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Ruling

Subject: GST and nitrous oxide bulbs

Question 1

Is the supply of your product GST-free?

Answer

No.

Relevant facts and circumstances

· You, as trustee for the Trust, are registered for goods and services tax (GST).

· You import and wholesale a product.

· The product contains compressed gas which is used to create another food product.

· The gas is incorporated into the food product.

· The products are designed to be used with a machine, which is not included with the bulbs.

· The products are already packaged for sale.

Relevant legislative provisions

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

Section 38-2

Paragraph 38-3(1)(c)

Sub-paragraph 38-3(1)(e)

Sub-paragraph 38-4(1)(b)

A New Tax System (GST) Regulations 1999:

Subregulation 38-3.02(1)

Subregulation 38-3.02(2)(a)

Subregulation 38-3.02(2)(b)

Reasons for decision

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 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 section 38-4 of the GST Act to include ingredients for food for human consumption (paragraph 38-4(1)(b) of the GST Act). We accept that your product is used as a modifying agent to produce a food product. Therefore, as an ingredient for food for human consumption your product satisfies the definition of food under paragraph 38-4(1)(b) of the GST Act.

However, a supply of food which falls under section 38-3 of the GST Act is not GST-free under section 38-2 of the GST Act.

Paragraph 38-3(1)(c) of the GST Act includes food of a kind specified in the table in clause 1 of Schedule 1 to the GST Act (Schedule 1). Your products containing gas are not food of a kind covered in Schedule 1.

Under paragraph 38-3(1)(e) of the GST Act a supply is not GST-free under section 38-2 of the GST Act if it is a supply of food of a kind specified in regulations made for the purposes of this subsection.

Effective from 1 December 2001 regulation 38-3.02 of the GST Regulations applies to food additives. This regulation gives effect to paragraph 38-3(1)(e) of the GST Act and determines those foods that are not GST-free.

Although the term 'food additive' is used in the GST Regulations, it is not defined elsewhere in the GST Act. Therefore the word 'additive' will take its ordinary meaning. The word 'additive' is defined in The Macquarie Dictionary, to mean 'a substance added to a product, usually to preserve or improve its quality'. Examples of products that are considered to be additives for GST purposes include colourings, flavourings, preservatives, antioxidants, sweeteners, vitamins, minerals and modifying agents.

Your product is used as a modifying agent to produce a food product and satisfies the definition of an additive.

Subregulation 38-3.02(1) of the GST Regulations states that food additives, other than exempt food additives, will be subject to GST. The term 'exempt food additive' is defined in subregulation 38-3.02(2) of the GST Regulations to mean:

(a) a food additive which, at the time of supply is packaged and marketed for retail sale;

(b) a food additive which, at the time of supply:

(i) has a measurable nutritional value; and

(ii) is supplied for use solely or predominantly in the composition of food; and

(iii) is essential to the composition of that food.

At the time of supply your product is not packaged and marketed for retail sale. The supply is by wholesale. Therefore, your product is not an exempt food additive under paragraph 38-3.02(2)(a) of the GST Regulations.

To be considered an exempt food additive under paragraph 38-3.02(2)(b) of the GST Regulations your product must have a measurable nutritional value, be used solely or predominantly in the composition of food and be essential to the composition of that food.

Although the term 'measurable nutritional value' is used in the GST Regulations, it is not defined elsewhere in the GST Act.

The ATO will accept that a product has a nutritional value for the purposes of the GST Regulations where the nutritional information is prepared in accordance with the Food Standards Code (FSC) published by the Australian and New Zealand Food Authority (ANZFA), and that information contains any measured values of nutrition (such as sugars, protein, fat or carbohydrates).

On the facts provided your product is used as a modifying agent to produce a food product. Therefore, it is accepted that your product is an essential ingredient that forms part of the final composition of the food product.

However, your product does not have a stated nutritional value, Therefore, your product fails to satisfy the requirement in subparagraph 38-3.02(2)(b)(i) of the GST Regulations. Accordingly, it is subject to GST as it is not an exempt food additive.