Edited version of your private ruling

Authorisation Number: 1012492316468

Ruling

Subject: GST and food

Question

Will your supply of certain products be GST-free?

Answer

No. Your supply of the products will be taxable.

Relevant facts and circumstances

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

· You are to supply several products for human consumption.

· The products are powders.

· One of the products contains (amongst other things) whey protein isolate and is mixed with milk, milk substitute or water prior to consumption.

· The products not containing whey protein isolate are mixed with water prior to consumption.

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

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 by section 38-3 of the GST Act.

Food is defined in section 38-4 of the GST Act to include ingredients for beverages for human consumption (paragraph 38-4(1)(d)). Given that your products will be marketed to be mixed with liquids prior to consumption, they satisfy the definition of food contained in section 38-4 of the GST Act.

However, under paragraph 38-3(1)(d) of the GST Act, beverages (or ingredients for beverages) are only GST-free if they are of a kind to those beverages or ingredients specified in the third column of the table in clause 1 of Schedule 2 to the GST Act (Schedule 2).

Products not containing whey protein isolate

These products are not specifically listed in Schedule 2 and there are no beverages or ingredients in Schedule 2 that are of a kind to these products.

Consequently, your supply of these products will not be GST-free under section 38-2 of the GST Act but taxable under section 9-5 of the GST Act.

Product containing whey protein isolate

This product is not specifically listed in Schedule 2. However, as it contains whey protein isolate (a form of whey protein) and is mixed with milk, milk substitute or water prior to consumption, we need to consider the following two ingredients listed in Schedule 2:

· whey, whey powder or whey paste (Item 1(c)), and

· dry preparations marketed for the purpose of flavouring milk (Item 9).

Whey, whey powder or whey paste

In relation to Item 1(c) in Schedule 2, the terms whey, whey powder and whey paste are not defined in the GST Act. Therefore, it is necessary to examine the ordinary meanings of those words.

The Macquarie Dictionary (5th Edition) defines whey as milk serum, separating as a watery liquid from the curd after coagulation, as in cheese making. Accordingly, whey powder and whey paste are taken to be the powdered and paste versions of this substance.

Whey powder is produced after whey is concentrated (by means of reverse osmosis or evaporation) and dried (by means of spray or roller). However, to produce whey protein powder, whey must be submitted to a far more complex process in order to isolate and extract the protein from the whey. The whey must undergo precipitation by polyelectrolytes, centrifugation or filtration, separation of precipitation reagents, concentration by evaporation, and spray drying.

Whey powder is a complete whey product whereas whey protein powder is one derivative of whey. Therefore, although whey powder and whey protein powder come from the same source (whey), they are produced differently and ultimately possess different characteristics. Accordingly, whey protein powder is not an ingredient of a kind listed in Item 1(c) of Schedule 2.

Dry preparations marketed for the purpose of flavouring milk

In relation to item 9 of Schedule 2, it is necessary to determine whether this product is a dry preparation marketed for the purposes of flavouring milk.

Although this product contains flavouring and can be mixed with milk or other liquids, it is not specifically marketed as a flavouring for milk. As such, this product is not captured by Item 9 of Schedule 2. Therefore, it will not be GST-free under section 38-2 of the GST Act but taxable under section 9-5 of the GST Act.