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Ruling

Subject: GST and food products

Question 1:

Will your sale of your food product (Product) be GST-free?

Answer:

Yes.

Question 2:

Will your importation of the Product be non taxable?

Answer:

Yes

Relevant facts and circumstances

You are registered for goods and services tax (GST).

You are to import (and eventually manufacture) the Product.

The Product is made from fruit juice concentrates (over 90% by volume) and minute quantities of water (to re-hydrate the fruit) and several other ingredients.

The Product has no added sugar.

The Product has the consistency of a liquid.

The Product could be mixed with water but it is not marketed as an ingredient for a beverage but as something that can be consumed as is.

The Product is packaged and sold in a container of individual servings (packets).

You see the Product being consumed at home or at a gym or athletic setting.

The Product is marketed as an antioxidant and comes with a recommended use (given the high concentration of fruit in the product).

No therapeutic claims are made of the Product.

The Product can be consumed at any time and there is no restriction who can consume the product.

The Product will not be marketed or sold as confectionery or ingredients for confectionery.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999

Section 13-10

Section 38-2

Section 38-3

Section 38-4.

Reasons for decision

Will your sale of the Product be GST-free?

A supply of food is GST-free under section 38-2 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) if it satisfies the definition of food in section 38-4 of the GST Act and it is not excluded 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)) and ingredients for food for human consumption (paragraph 38-4(1)(b)).

In your case, you are to import the Product to sell in Australia. The Product has some characteristics that could characterise it as a food supplement (it recommends a usage). Therefore, it is first necessary to determine if your product can be classified as a food and not a food supplement.

Food supplements

Generally, food supplements (for example, pills, capsules or powders sprinkled on food or added to liquid), are taken for therapeutic or medicinal reasons or to prevent or compensate for a nutritional deficiency. They often come with a recommended dosage and directions that they should be taken at certain times of the day, either on an empty stomach or with food or a beverage, such as water or juice. They also often have restrictions on who can consume the product. For these reasons they are not considered to be food and therefore their supply would be taxable.

In this case, it is clear the Product is not taken like a pill or capsule or sprinkled on food. It could be added to a liquid if so required but it is not marketed as an ingredient for a beverage but something that is consumed as is from the packet. It does come with a recommended usage (given the high concentration of fruit in the product) but no other directions are provided as to how the Product should be consumed or with any restrictions on who should or shouldn't consume the Product. The Product also does not make any therapeutic claims. It does claim to be an antioxidant, a common statement found on many food products. However, we do not consider this to be a statement on a product's therapeutic qualities as it is not a statement advertising that the Product will cure or relieve a medical condition or illness.

Given all this, we consider the Product is not a food supplement.

Consequently, the Product satisfies the definition of food under section 38-4 of the GST Act because it will be sold as food for human consumption.

Food excluded from being GST-free

The Product has the consistency of a liquid and therefore would be consumed by drinking. As such, it may be taxable under section 38-3(1)(d) of the GST Act unless it is a food of a kind specified in the third column of the table in clause 1 of Schedule 2 (Schedule 2).

It may also be captured by paragraph 38-3(1)(c) of the GST Act. Paragraph 38-3(1)(c) of the GST Act provides that a supply of food is not GST-free if it is food of a kind that is specified in Schedule 1 of the GST Act (Schedule 1).

Schedule 2

Item 12 of Schedule 2 provides that a supply of a beverage that is at least 90% by volume of juices of fruit or vegetables would be GST-free.

In your case, the Product can be considered as a beverage that is made from fruit juice concentrates and minute quantities of water (to re-hydrate the fruit) and other ingredients. The fruit juice content of the Product is greater than 90% by volume.

Given this, the Product is captured by Item 12 of Schedule 2 and therefore is not excluded from being GST-free as a consequence of being a beverage.

Schedule 1

On examining Schedule 1, there is only one category of food that could possibly capture your Product, this being confectionery (Item 8 of Schedule 1).

Confectionery

The ATO view on confectionery is given by Issue 12 of the Food Issues Register (Issue 12).

Issue 12 provides that:

· Confectionery includes food that is marketed as confectionery, such as chocolate, boiled sweets, lollipops, sherbet, marshmallow and fruit lollies, as well as the specific types of goods included in Schedule 1.

Issue 12 also lists several court cases that assist in determining whether a product is confectionery. For example, the reasoning in Zeroz Pty Ltd v DFC of T 97 ATC 4277 and the decisions in Allied Mills Industries v FC of T 87 ATC 4387 and Candy Maid Confections v Customs & Excise Commissioners (1969) 1 Ch. 6111 lead to the conclusion that the word confectionery must be given its ordinary meaning.

The ordinary meaning of confectionery given in the Macquarie Dictionary (3rd edition) is as follows:

· confections or sweets collectively.

· Confection is in turn defined as:

· …

· a sweet preparation (liquid or dry) of fruit or the like, as a preserve or sweetmeat.

· a sweet or bonbon.

Therefore, the ordinary meaning of confectionery suggests something which is sweet. Court decisions also cast some light on the meaning of confectionery.

Aickin J in the High Court decision Landau and Anor. v Goldwater and Anor. 13 ALR 192 gave a general description of confectionery:

…one of common usage which embraces a wide variety of articles, many readily recognisable as examples of confectionery. They are primarily small articles of a sweet character containing substantial amounts of sugar and regarded as being in the nature of a delicacy in whatever quantity they may be consumed. There is, however, no doubt that in the ordinary parlance the term would now include blocks of chocolate, however small or however large.

Further to the above, in determining whether food is marketed as a confectionery or ingredients for confectionery the activities of the seller are relevant. Consideration is given to the following:

· the name of the goods;

· the price of the goods;

· the labelling on any containers for the goods;

· literature or instructions packed with the goods;

· how the goods are packaged;

· how the goods are promoted or advertised; and

· how the goods are distributed.

In determining whether food is marketed as confectionery or as an ingredient for confectionery, it is also relevant to look at the uses to which the product is put.

In this case, the Product is not marketed as confectionery or an ingredient for confectionery. It also has no added sugar (common in confectionery products as illustrated by the court case Landau and Anor. v Goldwater and Anor) obtaining its sweetness from the fruit ingredients.

Consequently, the Product is not excluded from being GST-free by Item 8 of Schedule 1.

GST-free supply

Considering all of the above, the Product is a food as defined under section 38-4 of the GST Act, the supply of which is not excluded from being GST-free by section 38-3 of the GST Act.

Will your importation of the Product be non taxable?

Section 13-10 of the GST Act provides that an importation is a non-taxable importation if:

· it is a non-taxable importation under Part 3-2 of the GST Act, or

· it would have been a supply that was GST-free or input taxed if it had been a supply (for example, it would be a GST-free supply had the supply been made in Australia).

In your case, your supply of the Product in Australia will be GST-free and consequently, your importation of the Product will be non-taxable under section 13-10 of the GST Act.