Edited version of private advice

Authorisation Number: 1051830540876

Date of advice: 22 April 2021

Ruling

Subject: GST and the supply of beverages

Question 1

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

Answer

No. Your supply of the fruit juice concentrate mix products is not GST-free under section 38-2 of the GST Act. The supply of the fruit juice concentrate mix is a taxable supply under section 9-5 of the GST Act and therefore subject to GST.

Question 2

Is your supply of frozen drink products GST-free under section 38-2 of the GST Act?

Answer

No. Your supply of the frozen drink products is not GST-free under section 38-2 of the GST Act. The supply of the frozen drink is a taxable supply under section 9-5 of the GST Act and therefore subject to GST.

Relevant facts and circumstances

You are an Australian company which is registered for goods and services tax (GST).

You supply three flavours of the fruit Juice concentrate mix products to businesses such as school tuckshops, restaurants and cafes to make fruit juice drink.

You are also planning to supply frozen drink products.

Fruit juice concentrate mix products

You supply the fruit juice concentrate mix products to make fruit drinks.

The fruit juice concentrate mix products can also be used to make milkshakes, smoothies, jelly, fruit sparkling juice, Hawaiian shave ice, frozen fruit drinks, cakes, pudding etc

The fruit juice concentrate mix products are currently sold in 2L bottles.

The lists of ingredients and their quantities in each of the flavours of the fruit Juice concentrate mix products indicate that the product contains between 65% to 73% of fruit juices and 28% to 35% of water.

The serving suggestion on the labels of the fruit Juice concentrate mix products state:

•         Shake well.

•         Mix 1 part of fruit juice concentrate with 3 part of water.

The storage direction states:

•         store in cool and dry place, away from sunlight.

•         Once opened, store refrigerated and consume within 7 days.

Label on the fruit juice concentrate mix products states:

"Final drink contains 100% reconstituted fruit juice when diluted according to directions."

The frozen drink products

The frozen drink products are like a slushie or a slurpy.

The frozen drink products are made using the fruit Juice concentrate mix products in the machine.

1 part of the fruit Juice concentrate mix product with 3 parts of water added in the machine. After 90 mins, the frozen drink products will be ready to be served in frozen drinks format.

You also plan to sell the frozen drink products in the markets as the promotion of your new products directly to end customers.

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 9-20

A New Tax System (Goods and Services Tax) Act 1999 section 40-35

A New Tax System (Goods and Services Tax) Act 1999 section 40-65

A New Tax System (Goods and Services Tax) Act 1999 Division 188

Reasons for decision

Summary

Questions 1

Your supply of the fruit Juice concentrate mix products is not a GST-free supply under section 38-2 of the GST Act.

The fruit Juice concentrate mix products are not beverages (or ingredients for a beverage) of a kind specified in Schedule 2 of theGST Act. Hence the supply of the fruit Juice concentrate mix products is excluded from being GST-free by paragraph 38-3(1)(d) of the GST Act.

The supply of the fruit Juice concentrate mix products is a taxable supply under section 9-5 of the GST Act and therefore subject to GST.

Questions 2

Your supply of the frozen drink products is not a GST-free supply under section 38-2 of the GST Act.

The frozen drink products are not beverages (or ingredients for a beverage) of a kind specified in Schedule 2 of theGST Act. Hence the supply of the frozen drink products is excluded from being GST-free by paragraph 38-3(1)(d) of the GST Act.

The supply of the frozen drink products is a taxable supply under section 9-5 of the GST Act and therefore subject to GST.

Detailed reasoning

Questions 1

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 section 38-4 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) and

•         beverages for human consumption (paragraph 38-4(1)(c) of the GST Act).

The meaning of the term beverage for the purposes of the GST Act is determined by subsection 38-4(2) of the GST Act. This section provides that beverage includes water.

As this definition does not assist in determining whether the fruit Juice concentrate mix products are beverages for the purposes of the GST Act, it is necessary to consider how the courts have defined '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 goes 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 providing nourishment will sustain life by assisting in growth or providing energy. A nutritional purpose may be contrasted with a medicinal purpose, which arises where a liquid is provided for the treatment of disease or has curative or remedial purposes.

The fruit Juice concentrate mix products are liquid that is swallowed for nourishment and quench thirst. Furthermore, the fruit Juice concentrate mix products are not promoted as having any medicinal purposes. Therefore, the fruit Juice concentrate mix products are beverages for human consumption as per paragraph 38-4(1)(c) of the GST Act

However, paragraph 38-3(1)(d) of the GST Act, a supply of food is not GST-free if it is a beverage (or an ingredient for a beverage), other than a beverage (or ingredient) of a kind specified in the table in clause 1 of Schedule 2 to the GST Act (Schedule 2).

Of relevance is item 10 of Schedule 2 (Item 10) which lists concentrates for making non-alcoholic beverages, if the concentrates consist of at least 90% by volume of juices of fruits or vegetables.

GSTD 2002/2 provides more information on the requirements of Item 10 (copy enclosed for your reference). At paragraph 9, GSTD 2002/2 states:

Item 10 provides that certain concentrates for making beverages can be supplied GST-free, where they are for making non-alcoholic beverages. These products contain concentrated fruit or vegetable juices, and when reconstituted by the addition of water, return to a drinkable 'pure juice' state. However, to be supplied GST-free, the concentrate must consist of at least 90% by volume of juices of fruits or vegetables.

Based on the information provided, the fruit Juice concentrate mix products are concentrates for making non-alcoholic beverages.

For the purpose of satisfying the requirement in item 10, it is necessary to determine whether the beverage consists of at least 90% by volume of juices of fruit or vegetables.

The lists of ingredients and their quantities in each of the flavours of the fruit Juice concentrate mix products indicate that the products contain between 65% to 72% of fruit juices and 28% to 35% of water. As the fruit Juice concentrate mix products contain less than 90% by volume of juices of fruits or vegetables, the requirement in item 10 is not satisfied and the exclusion at paragraph 38-3(1)(d) of the GST Act applies.

Therefore, the supply of the fruit Juice concentrate mix products is not GST-free under section 38-2 of the GST Act.

Taxable supply

Based on the information provided, the supply of the fruit Juice concentrate mix products satisfies the requirements of paragraphs 9-5(a) to 9-5(d) of the GST Act, as:

•         you supply the fruit Juice concentrate mix products for consideration

•         the supply of the fruit Juice concentrate mix products is made in the course of your enterprise

•         the supply of the fruit Juice concentrate mix products is connected with Australia, and

•         you are registered for GST.

Furthermore, the supply of the fruit Juice concentrate mix products is not input taxed or GST-free under a provision of the GST Act or a provision of another Act.

The supply of the fruit Juice concentrate mix products therefore is a taxable supply and subject to GST.

Questions 2

Based on the information provided, we consider that the frozen drink products are non-alcoholic and non-carbonated frozen beverages.

Of relevance is item 12 of Schedule 2 (Item 12) which lists non-alcoholic beverages, if they consist of at least 90% by volume of juices of fruits or vegetables.

For the purpose of satisfying the requirement in item 12 it is necessary to determine whether the beverage consists of at least 90% by volume of juices of fruit or vegetables by referring to the constituents of the beverage actually existing at the time the beverage is supplied.

Based on the facts provided, the frozen drink products are prepared using 1 part of Frubetto product with 3 parts of water added in the machine. After 90 mins, the Sorbetto products will be ready to be served in frozen drinks format.

The above facts indicate that the frozen drink products do not contains less than 90% by volume of juices of fruits or vegetables.

Hence, the requirement in item 12 is not satisfied and the exclusion at paragraph 38-3(1)(d) of the GST Act applies.

Therefore, the supply of the frozen drink products is not GST-free under section 38-2 of the GST Act.

Taxable supply

Based on the information provided, the supply of the frozen drink products satisfies the requirements of paragraphs 9-5(a) to 9-5(d) of the GST Act, as:

•         you supply the frozen drink products for consideration

•         the supply of the frozen drink products is made in the course of your enterprise

•         the supply of the frozen drink products is connected with Australia, and

•         you are registered for GST.

Furthermore, the supply of the frozen drink products is not input taxed or GST-free under a provision of the GST Act or a provision of another Act.

The supply of the frozen drink products therefore is a taxable supply and subject to GST.

Copyright notice

© Australian Taxation Office for the Commonwealth of Australia

You are free to copy, adapt, modify, transmit and distribute material on this website as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products).