Edited version of private advice

Authorisation Number: 1051760023224

Date of advice: 25 September 2020

Ruling

Subject: GST and beverage classification

Question

Is your supply of the listed products GST-free pursuant to section 38-2 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer

Relevant facts

You are a plant-based food and beverages company which is registered for GST.

You import the Products and sells to Australian retailers.

The Products are marketed as low-sugar, plant-based alternatives to dairy milk, which are chosen by consumers that are lactose intolerant, have other dietary or allergy concerns, are health and/or environmentally conscious.

The Products are located in the dairy chiller section of supermarkets, alongside dairy milk products.

The Products are required to be refrigerated and consumed within a few days of being opened.

The Products are plant-based milks made from either tree nuts or seeds. They are included in the beverages range and are certified organic, lactose-free and gluten-free. You market the Products as healthy and nutritious alternative to cow's milk and also covering the specific needs of vegetarian and vegan diets.

Product A and Product D have no added flavourings.

Product C contains added calcium.

Product B has added vanilla flavouring and is marketed as a flavoured beverage.

Relevant legislative provisions

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 Paragraph 38-3(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 Paragraph 38-4(1)(c).

A New Tax System (Goods and Services Tax) Act 1999 Schedule 1, Clause 1, item 1(a).

A New Tax System (Goods and Services Tax) Act 1999 Schedule 1, Clause 1, item 2.

Reasons for decision

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.

The term 'food' is defined in section 38-4 of the GST Act to include (among other things) beverages for human consumption (paragraph 38-4(1)(c) of the GST Act).

The Products are in liquid ready to drink form. Hence, the Products are beverages for human consumption and therefore, satisfy the definition of food under paragraphs 38-4(1)(c) of the GST Act.

However, paragraph 38-3(1)(d) of the GST Act provides that a beverage (or an ingredient for a beverage) is not GST-free under section 38-2 of the GST Act unless it is a beverage (or an ingredient for a beverage) of a kind specified in the third column of the table in clause 1 of Schedule 2 to the GST Act (Schedule 2).

The phrase 'of a kind' is not defined in the GST Act. Accordingly, it is appropriate to examine the ordinary meaning of that term. The Macquarie Dictionary (1997) does not define the entire phrase 'of a kind' however, it defines the word 'kind' to mean:

1. A class or group of individuals of the same nature or character, especially a natural group of animals or plants. 2. Nature or character as determining likeness or difference between things: things differing in degree rather than in kind. 3. A person or thing as being of a particular character or class: he is a strange king of hero. 4 ...

Accordingly, something will be 'of a kind' if it is of the same nature or character (possessing the same distinguishing qualities) as the thing or group in question.

In addition, the case law Lansell House Pty Ltd & Anor v FC of T 2011 ATC 20-239 at [30] relevantly provides:

The use of the words "of a kind" in s 38-3(1)(c) of the GST Act adds further generality to the description of the items described in Schedule 1: Air International Pty Ltd v Chief Executive Officer of Customs (2002) 121 FCR 149 per Hill J. Thus, a new product that does not possess all of the same characteristics of known crackers may nevertheless be within the relevant item...

In coming to its decision, Lansell also considered, among other things, the product's

·         use

·         in store display

·         marketing

·         tax treatment in the country of manufacture, and

·         appearance.

Item 1(a) lists 'milk, skim milk or buttermilk (whether liquid, powdered, concentrated or condensed)'.

Item 2 of Schedule 2 (item 2) lists beverages consisting of products referred to in Item 1 in Schedule 2 (or a combination of those products), to the extent of at least 95%, but not including flavoured beverages.

The ATO considers that the term 'milk' for the purposes of item 1(a) includes animal-based milks and plant-based milks.

The Detailed Food List, available on the ATO website, explains that the ATO has been treating plant-based milks, such as oat milk, as milk for the purposes of item 1(a) since 18 June 2010.

Product A, Product C and Product D

Product A, Product C and Product D are plant-based milks made from either tree nuts or seeds. They are included in the beverages range and are certified organic, lactose-free and gluten-free. You market your products as healthy and nutritious alternative to cow's milk and also covering the specific needs of vegetarian and vegan diets.

Product A and Product D have no added flavourings.

Product C contains added calcium. However, calcium is not considered flavouring. Therefore, Product A, Product C and Product D are considered as unflavoured milk.

We consider Product A, Product C and Product D to be beverages of a kind listed in item 1(a). Hence, the exclusion at paragraph 38-3(1)(d) of the GST Act does not apply. None of the other exclusions in section 38-3 of the GST Act applies. Therefore, the supply of Product A, Product C and Product D is GST-free under section 38-2 of the GST Act.

Product B

Product B is plant-based milk made from tree nuts.

Product B has added vanilla flavouring and is marketed as a flavoured beverage. As Product B is a vanilla flavoured plant-based milk; it is not a beverage of a kind listed in item 1(a), item 2 or any other items in Schedule 2. Hence the supply of Product B is excluded from being GST-free under section 38-3 of the GST Act. Therefore, your supply of Product B is not GST-free under section 38-2 of the GST Act.

The supply of Product B is a taxable supply as all the requirements of section 9-5 of the GST Act are satisfied as follows:

·         you supply it for consideration

·         the supply is made in the course or furtherance of an enterprise that you carry on

·         the supply is connected with the indirect tax zone

·         you are registered for GST and

·         the supply of the Product B is neither GST-free nor input taxed.

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