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Ruling

Subject: GST and food classification

Question 1

Is the supply of your food product (the product) a GST-free supply of food for the purposes of section 38-2 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer

Yes

Relevant facts and circumstances

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

The product is used in food service as an ingredient in beverages, cake mixes, and culinary recipes by cafes, chefs and bakers.

The product is marketed by direct selling to cafes, bakers and chefs and you also promote through your website which is based on wholesale selling.

You do not promote the product as being confectionary.

Your packaging label indicates that the product can be used for flavouring food and beverages.

Relevant legislative provisions

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

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

A New Tax System (Goods and Services Tax) Act 1999 Section 38-3

A New Tax System (Goods and Services Tax) Act 1999 Paragraph 38-3(d)

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

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

Reasons for decision

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 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); ingredients for beverages for human consumption (paragraph 38-4(1)(d) of the GST Act) and goods to be mixed with or added to food for human consumption (paragraph 38-4(1)(e) of the GST Act).

The product satisfies the definition of food under section 38-4 of the GST Act as it could be considered as ingredients for food. In addition they could also be used for flavouring by mixing or adding to other food products.

GST Status

Under paragraph 38-3(1)(d) of the GST Act, a beverage (or ingredients for beverages) will only be GST-free if they are of a kind specified in the table in clause 1 of Schedule 2 to the GST Act (Schedule 2).

The GST status of foods for human consumption is outlined in the ATO public ruling "Detailed Food List" (Food list). We enclose a copy for your reference. The concept and analogy applied to the product is similar to that on the flavouring syrups contained in the Food list. The details on flavouring syrups are as follows.

Therefore where the product is used only to flavour beverages, it will be excluded from being GST free under paragraph 38-3(1)(d) of the GST Act as it is not a beverage or ingredients for beverages of a kind specified in Schedule 2.

However, if the product is also used for flavouring food for human consumption, it is GST-free under section 38-2 of the GST Act as it satisfies paragraph 38-4(1)(e) of the GST as condiments for adding or mixing to food for human consumption. The product is added for the taste or flavour of finished foods and is not excluded from being GST-free by section 38-3 of the GST Act.

Determining use of the product

Example 3 in Issue 1 of the Food Register outlines some guidelines to help us determine the use of a product. Its states:

…In determining whether a supply is a supply of GST-free food, it is not only the physical characteristics of the product that are important but also the nature of the supply.

Some of the ways in which a dual-purpose food product could be considered to be differentiated for non-food use are:

· designation as something other than food

· pre-delivery storage in conditions or containers that are unsuitable for food

· packaging in a non-food type of package or container

· labelling, invoicing or marketing as a non-food product

· delivery in a manner unsuitable for food

Therefore in this case, we rely on the labelling and marketing of the flavouring product. Where the label promotes the product (in the serving suggestions) as flavouring product for beverages only, we consider the product is only used for flavouring beverages. The product is ingredients for beverages and is therefore excluded from being GST free under paragraph 38-3(1)(d) of the GST Act.

However, if the labels promote the product (in the serving suggestions) for flavouring beverages and as well as condiments for food such as ice-cream, desserts, etc. (or as ingredients for food for human consumption) we consider the product has multiple uses. If one of the usages falls under paragraph 38-4(1)(e) of the GST Act, the product will be GST-free under section 38-2 of the GST Act. Alternatively, if the usage of the product is ingredients for food for human consumption it will also be GST-free under section 38-2 of the GST Act.

The product

The label packaging of the product you have provided states that the consumer can add your product to certain food items. Since the product is not used solely for flavouring beverages, but can be used for other purposes, the product is GST-free.

Accordingly, for the reasons above, the product is not excluded by section 38-3 of the GST Act as GST-free and is GST-free pursuant to section 38-2 of the GST Act.