Edited version of private ruling

Authorisation Number: 1011594438851

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Ruling

Subject: GST and food ingredients

Question:

Is the supply of your new food ingredient subject to goods and services tax (GST)?

Advice

Yes, the supply of your new food ingredient is subject to GST.

Relevant facts:

You are registered for GST.

You have developed a new food ingredient (product) and it is ready for marketing.

The product must be added to food or beverages for a neutraceutical effect such as the reduction in risk for the development of a number of age-related diseases.

The product will be marketed to food and beverage manufacturers, although it could also be used by consumers to add to food or beverages.

The product is sold as a soluble powder.

The two principal active ingredients of the product are an extract of a type of seed and a type of dietary fibre.

This product does not require a prescription, and does not have or require an approval under the Therapeutic Goods Act 1989.

The product has a high oxygen radical absorbent capacity (oric) value.

The product does not have a measurable nutritional value, such as an energy value measured in calories or kilojoules.

Clinical studies have shown that the product helps reduce the risk of certain diseases.

The product is supplied for use solely or predominantly in the composition of food, but is not essential to the composition of that food.

The product is not currently packaged and marketed for retail sale, but this may be possible in the future.

Reasons for decision

You make a taxable supply under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) if:

you make a supply for consideration

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

the supply is connected with Australia, and

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.

You intend to make supplies of this new product for consideration, and will do so in Australia in the course or furtherance of your enterprise. Further, you are registered for GST. As such, all four of the abovementioned positive elements of a taxable supply are met.

The supply will not be input taxed under any of the provisions of Division 40 of the GST Act.

In your request the product has been described as an 'ingredient' for food. In describing the use of the product in food preparation, you state that the product is a substance which must be added to food for consumption. As such, it is an additive for food. Further, in the facts provided it is stated that the product is supplied on the basis that it has medicinal effects.

Under Division 38 of the GST Act a supply of food or health-related products may be GST-free if the product satisfies the requirements of relevant provisions.

GST and Food

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 subsection 38-3(1) of the GST Act.

Food is defined in subsection 38-4(1) of the GST Act, to include ingredients for food for human consumption (paragraph 38-4(1)(b) of the GST Act).

Food additives are considered to be ingredients for food for human consumption for the purpose of the GST Act, and therefore satisfy the definition of food in paragraph 38-4(1)(b) of the GST Act.

However, a supply of food which falls under section 38-3 of the GST Act is not GST-free under section 38-2 of the GST Act.

Paragraph 38-3(1)(c) of the GST Act specifies food of a kind specified in the table in clause 1 of Schedule 1 to the GST Act (Schedule 1). Your product is not specifically listed in Schedule 1.

Paragraph 38-3(1)(e) of the GST Act specifies that a supply is not GST-free under section 38-2 of the GST Act if it is a supply of 'food of a kind specified in regulations made for the purposes of this subsection'. 

Regulation 38-3.02 of the A New Tax System (Goods and Services Tax) Regulations 1999 (Regulations) applies to food additives. This regulation gives effect to paragraph 38-3(1)(e) of the GST Act and determines those food additives that are not GST-free. 

The two terms 'ingredients for food' and 'food additives' are discussed in the 'Food Industry Partnership - issues register' (Register) under Issue 11, which can be found on our website www.ato.gov.au

Issue 11 of the Register states:

The word 'additive' is defined in The Macquarie Dictionary (3rd edition, 1997) to mean '…3. a substance added to a product, usually to preserve or improve its quality'. Examples of products that are considered to be food additives for GST purposes include:

colourings

flavourings

preservatives

antioxidants

sweeteners

vitamins

minerals

modifying agents (vegetable gums, mineral salts, food acids, emulsifiers, humectants, thickeners)

Some of these additives fall within the term 'ingredient for food for human consumption' as stated in paragraph 38-4(1)(b), whilst others are specifically included in paragraph 38-4(1)(e) of the GST Act as 'goods to be mixed with or added to food for human consumption'. Those products included in paragraph 38-4(1)(e) of the GST Act include:

condiments (for example, tomato sauce, jam, chutney)

spices (for example, pepper, cinnamon, cloves)

seasonings

sweetening agents

flavourings (for example, vanilla essence).

Products that satisfy paragraph 38-4(1)(e) are used for the purpose of adding to the taste or flavour of finished foods and are not products that are used in the manufacturing process (although some products may fall for consideration as both an ingredient for food and as a good to be mixed with or added to food for human consumption).

In your case, the product does not have the essential character of the class of goods listed above such as condiments, spices, seasonings, sweetening agents or flavourings. The abovementioned products are considered to be ingredients for food or beverages for human consumption or other goods to be mixed with or added to food for human consumption. As such, your product is not regarded as food for human consumption for GST purposes under paragraphs (b), (d) and (e) of subsection 38-(4)(1) of the GST Act. Therefore, the supply of your product is not GST-free as an ingredient for food or food additive.

Further, sub-regulation 38-3.02(1) of the Regulations states that food additives other than exempt food additives will be subject to GST. The term 'exempt food additive' is defined in sub-regulation 38-3.02(2) to mean:

(a) a food additive which, at the time of supply is packaged and marketed for retail sale; or

(b) a food additive which, at the time of supply:

(i) has a measurable nutritional value; and

(ii) is supplied for use solely or predominantly in the composition of food; and

(iii) is essential to the composition of that food. 

As stated, currently you do not package or market your product for retail sale. Therefore, your product is not an exempt food additive under paragraph 38-3.02(2)(a) of the Regulations. 

To be considered an exempt food additive under paragraph 38-3.02(2)(b) of the Regulations the product must have a measurable nutritional value, be used solely or predominantly in the composition of food and be essential to the composition of that food.

Based on the facts provided, your product is supplied for use solely or predominantly in the composition of food; however, it is not essential to the composition of the food to which it is added. In addition, the product does not have a measurable nutritional value. As such, the product is a substance which has only an incidental use in the preparation of food. Thus, the relevant product cannot be regarded as an exempt food additive for GST purposes under paragraph 38-03.02(b) of the Regulations. Therefore, the product is a food additive which is 'food of a kind' specified in regulations made for the purpose of subsection 38-3(1) of the GST Act. As such, the supply of the product will not be GST-free.

GST and Drugs and Medicinal Preparations

Under section 38-50 of the GST Act the supply of drugs and medicinal preparations are GST-free where:

the supply of the drug or medicinal preparation is legally restricted, but the supply can be made on prescription

the supply of the drug or medicinal preparation is a pharmaceutical benefit under the National Health Act 1953, the Veterans Entitlement Act 1986 or the Military Rehabilitation and Compensation Act 2004

the supply of the drug or medicinal preparation to an individual for private or domestic use or consumption is legally restricted, but the supply can be made by a medical practitioner, dentist, pharmacist, or any other person legally permitted to do so

the drug or medicinal preparation is an analgesic that has a single active ingredient the supply of which as a drug or medicinal preparation would be GST-free when supplied in (ii) above if it were supplied in larger quantities, and is of a kind the supply of which is declared to be GST-free in a written determination by the health minister

the supply of the drug or medicinal preparation is the subject of an approval under the Therapeutic Goods Act 1989

In your case, the supply of the product does not require a prescription. Further, your product is not a pharmaceutical benefit under the National Health Act 1953, the Veterans Entitlement Act 1986 or the Military Rehabilitation and Compensation Act 2004. The supply of the product is also not the supply of a restricted drug or medicinal preparation to an individual for private or domestic use or consumption by medical practitioner, dentist, pharmacist, or any other person legally permitted to do so. Neither is the product an analgesic that has a single active ingredient or the subject of an approval under the Therapeutic Goods Act 1989.

As the supply of your product does not fall within any of these GST-free categories of supply of drugs and medicinal preparation, the supply of the product is not GST-free under section 38-50 of the GST Act as the supply of a drug and medicinal preparation.