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Ruling

Subject: GST and food

Question

Will your sale of a food product (Product) be subject to goods and services tax (GST)?

Answer

Yes.

Relevant facts and circumstances

You are registered for GST.

You are importing the Product to sell.

The Product is marketed as an ingredient for a beverage through its packaging and by its name.

The directions state that the completed product could be used as an ingredient for certain foods.

The product is not intended to be added to milk as flavouring.

Relevant legislative provisions

All references are to the A New Tax System (Goods and Services Tax) Act 1999:

Section 38-2

Section 38-3

Section 38-4

Reasons for decision

The only provision in the GST Act or any other Act that may allow your supply of the Product to be GST-free is as a supply of food which is GST-free under section 38-2 of the GST Act. The food, however, must not come within any of the exclusions listed in section 38-3 of the GST Act.

Subsection 38-4(1) of the GST Act defines food for the purposes of section 38-2 of the GST Act. Of the foods defined in this provision, the most relevant to your circumstances, is paragraph
38-4(1)(d) which provides for ingredients for beverages for human consumption.

In your case, the Product is sold as an ingredient to make a product for human consumption that can be drunk. Hence, the Product is a food under section 38-4(1) of the GST Act, the supply of which can be treated as being GST-free provided it is not excluded under section 38-3 of the GST Act.

Excluded food items

The Product is marketed as an ingredient for a beverage through its packaging and by its name.

Under paragraph 38-3(1)(d) of the GST Act, a beverage (or an ingredient for a beverage) other than a beverage (or ingredient for a beverage) of a kind specified in the third column of the table in clause 1 of Schedule 2 of the GST Act (Schedule 2) is subject to GST. In this case, the Product is not one of those ingredients listed in Schedule 2. Note that flavouring for milk is listed in Schedule 2 but your product is not intended to be added to milk as flavouring.

Your Product's packaging states that once made the Product could be used as an ingredient for certain foods. However, in determining whether a product is an ingredient for food or an ingredient for a beverage, it is important to determine the essential character of the product. There are products that are generally only used as an ingredient for a beverage - for example, milk powder. Although milk powder could be used as an ingredient for cooking, its essential character is that of an ingredient for a beverage.

Also, where a product is held out for sale as an ingredient for a beverage, albeit it could be used as an ingredient, GST will apply unless the ingredient is of a kind listed in Schedule 2.

Given both of these points and that the Product is not listed in Schedule 2, its supply will be subject to GST