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Edited version of private advice
Authorisation Number: 1051652836420
Date of advice: 30 July 2020
Ruling
Subject: GST and nutritional supplements
Question
Is the supply of the Product a GST-free supply?
Answer
No. The supply of the Product is a taxable supply.
Relevant facts
You are registered for GST
You will start promoting the Product shortly.
Product is a patented product with specific quantities of specified nutrients, vitamins and minerals required by the body. The Product is in powder form.
The target markets for the Product are people with specified nutritional deficiencies.
You will make appointments to see health professionals with patients who will benefit from the use of the Product.
The Product will not be sold directly to the end-consumer and a referral from a medical practitioner will be required.
Each box of the Product is sold for a specified price and contains a specific number of sachets. Each sachet contains X grams of the product. The direction is to mix the contents of a sachet with water and consume the mixture. The packaging specifies the recommended dosage that should not be exceeded.
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 38-3.
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).
A New Tax System (Goods and Services Tax) Act 1999 paragraph 38-4(1)(d).
A New Tax System (Goods and Services Tax) Act 1999 section 38-4.
A New Tax System (Goods and Services Tax) Act 1999 Schedule 2.
Reasons for decision
Summary
The supply of the Product is not GST-free under section 38-2 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) as it does not satisfy the definition of food in section 38-4 of the GST Act.
Further, the supply of the Product is not GST-free under any other provision of the GST Act or of another Act.
The supply of the Product is a taxable supply under section 9-5 of the GST Act.
Detailed reasoning
A supply of food is GST-free under section 38-2 of the 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 to include:
· food for human consumption (whether or not requiring processing or treatment) (paragraph 38-4(1)(a) of the GST Act)
· ingredients for beverages for human consumption (paragraph (38-4(1)(d) of the GST Act).
The word 'food' in paragraph 38-4(1)(a) is not defined in the GST Act and so takes its ordinary meaning. Macmillan Publishers Australia, The Macquarie Dictionary online, www.macquariedictionary.com.au, viewed 7 May 2020, defines 'food' as:
- what is eaten, or taken into the body, for nourishment.
Issue 18 of the Food Industry Partnership - issues register, which considers whether psyllium seed husks are food for the purposes of the GST Act, highlights that 'not all substances that provide nourishment will satisfy the definition of food in the GST Act'.
Further the Detailed Food List which is a public ruling for the purposes of the Taxation Administration Act 1953 provides that the supply of nutritional supplements is a taxable supply.
In this case, the Product is a patented product that contains specific quantities of the nutrients, vitamins and minerals required by the body. The Product is used for the dietary management of specified nutritional deficiencies. The Product will not be sold directly to the end-consumer and a referral from a medical practitioner will be required. The Product is to be used under medical supervision only and is not suitable for use as a sole source of nutrition. Each sachet contains X grams of the Product. The packaging specifies the recommended dosage that should not be exceeded.
Based on the information provided, the essential character of the Product is not that of food, but that of a nutritional supplement. Therefore, for GST purposes, the Product is not considered to be food for human consumption under paragraph 38-4(1)(a) of the GST Act.
Alternatively, it needs to be determined whether the Product is an ingredient for a beverage in accordance with paragraph 38-4(1)(d) of the GST Act.
Subsection 38-4(2) of the GST Act defines beverage to include water. Therefore for GST purposes, a 'beverage' is any kind of drink including water.
The Product is not to be consumed in its own form as a powder, but to be added to water. The water to which the Product is to be added exists independently of the Product. The water is simply a means by which the Product can be ingested. The Product is not considered to be an ingredient for water. Therefore, the Product is not an ingredient for a beverage for the purposes of the GST Act. Hence, it is not necessary to consider paragraph 38-4(1)(d) of the GST Act.
In conclusion, as the Product does not satisfy the definition of food in section 38-4 of the GST Act, its supply is not GST-free under section 38-2 of the GST Act.
Taxable supply
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 provides that you make a taxable supply if:
(a) you make the supply for consideration
(b) the supply is made in the course or furtherance of an enterprise that you carry on
(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.
In this 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. Furthermore, the supply of the Product is neither GST-free nor input taxed under any 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.
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