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Edited version of your written advice
Authorisation Number: 1051371281647
Date of advice: 11 May 2018
Ruling
Subject: GST and the supply of skin care product (product)
Question
Is your supply of the product a GST-free supply?
Answer
No. Your supply of the product is not GST-free, it is a taxable supply.
Relevant facts and circumstances
You are registered for GST. You import the product into Australia and sell the product in Australia.
The product consists of water, and is marketed and packaged as a skin care product
Relevant legislative provisions
All references are to the A New Tax System (Goods and Services Tax) Act 1999 (GST Act):
Section 38-2
Section 38-3
Section 38-4.
Reasons for decision
Summary
The supply of the product is not a GST-free supply of food under section 38-2 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act). It is a taxable supply of skin care product.
Detailed reasoning
GST-free supply of food
A supply of food as defined in subsection 38-4(1) of the GST Act is GST-free under section 38-2 of the GST Act unless an exclusion in subsection 38-3(1) of the GST Act applies.
In accordance with paragraph 38-4(1)(c) of the GST Act, food includes beverages for human consumption.
Paragraph 38-3(1)(d) of the GST Act excludes beverages from being GST-free under section 38-2 of the GST Act unless they are beverages of a kind specified in the third column of the table in clause 1 of Schedule 2 to the GST Act (Schedule 2).
Water is listed under Item 14 in the third column of the table in clause 1 of Schedule 2 (item 14) as ‘natural water, non-carbonated and without any other additives’.
You state that your product consists of water so it should be GST-free as 'food for human consumption'. It is purely aerated spring water which is suitable for drinking with no further additives than nitrogen gas to allow it to be sprayed. The water can be safely consumed as the manufacturer has introduced no contaminants.
The Commissioner adopts the view that the essential character of goods assists in determining their GST classification. This involves ascertaining what the goods essentially are, as distinct from merely identifying one of a number of characteristics the goods might have. This approach relies upon deciding what is the basic nature of the goods and involves consideration of what the goods are made of and what they might be used for.
For the purposes of the GST Act, the definition of food includes “beverages for human consumption”. The definition of a beverage was discussed in the case of Bristol-Myers Company Pty Limited v Federal Commissioner of Taxation (1990) 21 ATR 417 at 421; 1990 ATC 4553 at 4556, where Lockhart J stated:
I prefer the simpler definition attributed to the word ``beverage'' by the Macquarie Dictionary which is simply ``a drink of any kind''.
``Drink'' when used as a noun is defined in slightly different ways by the dictionaries, but in my view it means any liquid which is swallowed to quench thirst or for nourishment
As such, given the above definition, we do not consider that the product is a “beverage”, as it is not a liquid to be swallowed to quench thirst or for nourishment.
Further, the product is not one that is for human consumption. Your marketing states that the product is sold as a spray. The product is not consumed by buyers, you state that the product can be used to spray on the body.
In addition, you sell the product through retailers such as X, Y ,Z and the price for the product is $A. This is not compatible with where water is normally sold, and the price of the product is not in the price range of a water bottle of similar volume.
In summary, we characterise the product as a skin care product, based on the product information and marketing. The product has the essential character of a skin moisturiser.
Consequently, we consider the product is not food for human consumption. Paragraph 38-4(1)(a) of the GST Act does not apply.
Hence, the supply of the products would not be GST-free under section 38-2 of the GST Act, it is a taxable supply.
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