Edited version of your private ruling

Authorisation Number: 1012542978081

Ruling

Subject: GST and supply of coffee

Question 1

Is the supply of the coffee by you from the vending machine, GST-free?

Answer

No.

Question 2

Are the cups, spoons, milk, sugar, hot water supplied by you for no consideration subject to goods and services tax (GST)?

Answer

No.

Relevant facts and circumstances

You are registered for GST.

You supply coffee.

The vending machines have a number of features including coffee making and storage facilities.

You are supplying the coffee for $2.

The vending machines will be placed in business premises.

A customer can purchase a coffee from your vending machine by inserting the required money or swiping their credit card and selecting the coffee of their choice.

The customer can than choose to use the coffee making feature of the vending machine to make the coffee of their choice.

Hot water, cups, spoons, milk and sugar are available at no extra charge.

The coffee making feature of the vending machine may be used by anyone using their own tea or coffee, at no charge.

The Coffee Pods or capsules are supplied as a coffee to be used by the customer to prepare their choice of coffee using the machine.

The vending machines are enabled to serve coffee at the touch of a button, a storage unit and a user friendly payment system.

The vending machine is designed to prepare various coffees simply and quickly.

Relevant legislative provisions

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

Section 9-5

Section 38-2

Section 38-3

Section 38-4

clause 1 of schedule 2 to the GST Act

clause 2 of schedule 2 to the GST Act

Reasons for decision

Issue 1

Question 1

Summary

Your supply of the coffee product is not GST-free.

Detailed reasoning

A supply of food is GST-free under section 38-2 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) if the product satisfies the definition of food in section 38-4 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)). The coffee products are considered to be a beverage for human consumption.

However, under paragraph 38-3(1)(d) of the GST Act, beverages will only be GST-free if they are of a kind specified in the table in clause 1 of schedule 2 to the GST Act (Schedule 2).

The items in Schedule 2 that may be applicable to the coffee pods are:

Item 5	tea (including herbal tea, fruit tea, ginseng tea and other similar beverage preparations), coffee and coffee essence, chicory and chicory essence, and malt
Item 7	preparations for drinking purposes that are marketed principally as tea preparations, coffee preparations or preparations for malted beverages
Item 8	preparations marketed principally as substitutes for preparations covered by item 6 or 7

However, clause 2 of Schedule 2 provides that Item 5, 7 or 8 does not include beverages marketed in a ready-to-drink form. Therefore the supplies of a ready-to-drink coffee, cappuccino, or espresso are excluded from being GST-free.

It is therefore necessary to consider the marketing of the coffee products and for the purposes of this case, it will be necessary to consider the following:

· How the goods are promoted or advertised;

· The literature and instructions on the products;

· The name of the product;

· The price of the product; and

· The placement of the product.

The intention of the consumers may also be relevant.

How the coffee products are promoted or advertised:

The vending machines are advertised as a machine that serves coffee at the touch of a button, with a storage unit and a user friendly payment system.

The vending machines are equipped with a system able to prepare various coffees including milk based recipes simply and quickly'.

After considering the promotional information and the design of the vending machines, the Commissioner is of the view that coffee products supplied by you via the vending machine are marketed as a ready-to-drink coffee, cappuccino or espresso. The vending machines are not promoted as a machine to be set up to supply coffee products for consumers to take away and use at home or use another machine to make a coffee. The vending machines are designed and promoted as a complete system that serves ready-to-drink coffee at the touch of the button.

The literature and instructions on the product:

After considering the information on the vending machine brochure, the Commissioner is of the view that the vending machines are a complete system that supplies coffee in a ready-to-drink form.

The Price of the coffee products:

The price of the coffee products is within an acceptable range of other coffee supplied in a ready-to-drink form via a vending machine.

The Placement of the product:

The vending machines will be installed in business premises. The placement of the vending machines in these premises would indicate that what you are supplying is a coffee in a ready-to-drink form rather than coffee products for consumers to buy to use in their own coffee machines at home or in another place to make a coffee.

It is more likely that the intention of the consumers in this case would be to a buy a coffee of their choice that is ready-to-drink and not a coffee product to use at a later time.

After considering how the vending machines are marketed or promoted in the brochures, the Commissioner is of the view that the coffee products are marketed in a ready-to-drink form.

Therefore, your supply of the coffee products via the vending machines are subject to GST and are excluded from being GST-free under clause 2 of Schedule 2.

Question 2

Summary

Your supply of cups, spoons, milk, sugar, hot water supplied for no consideration is not subject to GST as not all the requirements of section 9-5 of the GST Act are satisfied.

Detailed reasoning

GST is payable by you on your taxable supplies.

You make a taxable supply where you satisfy all the requirements of section 9-5 of the GST Act, which provides:

You make a taxable supply if:

(a) you make the supply for consideration;

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

(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.

In your case, you will satisfy the requirements of paragraphs 9-5(b) to 9-5(d) of the GST Act. That is, you will supply the cups, plastic spoons, sugar, water etc in the course or furtherance of an enterprise that you carry on, these supplies will be connected with Australia and you are registered for GST. However, as you are not supplying the cups, plastic spoons, sugar, water etc for consideration paragraph 9-5(a) of the GST Act is not satisfied, therefore you will not be making a taxable supply. As your supply is not a taxable supply we do not need to consider whether the supply is GST-free or input taxed.