Edited version of your written advice

Authorisation Number: 1051182763783

Date of advice: 17 February 2017

Ruling

Subject: GST and fermented food supplement

Question

Are you making a taxable importation of the product under section 13-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer

Yes, your importation of the product is a taxable importation and subject to GST.

Relevant facts and circumstances

You are a sole trader not registered for goods and services tax (GST).

You import a fermented liquid into Australia as a dietary/food supplement and additive containing various fruits, vegetables, nuts, grains and spices in a vat fermented with bacteria.

It is packaged and shipped to Australia as a liquid. It is not an extract and there is no juicing. The texture is completely liquid with no particles at all. Once fermentation is complete it is filtered so it appears just like a bottled fruit juice or dark vinegar.

You referred to the website for your product for further information which amongst other things provides that your product:

● It is absorbed easily and fully during the first stage after consumption.

● Vitamin C in the product helps:

- to maintain normal production of collagen required for normal function of blood vessels

- to maintain normal energy metabolism

- to reduce tiredness and fatigue

- to maintain normal function of the immune system

● A serving size contains; Calories X, Total fat X, Saturated fat X, Cholesterol X, Sodium X, Total carbohydrate Xg, Dietary fibre X, Sugars X, Protein Xg, Vitamin C Xmg.

● The standard dosage is XL (X teaspoons) twice a day. It can be taken plain or mixed it with half a glass of water or fruit juice.

● The standard suggested usage is for a 3 month period allowing for the release of toxins and impurities followed by regaining strength and energy as the systems become more balanced and harmonized. Smaller doses are recommended for people with certain physical problems or ailments.

Relevant legislative provisions

All references are to the A New Tax System (Goods and Services Tax) Act 1999:

● section 38-3

● section 38-4

● section 9-5

● section 13-5

● section 13-10

● Schedule 2

Reasons for decision

Section 13-5 of the GST Act provides that the importation of goods into Australia is taxable if they are entered for home consumption unless the importation is a non-taxable importation.

The meaning of "non-taxable importation" is provided in section 13-10 of the GST Act:

An importation is a non-taxable importation if:

(a) it is a non-taxable importation under Part 3-2; or

(b) it would have been a supply that was *GST-free or *input taxed if it had been a supply.

Your product is not a non-taxable importation under Part 3-2 of the GST Act.

Under paragraph 13-10(b) of the GST Act, an importation is a non-taxable importation if, had the importation been a supply, the supply would have been GST-free or input taxed.

The sale of your product is not input taxed.

A supply of food is GST-free under section 38-2 of GST Act if the product satisfies the definition of food in section 38-4 of the GST Act and the supply is not excluded from being GST-free by section 38-3 of the GST Act.

'Food' is defined in subsection 38-4(1) of the GST Act as:

(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); …..

Your product is described alternatively as a dietary supplement, food supplement and food additive.

Food additive

Food additives are considered to be ingredients for food for human consumption for the purposes of the GST Act and therefore, satisfy the definition of food.

The term food additive is not defined in the GST Act and therefore takes its ordinary meaning. The word additive is defined in the third edition of the Macquarie Dictionary to mean 'a substance added to a product, usually to preserve or improve its quality'. Examples of products that are considered to be food additives for GST purposes include colourings, flavourings, preservatives, antioxidants, sweeteners, vitamins, minerals and modifying agents.

Paragraph 38-3(1)(e) of the GST Act also specifies that a supply of food is not GST-free if it is a supply of food of a kind specified in the A New Tax System (Goods and Services Tax) Regulations 1999 (GST Regulations) made for the purposes of this subsection.

Effective from 1 December 2001, regulation 38-3.02 of the GST Regulations applies to food additives. This regulation gives effect to paragraph 38-3(1)(e) of the GST Act and determines those food additives that are not GST-free.

Subregulation 38-3.02(1) of the GST Regulations states that food additives, other than exempt food additives, will be subject to GST. The term exempt food additive is defined in subregulation 38-3.02(2) of the GST Regulations to mean:

● a food additive which, at the time of supply is packaged and marketed for retail sale; or

● a food additive which, at the time of supply

- has a measurable nutritional value

- is supplied for use solely or predominantly in the composition of food, and

- is essential to the composition of that food.

You market your product for retail sale and it has nutritional value however it does not satisfy the requirements of being supplied for use solely or predominantly in the composition of food, nor being essential to the composition of that food for example the water or fruit juice that it can be added to.

Your product therefore, is not an exempt food additive under subregulation 38-3.02(2) of the GST Regulations.

Supplements

Supplements such as dietary supplements are products that are generally added or mixed with existing food or consumed by mixing with water, juice or other types of liquids. They are also generally taken for therapeutic reasons to prevent or compensate for some real or imagined nutritional deficiency. It is also often the case that a supplement will have its consumption restricted to certain persons, directions that the product must be consumed under supervision or be consumed within a specified amount or dosage.

Given this, while supplements are able to be consumed like food, they are something other than the basic foods envisaged as being GST-free. For this reason, we consider that supplements are not considered to be food for GST purposes under section 38-4 of the GST Act.

We also consider that supplements are not ingredients for food. A product is taken to be an ingredient for food if the product (or some essential element of the product) is an integral part of that food. Something that is sprinkled on top of a food or mixed with food or beverage and is not essential to that food or beverage is not considered to be an ingredient as the food or beverage is acting merely as a carrier for the supplement. This is because the product retains its own separate identity and does not become an integral part of the food or beverage it is added to.

Beverage

Paragraph 38-4(1)(c) of the GST Act defines food to include beverages for human consumption.

Section 38-4(2) of the GST Act provides that 'beverage' includes water. As this definition does not assist in determining whether your product is a beverage for the purposes of the GST Act, it is necessary to consider the ordinary meaning of the word 'beverage'.

The Macquarie Dictionary 3^rd Edition (the dictionary) defines 'beverage' as 'any kind of drink, other than water, especially a hot drink or an alcoholic drink'.

The courts have also considered the meaning of the word 'beverage'.

Lockhart J in Bristol-Myers Co. Pty. Ltd. V. Federal Commissioner of Taxation (1990) 21 ATR 417 describes 'a beverage' as 'a drink of any kind'.

Lockhart J went on to say that:

… "Drink" when used as a noun is defined in slightly different ways by dictionaries, but in my view it means any liquid which is swallowed to quench thirst or for nourishment.

Therefore, a beverage is considered to be any liquid that is swallowed for nourishment or to quench thirst. A liquid which provides nourishment will sustain life by assisting in growth or providing energy.

It is considered that your product is not a 'drink' and is not consumed as a drink to quench thirst or for nourishment but rather to increase energy production by its fermentation process.

Your product is a liquid made from various ingredients and is used in extremely small quantities or doses. Together with having some nutritional value especially from active enzymes due to the fermentation process, it is marketed also to be given in smaller than the recommended doses for people having systems that are moderately delicate or with skin or digestive issues and even smaller doses per day building up gradually for people with other ailments and physical problems.

Therefore your product is supplied to produce an 'effect', as a supplement, not as a beverage or as an ingredient for a beverage. Something does not become an ingredient for a beverage simply because it is added to an already existing beverage.

Accordingly, it is considered that your product does not satisfy the definition of 'food' in terms of section 38-4(1) of the GST Act.

As your product is not a food, it cannot be a supply of GST-free food. Your product is neither GST-free under any other provision of Division 38 of the GST Act nor input taxed under Division 40 of the GST Act and does not qualify for custom duty concessions. As a result, you will be making a taxable importation when you import your product into Australia.

Note:

Even if your product was considered a beverage and therefore food for the purposes of the GST Act, under paragraph 38-3(1)(d) of the GST Act, a supply of a beverage is not GST-free unless it is a beverage of a kind specified in the table in Clause 1 of Schedule 2 to the GST Act (Schedule 2) or in the GST Regulations. The only two items in Schedule 2 that could be relevant to your product are:

● Item 10 of Schedule 2 provides that concentrates for making non-alcoholic beverages, which consist of at least 90% by volume of juices of fruits, are GST-free. Even if your product was classified as a concentrate, there is no evidence it consists of at least 90% by volume of the juices of fruits. Accordingly, a supply of your product is not GST-free under this item.

● Item 12 of Schedule 2 provides that non-alcoholic non-carbonated beverages, if they consist of at least 90% by volume of juices of fruits or vegetables, are GST-free. There is no evidence that your product consists of at least 90% by volume of juices of fruits or vegetables.

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