Edited version of your private ruling

Authorisation Number: 1012517399812

Ruling

Subject: GST and food products

Question

Is your supply of the products taxable or non-taxable?

Answer

Taxable.

Relevant facts and circumstances

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

· You sell certain type of products (Products) to a franchise group. The Products are used by this group to mix with beverages. They also sell the Products.

· You purchase the Products wholesale and on-sell them as is, that is, you do not repackage or alter the goods in any way.

· The Products are labelled in such a way as to indicate the Products are to be used as ingredients for beverages.

· The Products give a web address on the labelling which is principally directed towards using the Products as ingredients for beverages.

Relevant legislative provisions

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

Section 38-2

Section 38-3 (with reference to Schedule 2)

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 from being GST-free by section 38-3 of the GST Act.

Food is defined in subsection 38-4(1) of the GST Act to include ingredients for food for human consumption (paragraph 38-4(1)(b) of the GST Act), ingredients for beverages for human consumption (paragraph 38-4(1)(d) of the GST Act) and goods to be mixed with or added to food for human consumption (paragraph 38-4(1)(e) of the GST Act). Paragraph 38-4(1)(e) includes things such as condiments, spices, seasonings, sweetening agents, and flavourings.

In this case, the Products satisfy the definition of food under section 38-4 of the GST Act as they are sold by you as a product for human consumption.

Note that although the definition of food in the GST Act includes in its definition beverages and ingredients for beverages, under paragraph 38-3(1)(d) of the GST Act, a beverage or ingredient is excluded from being GST-free unless it is of a kind specified in the table in clause 1 of Schedule 2 to the GST Act (Schedule 2). Schedule 2 does not specify your Products therefore, the supply of your Products can only be GST-free if they can be considered as goods that are primarily marketed to be mixed with or added to food for human consumption.

Dual purpose products

Your Products can be used both as ingredients or condiments for food and as ingredients for beverages. An approach the Australian Taxation Office has adopted when determining whether a product is an ingredient or condiment for food or an ingredient for a beverage is that it is important to determine the essential character of the product. This involves ascertaining what the goods essentially are, as distinct from merely identifying one of a number of characteristics the goods might have. This approach relies upon deciding what the basic nature of the goods is and involves consideration of what the goods are made of and what they might be used for. The supplier must determine whether the product is held out for sale as an ingredient for food or an ingredient for a beverage.

Where a product is supplied as a GST-free ingredient or condiment for food, the fact that it could be used as an ingredient for a beverage does not change the GST-free status of the product supplied. The reverse situation is also true, that is, where a product is supplied as an ingredient for a beverage, the fact that it could be used as an ingredient or condiment for food does not change the taxable status of the product supplied. The supplier does not need to ascertain how a customer will use the product. However, where a product is differentiated and held out for sale as an ingredient for a beverage, GST will apply unless the ingredient is of a kind included in Schedule 2.

In this case, you sell the Products to a franchise group as a product to be mixed with beverages. The labelling on the Products also indicates that the Products are primarily ingredients for beverages. Given this, we consider the principal use of the Products is as ingredients for beverages and that the Products are sold for this purpose and not for mixing with food.

Thus, your supply of the Products are be taxable as an ingredient for beverages given they are not products of a kind specified in Schedule 2.