiring processing or treatment);

(b) ingredients for food for human consumption;

(c) *beverages for human consumption;

(d) Ingredients for beverages for human consumption;

(e) goods to be mixed with or added to food for human consumption (including condiments, spices, seasonings, sweetening agents or flavourings) …

(2) Beverage includes water.

195-1 Dictionary

indirect tax zone means Australia (within the meaning of the *ITAA 1997) …

ITAA 1997 means the Income Tax Assessment Act 1997.

In determining whether the product is food for GST purposes, it is necessary to determine whether it satisfies the requirements in paragraphs 38-4(1)(a), (b), (c), (d) and/or (e).

Is the product food for human consumption (whether or not requiring processing or treatment) under paragraph 38-4(1)(a)?

It is a principle of statutory construction that the legislature is considered not to have used superfluous language. In Hill v William Hill (Park Lane) Ltd [1949] AC 530, Viscount Simon explained the principle:

When the legislature enacts a particular phrase in a statute the presumption is that it is saying something which has not been said immediately before. The rule that a meaning should, if possible, be given to every word in a statute implies that, unless there is good reason to the contrary, the words add something which would not be there if the words were left out.

Therefore, 'food for human consumption' used in paragraph 38-4(1)(a) excludes both 'ingredients for food' and 'goods to be mixed with or added to food' used in paragraphs 38-4(1)(b) and (e) respectively. Paragraph 38-4(1)(a) therefore refers to food that exists in its own right (whether or not it requires processing or treatment).

The word 'food' in paragraph 38-4(1)(a) is not defined in the GST law and so takes its ordinary meaning.

The Macquarie Dictionary 3rd Edition (Macquarie Dictionary) defines 'food' as:

1. what is eaten, or taken into the body, for nourishment.

2. more or less solid nourishment (as opposed to drink);

3. a particular kind of solid nourishment: a breakfast food.

The dictionary definition of 'food' refers to the function of nourishment.

The product marketed and sold by the entity contains 100% of the product in powder form the entity purchased from suppliers.

A user takes a small quantity (say, a few grams) of the product by mixing it with water, fruit juice or sports drink, once or twice daily. In these circumstances, we consider that the product is ‘taken into the body’ of the user to support their immune functions. We do not consider that the product is taken for nourishment.

That is, we do not consider the product is food for human consumption (whether or not requiring processing or treatment) under paragraph 38-4(1)(a).

Is the product an ingredient for food for human consumption under paragraph 38-4(1)(b)?

The word ‘ingredient’ in paragraph 38-4(1)(b) is not defined in the GST law and so takes its ordinary meaning.

The Macquarie Dictionary defines ‘ingredient’ as:

1. something that enters as an element into a mixture: the ingredients of a cake

2. a constituent element of anything …

In paragraph 38-4(1)(b), we consider that the word 'for' in the phrase 'ingredients for food ' is used to narrow the ordinary meaning of the word ‘ingredient’.

Therefore, for a substance to be an ingredient for a food item for GST purposes, the substance must be used 'for the purpose of' production of the food item by entering as an element into it. That is, the substance is integral to the food item.

A user takes a small quantity (say, a few grams) of the product by mixing it with water, fruit juice or sports drink. In these circumstances, we consider that the product is not used 'for the purpose of' production of a food item by entering as an element into the food item. The water, fruit juice or sports drink is simply a means by which the product is ‘taken into the body’ of the user. That is, mixing the product with water, fruit juice or sports drink produces no food item.

Therefore the product is not an ingredient for food for human consumption under paragraph 38-4(1)(b).

Is the product beverage for human consumption under paragraph 38-4(1)(c)?

The Macquarie Dictionary defines ‘beverage’ as:

any kind of drink, other than water, especially a hot drink or an alcoholic drink

Subsection 38-4(2) defines ‘beverage’ to include water.

Therefore, for GST purposes, ‘beverage’ is any kind of drink including water.

The product is a powder substance to be ‘taken into the body’ of the user by mixing it with water, fruit juice or sports drink. For the purposes of paragraph 38-4(1)(c), water, fruit juice and sports drink are beverages in their own right. However, we consider the product which is a powder substance is not a beverage for human consumption under that paragraph.

Is the product an ingredient for beverages for human consumption under paragraph 38-4(1)(d)?

A user takes a small quantity (say, a few grams) of the product by mixing it with a beverage such as water, fruit juice or sports drink.

The user does not consume the product by itself in its powder form. The beverage with which the product is to be mixed exists independently of the product.

For GST purposes, the words ‘ingredients’ and ‘for’ in paragraph 38-4(1)(d) are to be interpreted in the same way as discussed above for those words in paragraph 38-4(1)(b).

Therefore, we consider that the product is not an ingredient for a beverage.

Is the product a good to be mixed with or added to food for human consumption (including condiments, spices, seasonings, sweetening agents or flavourings) under paragraph 38-4(1)(e)?

We consider that paragraph 38-4(1)(e) uses the words ‘to be’ to require the goods are for the purpose of mixing with or adding to food. We do not consider that ‘to be’ means ‘can be’ in that paragraph. Otherwise, any substance that can be mixed with or added to food would be food as defined in that paragraph. An example is a medicine can be added to food for the purpose of being taken into the body. If ‘to be’ means ‘can be’ (in paragraph 38-4(1)(e)), then that medicine is GST-free food. We consider that this is not the intention of the GST law.

Although a user takes a small quantity (say, a few grams) of the product by mixing it with water, fruit juice or sports drink, we consider that the product is not designed as a good ‘to be mixed with or added to food’.

Issue 18 in the Food Industry Partnership Issues Register provides:

Products that satisfy this paragraph are for the purpose of adding to the taste or flavour of food, as indicated by the scope of the words in the brackets [‘condiments, spices, seasonings, sweetening agents or flavourings’].

A user does not mix the product with water, fruit juice or sports drink for the purpose of enhancing its taste or flavour. We consider that the mere fact that the product can be mixed with water, fruit juice or sports drink does not qualify it as food under paragraph 38-4(1)(e).

Taxable supply of the product

Therefore, the product does not satisfy the definition of food in subsection 38-4(1), although it is marketed and sold by the entity as a food product to support immune functions.

A sale of the product will not be GST-free under section 38-2. The sale will be a taxable supply as all the requirements of section 9-5 will be satisfied.

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