Edited version of your private ruling

Authorisation Number: 1012475456303

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Ruling

Subject: GST and frozen beverage concentrate

Question 1

Is the supply of the frozen beverage concentrate a GST-free supply?

Answer

Yes.

Relevant facts and circumstances

This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.

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

· You have developed for your customers (whole distributor of food and beverage products) a frozen beverage concentrate (Product).

· You advise that the Product is best described as a "frozen milk based beverage" which is supplied to retailer as a liquid concentrate and needs to be diluted with milk and frozen in order to be consumed.

· Your product is marketed as a frozen beverage preparation.

· Once diluted with milk and or water and dispensed via a frozen beverage dispenser the product is specifically formulated to be consumed as a frozen beverage only.

· You advise that as a comparison it could be compared between a slushi and a soft serve. It's like a slushi because it's a frozen beverage, it's a like a soft serve because it's with milk frozen.

· The Product would have a l2 month ambient store shelf life.

· You would store the Product in your relevant states warehouse and deliver the Product in a pallet lot volume to your customer, who would then on deliver either to his distributors and or the retailers.

· To prepare the Product for consumption the Product must be mixed with, milk at a 1 to 4 volume ratio, then transferred to a frozen beverage dispenser, frozen and then extracted to be consumed.

· The Product could not practically be consumed with out first mixing with milk and frozen via a purpose built frozen beverage dispenser.

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.

Paragraph 38-3(1)(d).

Section 38-4.

Paragraph 38-4(1)(c).

Paragraph 38-4(1)(d).

Schedule 2.

Reasons for decision

Issue 1

Question 1

Summary

Your supply of the Product is a GST-free supply. The Product comes within the definition of ingredients for beverages for human consumption in section 38-4 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act).

Detailed reasoning

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 section 38-4 of the GST Act to include beverages for human consumption (paragraph 38-4(1)(c) of the GST Act) and ingredients for beverages for human consumption (paragraph 38-4(1)(d) of the GST Act). Your Product is considered food for human consumption for the purposes of the GST Act.

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

It is therefore necessary to consider whether the product is an ingredient of a kind specified in Schedule 2.

The beverage category that is of particular relevance in Schedule 2 is Tea, coffee, etc. Within that category, the relevant table items are Item 5 and Item 7. Item 5 refers to tea, including herbal tea, fruit tea, ginseng tea and other similar beverage preparations Item 7 refers to preparations that are marketed principally as tea preparations, coffee preparations, or preparations for malted beverages.

The term marketed is not defined in the GST Act however the GST food guide (NAT 3338-7.2005) discusses marketing tests to define food, including preparations marketed principally as substitutes for tea preparations, coffee preparations or preparations for malted beverages. The food guide indicates that the marketing of a food item is usually determined by how the goods are promoted or advertised, but consideration should also be given to the name, price, labelling, instructions, packaging and placement of the goods in the store.

The Tax Office is of the view that item 5 is limited to ordinary tea that has the essential character of a beverage, which includes substitutes for those teas (eg. herbal teas, fruit teas, ginseng, etc as listed in the Food Index).

In line with this view, we consider that your Product in its current form does not meet the characteristics of Item 5 as it requires further processing and is not a readily consumed tea-type product.

Item 7 of Schedule 2 (Item 7) lists preparations for drinking purposes that are marketed principally as tea preparations.

On the facts provided, it is considered that the Product will satisfy Item 7 in the table in Schedule 2. Your supply of the product does not fall within any of the other exclusions in section 38-3 of the GST Act. Therefore it is GST-free.