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Edited version of your written advice
Authorisation Number: 1051321934233
Date of advice: 21 December 2017
Ruling
Subject: GST classification of a product
Question
Is the supply of the Product a taxable supply under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?
Answer
Yes.
Relevant facts and circumstances
You have recently taken over a business selling the Product. You are registered for GST.
You purchase raw materials and then process the Product.
You sell the Product to a variety of customers. Some customers eat the Product, some use for cosmetic purposes and some as an alternative medical treatment. However, Food Standards in the Relevant countries have banned the sale of Product as food. It notes that these types of products will only be available for cosmetic applications as used in the manufacture of skin care products.
You sell the Product from your online store. Your website includes a picture of a bag of the Product.
The label states that the Product is for manufacturing skin care products. There is also a warning that excessive consumption of this type of product can result in adverse reactions. The Product contains naturally occurring toxic components. For this reason, it is the opinion of Food Standards in the Relevant countries that these types of products should not be consumed.
You also have a social media account where you state that you sell the products to the public for the preparation of skin care products, even though they are processed, packed and sorted in a food grade environment.
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 section 38-4.
A New Tax System (Goods and Services Tax) Act 1999 paragraph 38-4(1)(a).
Reasons for decision
Summary
The supply of the Product is a taxable supply under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act).
Detailed reasoning
The supply of the Product is a taxable supply if the requirements of section 9-5 of the GST Act are satisfied.
Section 9-5 of the GST Act 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 the indirect tax zone; and
(d) you are *registered, or *required to be registered for GST.
However, the supply is not a *taxable supply to the extent that it is *GST-free or *input taxed.
(* denotes a term defined in section 195-1 of the GST Act.)
In your case, the supply of the Product satisfies the requirements of paragraphs 9-5(a), 9-5(b), 9-5(c) and 9-5(d) of the GST Act because:
● you supply the Product for consideration.
● the supply of the Product is made in the course of your enterprise.
● the supply of the Product is connected with Australia and
● you are registered for GST.
The supply of the Product is not input taxed. It remains to be determined if the supply of the Product is GST-free.
Under section 38-2 of the GST Act a supply of 'food' is GST-free. Subsection 38-4(1) of the GST Act sets out what amounts to food for the purposes of section 38-2 of the GST Act. Of relevance to this case is paragraph 38-4(1)(a) of the GST Act which provides that food includes 'food for human consumption (whether or not requiring processing or treatment)'.
The packaging of the Product and information on your website and social media account shows that the Product is sold for use in the manufacture of skin care products. Further, the Food Standards in the Relevant countries is of the opinion that these types of product should not be consumed. As such, the Product is not considered to be food for human consumption for the purposes of paragraph 38-4(1)(a) of the GST Act. Hence, you are not making a GST free supply under section 38-2 of the GST Act when you sell the Product.
The supply of the Product is not GST-free under any other provisions of the GST Act or another Act. Therefore, as all the requirements of section 9-5 of the GST Act are satisfied, the supply of the Product is a taxable supply.
You should note that to be GST-free under the food provisions of the GST Act, the product must be a supply of food for human consumption as defined in the GST Act. The mere fact that a product is edible is not sufficient for it to qualify as GST-free food.
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