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Ruling

Subject: goods and services tax (GST) and a laxative product.

Question

Is GST payable by you on your sale of the laxative product?

Answer

Yes.

Relevant facts and circumstances

You are registered for GST.

You are selling a natural based laxative product to wholesalers and retailers throughout Australia.

The laxative product is registered with an authority.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 subsection 7-1(1)

A New Tax System (Goods and Services Tax) Act 1999 section 9-5

A New Tax System (Goods and Services Tax) Act 1999 section 9-40

A New Tax System (Goods and Services Tax) Act 1999 section 38-50

A New Tax System (Goods and Services Tax) Act 1999 section 38-2

A New Tax System (Goods and Services Tax) Act 1999 subsection 38-4(1)

A New Tax System (Goods and Services Tax) Act 1999 section 38-50

Reasons for decision

Summary

Your supply of the laxative product is not a GST-free supply of a medicinal preparation under section 38-50 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) because you are not selling your product to individuals for private or domestic use or consumption.

Your supply of the laxative product is not a GST-free supply of food under section 38-2 of the GST Act because the product is a medicinal preparation; not food.

GST is payable on your sale of the laxative product because:

· you supply the product for consideration

· you supply the product in the course or furtherance of the enterprise that you carry on

· your supply of the product is connected with Australia

· you are registered for GST, and

· your supply of the product is not GST-free or input taxed.

Detailed reasoning

GST is payable by you where you make a taxable supply.

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:

· you make the supply for *consideration; and

· the supply is made in the course or furtherance of an *enterprise that

· you *carry on; and

· the supply is *connected with Australia; and

· 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)

You satisfy the requirements of paragraphs 9-5(a) to 9-5(d) of the GST Act because:

· you supply the laxative product for consideration

· you supply the product in the course or furtherance of the enterprise that you carry on

· your supply of the product is connected with Australia, and

· you are registered for GST.

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

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

GST-free supplies of medicinal preparations

A sale of a medicinal preparation is potentially GST-free under section 38-50 of the GST Act where the sale is on prescription or the supply of the medication is restricted. Also, a sale of a medication may be GST-free under certain other circumstances.

Subsection 38-50(1) of the GST Act states:

A supply of a drug or medicinal preparation is GST-free if the supply is on

prescription and:

(a) under a *State law or a *Territory law in the State or Territory in which the supply takes place, supply of the drug or medicinal preparation is restricted, but may be supplied on prescription; or

(b) the drug or medicinal preparation is a pharmaceutical benefit (within the meaning of Part VII of the National Health Act 1953).

Subsection 38-50(2) of the GST Act states:

A supply of a drug or medicinal preparation is GST-free if, under a *State law or a *Territory law in the State or Territory in which it is supplied, the supply of the drug or medicinal preparation to an *individual for private or domestic use or consumption is restricted but may be made by:

(a) a *medical practitioner, *dental practitioner or pharmacist; or

(b) any other person permitted by or under that law to do so.

Subsection 38-50(3) of the GST Act states:

Subsection (2) does not cover the supply of a drug or medicinal preparation

of a kind specified in the regulations.

Subsection 38-50(4) of the GST Act states:

A supply of a drug, medicine or other pharmaceutical item is GST-free if the supply is on prescription and

(a) it is supplied as a pharmaceutical benefit (within the meaning of section 91 of the Veterans' Entitlements Act 1986); and

(b) it is supplied under an approved scheme (within the meaning of that section).

Subsection 38-50(4A) of the GST Act states:

A supply of a drug, medicine of other pharmaceutical item is GST-free if the supply is on prescription and:

(a) it is supplied as a pharmaceutical benefit (within the meaning of section 5 of the Military Rehabilitation and Compensation Act 2004);

and

(b) it is supplied in accordance with a determination made under paragraph 286(1)(c) of that Act.

Subsection 38-50(6) of the GST Act states:

A supply of a drug or medicinal preparation is GST-free if:

(a) the drug or medicinal preparation is the subject of an approval under paragraph 19(1)(a) of the Therapeutic Goods Act 1989, and any conditions to which the approval is subject have been complied with:

or

(b) the drug or medicinal preparation is supplied under an authority under subsection 19(5) of that Act, and the supply is in accordance with any regulations made for the purposes of subsection 19(7) of that Act; or

(c) the drug or medicinal preparation is exempted from the operation of Part 3 of that Act under regulation 12A of the Therapeutic Goods

Regulations.

Subsection 38-50(7) of the GST Act provides that a supply of a drug or medicinal preparation covered by section 38-50 of the GST Act is GST-free if, and only if:

(a) the drug or medicinal preparation is for human use or consumption; and

(b) the supply is to an individual for private or domestic use or consumption.

You are selling your laxative product to retailers and wholesalers. You are not selling your product to individuals for private or domestic use or consumption. Therefore, your sales of the product are not GST-free under section 38-50 of the GST Act due to the operation of subsection 38-50(7) of the GST Act.

Other entities, for example, pharmacists, that sell the laxative product to individuals for private or domestic use or consumption would need to consider whether they are making a GST-free supply of a medicinal preparation under section 38-50 of the GST Act.

GST-free supplies of food

Section 38-2 of the GST Act provides that a supply of food is GST-free.

Subsection 38-4(1) of the GST Act defines food to include (of relevance):

(a) food for human consumption.

(d) ingredients for beverages for human consumption.

(e) goods to be mixed with or added to food for human consumption (including condiments, spices, seasonings, sweetening agents or flavourings).

A laxative is not food, but is instead a medicinal preparation to treat constipation etc. Any nutritive value of a laxative would be of marginal significance, and this points to laxatives being something other than food.

Alternative views

Two alternative views are that laxatives are ingredients for beverages for human consumption or goods to be mixed with or added to food for human consumption (for the purposes of paragraph 38-4(1)(e) of the GST Act).

We do not consider that a laxative is an ingredient for a beverage for human consumption where the laxative is consumed by mixing in a beverage. The beverage is just the means by which such laxatives are taken.

Products that we consider are covered by paragraph 38-4(1)(e) of the GST Act are for the purpose of adding to the taste or flavour of food, as indicated by the scope of the words in the brackets. Laxatives that are mixed with or added to food are mixed with or added to food in order that they can be ingested. Such laxatives are not mixed with or added to food for the purpose of enhancing the taste or flavour of the food. Hence, such laxatives are not covered by paragraph 38-4(1)(e) of the GST Act.

Therefore, your sale of the laxative product is not a GST-free supply of food under section 38-2 of the GST Act.

There are no other provisions in the GST Act under which your sales of the laxative product are GST-free.

Hence, as all of the requirements of section 9-5 of the GST Act are satisfied, you make taxable supplies of the laxative product. Therefore, GST is payable by you on your sales of the product.