Edited version of private ruling

Authorisation Number: 1011651672991

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Ruling

Subject: Goods and services tax and food

Question

Is GST payable on your sale of hydroponically grown herb plants in pots, in which there is no soil?

Answer

No.

Relevant facts and circumstances

You are registered for GST.

You carry on a business of selling herbs.

You sell herb plants that are hydroponically grown.

You supply the herb plants as culinary herbs to be consumed as food for human consumption.

You sell the herb plants to supermarkets.

You deliver the herb plants in Australia to supermarkets.

You supply the herb plants in the hydroponic pots with roots attached.

Once the herb plants are removed from the hydroponic system, no further plant nutrients are added or applied to promote or improve the growth of these herb plants.

There is no soil in the plant pots when you supply the herb plants.

You supply the herb plants in the inert medium in which they are grown and the inert medium provides no ongoing nutrients or fertilisation for the plant to grow.

Supplying the herb plants in the pots does not maintain the freshness or extend the shelf lives of the herb plants.

The herb plants only survive in the pots for about a certain amount of time after they are removed from the hydroponic system.

The sole purpose of selling hydroponically grown herbs in pots, rather than picking them before supply, is for aesthetic reasons.

You do not supply the herb plants for consumption on the premises from which you supply them.

Reasons for decision

Summary

GST is not payable on your sale of hydroponically grown herb plants in pots, in which there is no soil, as these sales are GST-free supplies of food under section 38-2 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act).

Detailed reasoning

GST is payable by you on your taxable supplies.

You make a taxable supply where you satisfy the requirements of section 9-5 of the GST Act, which states:

You make a taxable supply if:

(a) you make the supply for *consideration; and

(b) the supply is made in the course or furtherance of an *enterprise that

you *carry on; and

(c) the supply is *connected with Australia; and

(d) you are *registered, or *required to be registered.

However, the supply is not a *taxable supply to the extent that it is

*GST-free or *input taxed.

(*Denotes a term defined in section 195-1 of the GST Act)

In your case, you satisfy the requirements of paragraphs 9-5(a) to 9-5(d) of the GST Act. That is, you make the supply of the herb plants for consideration and in the course or furtherance of an enterprise that you carry on. Additionally, these supplies are connected with Australia and you are registered for GST.

There are no provisions in the GST Act under which your sales of the herb plants are input taxed.

Therefore, what remains to be determined is whether your sales of the herb plants are GST-free.

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 (paragraph 38-4(1)(a) of the GST Act).

However, there are some exclusions from the definition of food.

Paragraph 38-4(1)(i) of the GST Act excludes plants under cultivation that can be consumed (without being subject to further process or treatment) as food for human consumption from the definition of food.

The herb plants in your case are supplied as culinary herbs to be consumed as food for human consumption. Therefore, the herb plants satisfy the requirement of paragraph 38-4(1)(a) of the GST Act.

We shall now consider whether the herb plants are plants under cultivation when you supply them.

As the words 'plants under cultivation' are not defined for the purposes of the GST Act, they are to be afforded their ordinary dictionary meaning.

The Macquarie Concise Dictionary 3^rd Edition defines plant as "1. any member of the vegetable group of living organisms. 2. a herb or other small vegetable growth, in contrast to a tree or shrub. 3. a seedling or a growing slip, especially one ready for transplanting."

Cultivate is defined as "1. to bestow labour upon (land) in raising crops; till; improve by husbandry. 2. to use a cultivator on. 3. to promote or improve the growth of (a plant, etc) by labour and attention."

We consider that your herb plants are not, at the time of supply, under cultivation because:

· the plants are removed from the hydroponic system before the time of supply;

· once the plants are removed from the hydroponic system, no further plant nutrients are added or applied to promote or improve the growth of these plants;

· there is no soil in the plant pots when you supply the plants;

· you supply the plants in the inert medium in which the plant is grown and the inert medium provides no ongoing nutrients or fertilisation for the plant to grow;

· supplying the plants in the pots does not maintain the freshness or extend the shelf lives of the plants; and

· the plants only survive in the pots for about a certain amount of time after they are removed from the hydroponic system.

Hydroponically grown herb plants supplied in the manner in which you supply your herb plants can be differentiated from herb plants which are in soil at the time of supply, as herb plants which are supplied in soil are usually purchased with the view that they will continue to produce fresh herbs in the future. In contrast, the plants in question can only survive for about a certain amount of time after they are removed from the hydroponic system.

Therefore, the exclusion at paragraph 38-4(1)(i) of the GST Act does not apply. No other exclusions from the definition of food in subsection 38-4(1) of the GST Act apply.

Hence, the herb plants in question are food when you supply them.

In accordance with paragraph 38-3(1)(c) of the GST Act, food of a kind specified in the third column of the table in clause 1 of Schedule 1 to the GST Act, or food that is a combination of one or more foods at least one of which is food of such a kind, is not GST-free.

The herb plants in your case are not food of a kind specified in the third column of the table in clause 1 of Schedule 1 to the GST Act, or food that is a combination of one or more foods at least one of which is food of such a kind. Therefore, the exclusion at paragraph 38-3(1)(c) of the GST Act does not apply.

No other exclusions in section 38-3 of the GST Act apply.

Therefore, your sales of the herb plants are GST-free under section 38-2 of the GST Act. Hence, your sales of the herb plants are not taxable supplies, and therefore, GST is not payable on your sales of the herb plants.