Edited version of your private ruling

Authorisation Number: 1012505909960

Ruling

Subject: GST and supply of bag containing different items

Question 1

What is the goods and services tax (GST) status of the supply of the bag?

Answer

GST is applicable to the extent of the taxable part of the supply of the bag.

Relevant facts and circumstances

· You are a not-for-profit organisation and are registered for GST

· You sell bags containing items that you purchase (generally your industry promotion items) and items donated by organisations associated with the industry that you are promoting.

· The items in the bag consist of food and non-food items.

· The items are placed in a calico bag which is printed with your name and the names of your sponsors.

· The retail value of the bag is $X. The sale price is about 2/3 of the retail value.

Relevant legislative provisions

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

Section 9-5

Section 11-5

Section 9-80

Section 9-75

Reasons for decision

The supply of the show bag is a taxable supply when all of the requirements in section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) are satisfied and the negative limb in the section does not apply. This section states:

9-5  Taxable supplies  

You make a taxable supply if:

(a)  you make the supply for *consideration; and

(b)  the supply is made in the course or furtherance of an *enterprise that you *carry on; and

(c)  the supply is *connected with Australia; and

(d)  you are *registered, or *required to be registered.

However, the supply is not a *taxable supply to the extent that it is *GST-free or *input taxed.

* the asterisk denotes a defined term in the Act.

It is considered that:

· The bag is supplied (sold) for a monetary consideration of $XX.

· The supply of the bag is a part of your enterprise of promoting the industry as stated in your Constitution.

· The supply of the bag is made in Australia.

· You are registered for GST.

All of the requirements under the positive limb of section 9-5 of the GST Act are met. We need to further consider whether the negative limb of section 9-5 of the GST Act applies.

Where all of the requirements under the positive limb of section 9-5 of the GST Act are met, you are liable for GST 'to the extent that the supply is taxable.

It follows that it is necessary to consider what the supply in the circumstance is. Whether it is a supply of all taxable things or a mixture of taxable and non-taxable items and whether we treat the supply as a whole or a combination of different GST-status items.

You have provided that the supply you make is the bag that contains a number of items that can be classified as food and non-food items.

You receive a single consideration of $XX for those items. The issue is whether you supply all those items above as a mixed supply or a composite supply.

A mixed supply is one that contains taxable and non-taxable parts and a composite supply is a supply of essentially the one thing. GST is payable only on the taxable part of a mixed supply. If a composite supply is taxable, then GST is payable on the whole supply, but if a composite supply is non-taxable, then no GST is payable on the supply.

Goods and services tax ruling GSTR 2001/8 explains how you can identify whether a supply includes taxable and non-taxable. This Ruling also provides methods and example that you may use to work out how to apportion the consideration for a supply that contains separately identifiable taxable and non-taxable items.

Paragraphs 16 and 17 of GSTR 2001/8 provide that:

Mixed supply

…the term 'mixed supply' is used to describe a supply that has to be separated or unbundled as it contains separately identifiable taxable and non-taxable parts that need to be individually recognised.

Composite supply

…the term 'composite supply' is used to describe a supply that contains a dominant part and includes something that is integral, ancillary or incidental to that part. You treat a composite supply as a supply of a single thing.

The distinction between parts that are separately identifiable and things that are integral, ancillary or incidental, is a question of fact and degree. However, as a mean of minimising compliance costs, you may choose to treat something (or things that taken together as integral, ancillary or incidental if the consideration that would be apportioned to it (if it were a separately identifiable part of a mixed supply) does not exceed the lesser of :

· $3.00; or

· 20% of the consideration for the total supply.

It is considered that your supply is a mixed supply of food and non-food items. The parts of the supply are separately identifiable and retain their own identity. Each item has an ascribed value.

The non food items consist of:

· The calico bag:

· It is a taxable supply to you. The supply of the bag separately is taxable supply under the general provisions of the GST Act.

· The Product Education Booklet

· Generally, the supply of the book to you is a taxable supply. The supply of the book separately is taxable supply under the general provisions of the GST Act.

· Plastic tool to use with the food products

· Generally it is a taxable supply to you. The supply of the tool separately is taxable supply under the general provisions of the GST Act.

The food items consist of a number of food items. They are (except one item) GST-free under Division 38 of the GST Act. However, one food item is taxable as it is considered confectionery and is excluded from being GST-free under Item X of Schedule 1 of the GST Act

Section 9-40 of the GST Act provides that an entity is liable for GST on all taxable supplies it makes. However, where an entity is making a mixed supply that is a combination of separately identifiable and non-taxable supply parts the GST liability is calculated only on the taxable portion of the supply as provided for under section 9-80 of the GST Act.

Apportionment

In your circumstances, you have provided that the bag is a promotional package where the key component of the bag is food products. The food item in its own right is considered a GST-free food under sections 38-2 and 38-4 of the GST Act and is not excluded by section 38-3 of the GST Act.

It should also be noted that the apportionment of the value of the taxable and non-taxable parts should be taken into account:

· The discount given when the bag is sold as a package rather than single items. The discount is $Y as the retail value is $XX and will be offered at 2/3 of $XX.

· Although the plastic tool and the calico bag are taxable supplies as separately identifiable parts of your supply, under the de minis rule above, you can choose to treat the item as integral, ancillary or incidental part of the supply of the food product rather than the non-taxable part. This means there is no GST consequence on the supply of the items.

Therefore, it is only necessary to determine the value of the taxable items in the bag, the taxable food item and the Product Education Booklet.

Paragraphs 97 to 111 of GSTR 2001/8 provide a number of methods for apportioning the consideration for a mixed supply (a copy of GSTR 2001/8 is attached).

It is considered that the direct method provided in paragraph 97 is the appropriate method that uses relevant variables that measure the connection between what is supplied (the taxable and non-taxable parts) and the consideration for the actual supply. That is, the comparative price of each part if it were supplied on its own, relative the whole payment received.

The two taxable items above are $M (food item) and $N the Booklet in retail price. The price apportionment:

· $M X 2/3 = $M1 ($M1 is less than $3.00 or 20% of the sale price of the whole bag)

· $N x 2/3 = $N1

Applying the de minis rule above, you can choose to treat the taxable food item as being an integral, ancillary or incidental part of the supply (although it is separately identifiable).

Therefore, the supply of the bag is taxable to the extent of the taxable part, the Product Education Booklet where the consideration is $N1 (GST inclusive) after discount.

GST is calculated as 1/11 of the price (GST inclusive) under section 9-75 of the GST Act... Hence, the GST liability of the show bag is 1/11 of $N1.