Edited version of your private ruling

Authorisation Number: 1012423988703

Ruling

Subject: Supply of packaging services

Question 1

Is the supply of the fruit juices taxable?

Answer

No

Question 2

Is the supply of the packaging services taxable?

Answer

Yes

Relevant facts:

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

· You carry on an enterprise of manufacturing and packing fruit juices.

· You supply fruit juices (90% of fruit juices by volume) to your customers (supply of fruit juices agreement). The fruit juices are non-alcoholic and non-carbonated.

· Under your supply agreement, you also provide packaging for the fruit juices.

· You invoice your customers for your supply of fruit juices (supply of fruit juices agreement).

· You also supply packaging services to your customers (supply of packing services agreement). Under this arrangement, your customers provide the fruit juices for packing and you do not provide any consideration for the fruit juices.

· Your packaging service could include packaging materials and labour. You invoice your customers and treat your provision of services as taxable.

· You confirmed that there are no promotional items included in the packaging.

· You have provided 4 different scenarios of your operations.

Reasons for decisions

Under section 9-40 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), you are liable for GST for your taxable supplies.

Under section 9-5 of the GST Act you make a taxable supply if

a) You make a supply for consideration

b) The supply is made in the course of your enterprise

c) The supply is connected with Australia and

d) You are registered or required to be registered for GST

However, the supply is taxable to the extent that it is GST-free or input taxed.

The supplies of fruits juices or packaging services are not input taxed supplies under the GST legislation. However a supply of fruit juices could be GST free under section 38-2 of the GST Act if they are beverages of a kind listed in the table in clause 1 of Schedule 2 of the GST Act

1. Is the supply of the fruit juices taxable?

A supply of food is GST-free under section 38-2 of the GST Act provided that the supply does not come within any of the exclusions listed in section 38-3 of the GST Act.

Food is defined in paragraphs 38-4(1)(c) and 38-4(1)(d) of the GST Act to include beverages for human consumption and ingredients for beverages for human consumption. The fruit juice satisfies the definition of food as it is a beverage for human consumption.

However, under paragraph 38-3(1)(d) of the GST Act, a supply of a beverage or an ingredient for a beverage is not GST-free unless it is beverage of a kind listed in the table in clause 1 of Schedule 2 of the GST Act (Schedule 2).

Items 10, 11 and 12 in Schedule 2 (under the category of fruit and vegetable juices) are relevant items in relation to your supply of fruit juices. These items list beverages that are GST-free. Item 10 in Schedule 2 (item 10) lists concentrates for making non-alcoholic beverages, if the concentrates consist of at least 90% by volume of juices of fruits as being GST-free. Item 11 in Schedule 2 (item 11) provides that non-alcoholic carbonated beverages that consist wholly of juices of fruits or vegetables are GST-free. Item 12 in Schedule 2 (item 12) lists non-alcoholic non-carbonated beverages if they consist of a least 90% by volume of juices of fruits or vegetables as being beverages that are GST-free

You advised that the fruit juice you supply contains 90% of fruit juices by volume and they are non-carbonated and non-alcoholic. Therefore, we consider item 12 applies to your supplies of fruit juices. Therefore, as the fruit juice is listed under item 12, it is therefore not excluded from being GST free by section 38-3 of the GST Act The supply of the fruit juices is GST-free under section 38-2 of the GST Act.

Packaging of fruit juice

You advised that you pack the fruit juices for your customer as part of the supply of fruit juices agreement. We need now to determine whether the supply of packaging is a taxable

Section 38-6 of the GST Act states:

(1) A supply of the packaging in which *food is supplied is GST-free if the supply of the food is GST-free.

(2) However, the supply of the packaging is GST-free under this section only to the extent that the packaging:

(a) is necessary for the supply of the food; and

(b) is packaging of a kind in which food of that kind is normally supplied.

* is a defined term in the GST legislation

The Australian Taxation Office explanation on the supply food packaging under section 38-6 of the GST Act is outlined in the Goods and Services Determination GSTD 2000/6. We enclose a copy for your reference.

Paragraphs 1 and 2 of GSTD 2000/6 states:

1. A supply of packaging in which food is supplied will be GST-free to the extent that it is necessary for the supply of GST-free food, and it is of a kind in which the food is normally supplied.

2. Where the purpose of the packaging is simply to contain, protect and promote the food within, it will be a normal and necessary part of the supply of the food. For individual items, normal and necessary packaging includes tins, bottles, jars and boxes. For a group of items, normal and necessary packaging includes the carton or box that contains a number of individual items.

That is, a supply of packaging materials is GST free if they are necessary for the supply of GST-free food and they are of a kind in which the food is normally supplied.

Under your supply agreement for fruit juices you supply fruit juices as well as the packaging. You confirmed that there are no promotional items included in the packaging.

Therefore, we consider you are making a supply of GST-free fruit juices under section 38-2 of the GST Act under your supply agreements. The packaging used for packing the fruit juices are necessary and are of the kind in which the fruit juices are normally packed in. Therefore, the supply of the packaging for the GST-free fruit juices is GST-free under section 38-6 of the GST Act.

In summary, where your supply of the fruit juices is GST free under section 38-2 of the GST Act, the food packaging is also GST free.

2. Is the supply of the packaging services taxable?

You advised that you also provide packaging services to customers. Under these arrangements your customers provide the fruit juices for packing and engage you for your services. You confirmed that you do not provide any consideration for their fruit juices as you have not acquired the fruit juices.

Your packaging services will include packaging materials and labour. You invoice your customers for the finished products and charge GST for your services

As you are suppling your services for consideration, your supplies satisfy all the criteria in section 9-5 of the GST Act and your supplies are taxable to the extent they are input taxed or GST-free.

There are no provisions in the GST legislations which would make a supply of packaging services input taxed.

A supply of packaging is GST-free under section 38-6 of the GST Act if the packaging supplied is necessary for the supply of a GST free food and they are of a kind in which the GST-free food of that kind is normally supplied.

We consider section 38-6 of the GST Act does not apply to your supplies of services (packaging of the fruit juices) as you are not making a supply of fruit juices to your customers under your agreement for packaging services. Your customers contract you to pack the fruit juices for them. They provide the fruit juices for packing and you do not provide any consideration for the fruit juices, ie: you have not purchased the fruit juices

Although your invoices list the packed fruit juices (finished products) for your customers, your agreements (contract of supply) with the customers are only for the provision of packaging services.

Therefore, your supplies of packaging services are taxable under section 9-5 of the GST Act and you will be liable for GST under section 9-40 of the GST Act for your provision of packaging services.

Summary:

Scenario 1:

GST-free supply of fruit juice under section 38-2 of the GST Act

Scenario 2:

GST-free supply of fruit juice under section 38-2 of the GST Act

Scenario 3:

Taxable supply of packaging services is section 9-5 of the GST Act

Scenario: 4

Taxable supply of packaging services is section 9-5 of the GST Act