Edited version of your private ruling

Authorisation Number: 1012519583436

Ruling

Question

Are the supplies of the milk products GST-free?

Advice

Relevant facts:

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

· You carry on an enterprise of supplying milk products to food manufacturers.

· The milk products are used for the following: 

· The raw cream is cream separated from raw cow's milk and is unpasteurised. You have determined that your supplies of raw cream are not fit for human consumption as they have not been pasteurised. However, the food manufacturers will buy and process the raw cream. They will use the processed product to make ice cream, yoghurts and cheese cakes, etc.

· You supply the raw cream in bulk and the product's packaging and labelling does not indicate that the raw cream is a food product.

· The raw cow's milks have not been subject to any process. They are unprocessed and unpasteurised. They are sold in bulk to food manufacturers who would process the raw cow's milk to make ice cream, yoghurts and cheese cakes.

· The skim milks are made from pasteurised milks. The milks are unflavoured.

· All the milk products are sold in bulk to food manufacturers.

· You supply the milk products (other than the raw cream and raw cow's milk) as ingredients for foods that are fit for human consumption

· There is no marking on the packaging which would indicate that the milk products are for beverage, ingredients for beverages, food additives or other non-food uses.

· The yoghurt powders are ingredients for cakes and bread and the cheese powders are used ingredients for desserts.

Reasons for decisions

Under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), you make a taxable supply if:

· you make the supply for consideration

· the supply is made in the course or furtherance of your enterprise

· the supply is connected with Australia; and

· you are is registered or required to be registered.

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

Your supplies satisfy all the criteria in section 9-5 of the GST Act. The supplies of milk products are not input taxed. However, we need to determine whether the supplies are GST-free food under section 38-2 of the GST Act.

Food

A supply of a product 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:

· food for human consumption whether or not requiring processing or treatment (paragraph 38-4(1)(a) of the GST Act), and

· food ingredients for food for human consumption (paragraph 38-4(1)(b) of the GST Act).

· beverages (or ingredient for beverages) for human consumption (paragraph 38-4(1)(c) of the GST Act).

· ingredients for beverages for human consumption (paragraph 38-4(1)(d) of the GST Act)

· goods to be mixed with or added to food for human consumption (paragraph 38-4(1)(e) of the GST Act)

· fats and oils for culinary purposes (paragraph 38-4(1)(f) of the GST Act)

However, unprocessed cow's milk is specifically excluded from being a food product by paragraph 38-4(1)(ga) of the GST Act.

Raw cow's milk

The definition of food in section 38-4 of the GST Act specifically exclude unprocessed cow's milk. Paragraph 6 of the Goods and Services Tax Industry Issue - "Food Industry Partnership - Farm to 'food' product transformation" states:

Unprocessed cow's milk is subject to GST (paragraph 38-4(1)(ga) of the GST Act). Therefore, cow's milk will be GST-free once it has been subjected to any process (other than filtration). Such processes may include - separation, evaporation, pasteurisation, re-hydration, homogenisation, and reconstitution

Therefore, as the raw cow's milk has not been subjected to any process, the raw cow's milk is not a food product. The supply of the raw cow's milk is taxable under section 9-5 of the GST Act.

Raw cream

The explanation on "food" for GST purposes is outlined in the ruling "Goods and Services Tax Industry Issue - Food Industry Partnership - What is Food?" and the "GST Food Guide" publication. Some food products may have alternate uses (other than for foods). The GST Food Guide provides some guidance for these foods and it states

FOOD PRODUCTS THAT HAVE ALTERNATIVE (NON-FOOD) USES

Some GST-free food products have alternative non-food uses. The GST status of a product depends on whether it is a sale of:

· food for human consumption

· a non-food product.

The supplier must work out the type of sale.

You can work this out by considering the:

· physical product

· nature of the sale.

For example, you might decide a food product is for non-food use because the product is:

· called something other than food

· stored in conditions or containers that are not suitable for food

· packaged in a non-food type package or container

· labelled, invoiced or marketed as a non-food product

· delivered in a way not suitable for food.

Based on the above explanation, a supplier will normally determine whether their supply is a food product for human consumption (which satisfies the food definition under section 38-4 of the GST Act) or a non-food product through the product's packaging, labelling, storage, marketing, delivery, etc. Where the supplier has determined that a product is a non-food product, the supply of the product will not be GST-free food under section 38-2 of the GST Act.

The raw cream is unpasteurised cow's milk and you have determined they are not fit for human consumption. You supply the raw cream in bulk and the product's packaging and labelling does not indicate that the raw creams are food products. Therefore the raw cream is not a food product under section 38-4 of the GST Act. The supply of the raw cream is taxable under section 9-5 of the GST Act.

Milk products

The skim milk, milk, whey powder, lactose powder, buttermilk powder, condensed milk and milk powders satisfy the definition of food as they are beverage or ingredients for beverages for human consumption (paragraph 38-4(1)(c) of the GST Act).

The cheeses are foods for human consumption whether or not requiring processing or treatment (paragraph 38-4(1)(a) of the GST Act

The other milk products such as the milk fat, milk protein concentrate, potassium caseinate, yoghurt powder, fresh cream, butter, etc satisfy the definition of food as they are marketed as ingredients for foods for human consumption (paragraph 38-4(1)(b) of the GST Act). You supply the milk products in bulk to food manufacturers for further processing into foods for human consumption.

However, subsection 38-3(1) of the GST Act specifies some foods that are excluded from being GST-free. The subsection states:

A supply is not GST-free under section 38-2 if it is a supply of:

(a) *food for consumption on the *premises from which it is supplied; or

(b) hot food for consumption away from those premises; or

(c) food of a kind specified in the third column of the table in clause 1 of Schedule 1, or food that is a combination of one or more foods at least one of which is food of such a kind; or

(d) a *beverage (or an ingredient for a beverage), other than a beverage (or ingredient) of a kind specified in the third column of the table in clause 1 of Schedule 2; or

(e) food of a kind specified in regulations made for the purposes of this subsection.

* denotes a defined term in the GST Act

Paragraphs 38-3(1)(a) and (b) of the GST Act do not apply to the milk products as you supply the products in bulk food manufacturers for further processing.

Paragraph 38-3(1)(d) of the GST Act - beverages or ingredients for beverages

Under paragraph 38-3(1)(d) of the GST Act, a beverage or an ingredient for a beverage that are specified in Schedule 2 are not excluded from being GST-free.

The following beverages or the ingredients for beverages are listed in Schedule 2:

As these beverages or ingredients for beverages are listed in Schedule 2, they are not excluded from being GST-free by paragraph 38-3 (1)(d) of the GST Act.

Paragraph 38-3(1)(c) of the GST Act

Under paragraph 38-3(1)(c) of the GST Act foods that are of a kind specified in Schedule 1 or are foods consisting of a combination of one or more foods with at least one of which is food specified in Schedule 1 are excluded from being GST-free.

In your case, the cheese products are foods for human consumption whether or not requiring processing or treatment. However these foods products are not of a kind specified in Schedule 1 of the GST Act. Therefore they are not excluded from being GST-free by paragraph 38-3(1)(c) of the GST Act.

Ingredients for foods for human consumption/food additives

You have advised that the other milk products are food ingredients and they are all fit for human consumption. The food ingredients can be mixed or added to make food products such as bread, cheese, pastries, baked goods, processed meat products, body building formulas, etc. However some of the milk products have applications such as ingredients for nutritional beverages or used in manufacturing of glues and film coatings, etc.

Where a food product has alternative uses (other than food such as non-food uses or ingredients for beverages), the GST status of the product can be determined by the supplier based on the physical product and their nature of supply. Paragraph 6 of the ruling "Goods and Services Tax Industry Issue - Food Industry Partnership - What is Food?" states:

There is no requirement for the supplier to ascertain how the purchaser will use the product. The GST status of the product depends on whether it is a supply of food for human consumption as defined in the Act.

The supplier can determine the GST status of a product by working out the physical nature of the product and the supply, such as product packaging and storage in conditions suitable for food, product labelling, marketing and descriptions of the products in their invoices, etc.

You advised that you supply the milk products on wholesale basis to food for further processing into food for human consumption. You market the products as ingredients for foods fit for human consumption. The food products are supplied in bulk and there is no marking on the packaging or labelling which could indicate that the products are ingredients for beverages or for non-food uses.

It is therefore accepted that the nature of your supply (wholesale of the milk products to food manufacturers) are that of supplies of ingredients for foods for human consumption, notwithstanding the possibility that some of these food ingredients may subsequently be used as ingredients for beverages.

Therefore as you are supplying the milk products as ingredients for foods and not for beverages, paragraph 38-3(1)(d) of the GST Act has no application to these ingredients for foods.

Next we need to consider whether the ingredients for foods are listed in Schedule 1. Paragraph

38-3(1)(c) of the GST Act excludes foods that are of a kind specified in Schedule 1 from being GST-free. Foods that are marketed as ingredients for confectionery is listed under Item 8 of Schedule 1 (item 8).

Therefore, we need to determine whether the milk products are marketed as ingredients for confectionary. The term 'confectionery' is not defined in the GST Act and therefore it is appropriate to consider its ordinary meaning. 'Confectionery' is defined in The Macquarie Concise Dictionary (3^nd Edition) (Dictionary) as 'confections or sweets collectively'.

The milk products are not marketed as ingredients for confectionary as they are milk products and are not confections or sweet in nature. You advised that the milk products are ingredients for making spreads, dips, bakery products, health foods, sauces, topping, dressings, etc. Therefore the milk products are not food of a kind specified in item 8 and are therefore not excluded from being GST-free by paragraph 38-3(1)(c ) of the GST Act

Next, we need to consider whether the milk products could be food of a kind specified in regulation 38-3.02 of the A New Tax System (Goods and Services Tax) Regulations 1999 (GST regulations). Regulation 38-3.02 of the GST regulation is about food additives. A purchaser may purchase a for the purposes adding to food to preserve or improve quality, for example emulsifiers, stabilizers or modifying agents

However, as explained in the above, the supplier makes the determination whether the milk products are food additive or ingredients for foods and the purchaser's intended use will not affect the GST status of the milk products.

You have advised that you supply the milk products as ingredients for foods and the products are supplied in bulk. There is no marking on the packaging or labelling which indicates that the products are supplied as food additives. Therefore, paragraph 38-3(1)(e) of the GST Act has no application to the milk products as you have not determined the products to be food additives.

You supply the milk products as ingredients for foods for human consumption (paragraph 38-4(1)(b) of the GST Act). The products are not supplied as food additives or ingredients for beverages or ingredients for confectionery. Therefore, the milk products are not excluded from being GST-free by section 38-3 of the GST Act.

Where you supply your milk products as foods or ingredients for food and the products are not excluded from being GST-free food, the supply is GST-free under section 38-2 of the GST Act.

The unprocessed raw cow's milks and raw creams are not food products for GST purposes and therefore their supplies are taxable under section 9-5 of the GST Act.