Edited version of private advice

Authorisation Number: 1052025037296

Date of advice: 29 August 2022

Ruling

Subject: GST and cordial concentrates

Question

Is the supply of the fruit cordial concentrates (the Products) GST-free pursuant to section 38-2 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer

No.

Relevant facts and circumstances

You have developed a range of cordial concentrates (Products), based on fruit juices, fruit juice purees and fruit juice concentrates.

The Products are a mix of concentrated fruit, fruit puree and fruit juices to make up a high concentrated cordial liquid in a manufacturing process.

The Products will be sold in supermarkets and health food stores on ambient shelf next to juices.

The Products will be packaged in Xml bottles with the label attached to the bottles.

The labelling of all the cordials states that the Products are made with over 90% real fruit. Store in a cool, dry place out of direct sunlight, and refrigerate after opening. Add Y tsp cordial then fill Z mL glass with water before consuming.

Ingredients: You provided ingredient list of each Product.

Manufacturing process:

Fruit: Using the whole fruit, with some screening to remove any seeds, the skin, pulp, seeds etc.

Fruit Juice concentrates are produced by obtaining the juice of the named fruit, with or without some or all the pulp, discarding the skins, seeds, etc. and subjecting the extracted juice to a concentration process, usually heat, with or without the application of vacuum.

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 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 Schedule 2, item 10 and item 12

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.

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 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.

Application to the Products:

The Products are designed to be diluted by the purchaser/consumer at the ratio of 1 part of Cordial Concentrate plus A parts water, to produce the final ready-to-drink beverages. The Products are liquid that is swallowed for nourishment and quench thirst. Furthermore, the Products are not promoted as having any medicinal purposes. Therefore, the Products are ingredients for beverages for human consumption as per paragraph 38-4(1)(d) 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).

Fruit and vegetable juices that are listed in items 10, 11 and 12 of Schedule 2 are GST-free.

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 juices or fruits. Similarly item 12 of Schedule 2 (Item 12) also has the requirement that the beverages 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. At paragraphs 9, 10,11 and 12, GSTD 2002/2 states:

9. 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.

10. The labelling of a product will indicate whether the concentrate either comprises more than 10% of sugar or other additives, such as preservatives and vitamin C, and therefore is subject to GST, or whether it consists 90% or more of fruit or vegetable juices and is GST-free.

Australia New Zealand Food Standards Code Standard 1.2.4 sets out the specific requirements for the labelling and naming of ingredients and compound ingredients.

Example 1 - a juice that is supplied GST-free

11. ABC sells 1 litre bottles of orange juice. The labelling indicates that the juice is 100% orange juice. The labelling also states:

•         reconstituted orange juice;

•         no preservatives;

•         no artificial colour; and

•         contains vitamin C.

12. ABC orange juice consists of at least 90% fruit juice. It can be drunk to quench thirst or can be an accompaniment to a meal and will provide nourishment. Although it might be 'healthy' it is not in the nature of a medicine. The supply of this kind of beverage is GST-free under Item 12 of Schedule 2.

In addition, Issue 19 of the Food Industry Partnerships- issues register, states:

Issue 19 Australian Taxation Office (ato.gov.au)

What is the GST status of concentrated fruit juice and concentrated fruit drinks?

For source of ATO view, refer to:

•         GSTD 2002/2 - Goods and services tax: what supplies of fruit and vegetable juices are GST-free?

•         Detailed food list

For GST classification purposes, it is important to ensure that the correct product is being considered. When determining the status of fruit juice concentrates, it is necessary to consider the product being sold, which is the packaged concentrate.

In order for beverages (or ingredients for beverages) to be GST-free, they must be specifically included in Schedule 2 of the GST Act. In determining whether fruit concentrates are GST-free, Item 10 of Schedule 2 of the GST Act is relevant:

'concentrates for making non-alcoholic beverages, if the concentrates consist of at least 90% by volume of juices of fruits'

As can be seen, this item in the GST Act requires a concentrate to satisfy three tests before it will be classified as GST-free. These are:

•         The concentrate must be used for making non-alcoholic beverages; and

•         The concentrate must comprise juices of fruits; and

•         The concentrate must be at least 90% by volume of juices of fruit.

These tests do not require consideration to be given to the degree of concentration of the fruit juice contained in the product.

In determining whether fruit juice concentrates and concentrated fruit drinks are GST-free, it is necessary to look at the composition of each of these products:

Concentrated fruit juice

These products in the main contain concentrated fruit juice, and when reconstituted return to a 'pure fruit juice' state. Generally, they do not contain sugar or other additives, other than a small amount of preservatives and vitamin C. When the contents of the package are examined, the concentrated fruit juice generally makes up more than 90% by volume of the contents of the package in which they are supplied.

Provided that the product contains at least 90% by volume of concentrate, it is not for making alcoholic beverages and it contains concentrated juices of fruit, then the product will be GST-free.

Concentrated fruit drink

These products are different to fruit juice concentrates in that they contain further additives such as sugar. When considered in their entirety, the volume of concentrated fruit juice in these products is generally less than 90% by volume of the total contents in the package. The other additives, which commonly include sugar, preservatives, food acids etc are usually in excess of 10% of the total volume of products supplied. As a result, these products are taxable.

The classification of these products is not determined by either:

1. The degree of concentration of the juice (that is, It does not matter whether it is 150%, 400% or any other degree of concentration); or

2. The degree of concentration once the product is reconstituted (for example, 35% juice).

It should be noted that Item 10 of Schedule 2 refers only to 'juices of fruit'. Therefore concentrates that consist of juices of vegetables will not be GST-free.

Application to the Products:

Based on the information provided, the 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.

However, we consider the Products being sold, which are the packaged Products. The concentrated fruit juices have to make up more than 90% by volume of the contents of the package in which the Products are supplied. On the labelling of the packaging of the Products, the lists of ingredients and their quantities in each of the flavours of the Products indicate that the Products contain less than 90% by volume of juices of fruits, hence the requirement in Item 10 is not satisfied and the exclusion at paragraph 38-3(1)(d) of the GST Act applies. For completeness, the requirement in Item 12 is not satisfied either because the Products contain less than 90% by volume of juices of fruits.

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

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