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Ruling

Subject: GST and food

Question

Will your supply 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 to supply the Product.

· You have supplied a sample of the product's labelling.

· The product is in powder form.

· The label gives directions on how the product should be consumed and provides that the product should be mixed with water, juice or similar.

Relevant legislative provisions

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

Section 9-5

Section 38-2

Section 38-3

Section 38-4.

Reasons for decision

The supply of the Product would be taxable under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) unless it is GST-free as a supply of food.

Section 38-2 of the GST Act provides that a supply of food is GST-free provided the food does 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 and of the foods defined in this provision, the only relevant ones to the food product is:

· ingredients for food for human consumption (paragraph 38-4(1)(b)), and

· ingredients for beverages for human consumption (paragraph 38-4(1)(d)).

In relation to beverages and ingredients for beverages, paragraph 38-3(1)(d) of the GST Act ensures that a supply of a beverage or an ingredient for a beverage is taxable unless it is a beverage or an ingredient for a beverage of a kind specified in the third column of the table in clause 1 of Schedule 2 (Schedule 2). Apart from this, the Product does not fall within any of the other exclusions listed in section 38-3 of the GST Act.

A copy of Schedule 2 is enclosed. An examination of Schedule 2 shows that the Product is not specifically listed in the Schedule and cannot be considered as being a product that is of a kind to any of the beverages or ingredients listed.

Ingredients for beverages

A consumer can of course consume any product in the manner of their choosing (products labelled to be mixed with food can be used to make a beverage and visa versa). Therefore in determining what a product is, it is relevant to use the 'essential character' test adopted under the former wholesale sales tax regime. The ATO adopts the view that the essential character of goods assists in determining their GST classification. This involves ascertaining what the goods essentially are, as distinct from merely identifying one of a number of characteristics the goods might have. This approach relies upon deciding what is 'the basic nature of the goods' and involves consideration of what the goods are made of and what they might be used for.

In this case, the Product is marketed through its labelling principally as an ingredient for beverages; a powder to be mixed with water, juice or similar. Consequently, the relevant legislative provision of the GST Act to consider is paragraph 38-4(1)(d); ingredients for beverages for human consumption.

Given this, although the Product is food under section 38-2 of the GST Act, it would be excluded from being GST-free under paragraph 38-3(1)(d) of the GST Act.

Consequently, your supply of the Product would be taxable under section 9-5 of the GST Act.