Edited version of your private ruling

Authorisation Number: 1012570916373

Ruling

Subject: GST and food products

Question 1

Are the food products supplied by you GST-free supplies within the meaning of Section 38-2 of the GST Act on the basis it is food for human consumption that is not of a kind specified in Schedule 1?

Answer

Yes

Question 2

Is the packaging used for the food products GST-free within the meaning of Section 38-6 of the GST Act?

Answer

Yes

Relevant facts and circumstances

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

· The majority of supplies made by you will be made on a wholesale basis to various health food stores, supplement stores and gymnasiums.

· To date you have treated your wholesale supplies as fully taxable.

Overview of the food products

· You currently supply three types of food products (collectively known as the food products' for the purposes of this application)

o Product A

o Product B

o Product C

· The food products are marketed as a meal supplement and healthy snack option (and not as meal replacements beverages or health shakes) that are an alternative to the products currently available in the health food market.

· The food products supplied by you are made from all natural ingredients and contain no artificial flavours, colours or sweeteners.

· The food products are intended to be a healthy, quick and easy meal supplement for active people on the go seeking energy and enjoy all the benefits of pure, wholesome fruit and vegetables.

· The ingredients of the food products are dehydrated into a powder and are then sealed into individual sachets.

· The food products can be mixed with other types of foods such as salads or soups, or consumed straight from the sachets.

· The food products can also be mixed with water prior to consumption.

· You import the food products into Australia from an overseas supplier.

· The packaging consists of a cardboard box and individual sealed wrappers.

· The food products will not be supplied for consumption on the premises or as hot food for consumption away from the premises.

Relevant legislative provisions

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

Section 38-6

Section 38-2

Section 38-4

Section 38-4(1)(b)

Section 38-3

Paragraph 38-3(1)(c)

Schedule Sch1.

Section Sch1-1.

Reasons for decision

Question 1

Summary

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), unless they are excluded by section 38-3 of the GST Act.

Where a food or a combination of foods with at least one of which is food, of a kind specified in the table in clause 1 of Schedule 1 to the GST Act (Schedule 1), these foods are excluded from being GST-free by paragraph 38-3(1)(c) of the GST Act.

Foods or a combination of foods that are not listed in Schedule 1, are GST-free food under section 38-2 of the GST Act.

Detailed reasoning

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 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).

We accept that your food products are supplied as a food supplement. Therefore, as a food supplement for human consumption your food products satisfy paragraph 38-4(1)(a) of the GST Act.

Under paragraph 38-3(1)(c) of the GST Act, a supply of food is not GST-free if it is food of a kind that is specified in the third column of the table in clause 1 of Schedule 1 (Schedule 1), or food that is a combination of one or more foods at least one of which is food of such a kind.

There are no relevant items in Schedule 1. Accordingly, your food products are GST-free under section 38-2 of the GST Act.

Question 2

Summary

A supply of the packaging in which food is supplied is GST-free if the supply of the food is GST-free and is necessary for the supply of the food; and is packaging of a kind in which food of that kind is normally supplied.

Detailed reasoning

Section 38-6 of the GST Act deals with the packaging in which food is supplied.

Subsection 38-6(1) of the GST Act states 'A supply of the packaging in which food is supplied is GST-free if the supply of the food is GST-free'.

Subsection 38-6(2) of the GST Act states:

However, the supply of the packaging is GST-free under this section only to the extent that the packaging:

(a) is necessary for the supply of the food; and

(b) is packaging of a kind in which food of that kind is normally supplied.

Paragraph 2 of Goods and Services Tax Determination GSTD 2000/6 provides guidelines to determine whether food packaging is necessary for the supply of a GST-free food, and whether it is of a kind in which that kind of food is normally supplied. Where the purpose of the packaging is simply to contain, protect and promote the food within, it will be a normal and necessary part of the supply of the food. For individual items, normal and necessary packaging includes tins, bottles, jars and boxes.

You advise that the packaging, consists of a cardboard box and individual sealed wrappers and the packaging is of a kind in which you would expect these kinds of food products to be supplied in.

As the packaging you supply satisfies the requirements of section 38-6(2) of the GST Act the supply of the packaging will be also be GST-free.

Dual use and primary purpose

Generally, a supply of food (as defined in section 38-4 of the GST Act) is GST-free under section 38-2 of the GST Act provided that it does not come within any of the exclusions listed in section 38-3 of the GST Act.

Paragraph 38-4(1)(d) of the GST Act includes, within the meaning of 'food', ingredients for beverages for human consumption. However, under paragraph 38-3(1)(d) of the GST Act, the supply of an ingredient for a beverage is only GST-free if it is a beverage ingredient of a kind included in the third column of the table in clause 1 of Schedule 2 to the GST Act (Schedule 2).

Where a product is supplied as a GST-free ingredient 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 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 the third column of the table in clause 1 of Schedule 2.

The onus rests with the supplier to determine whether their product is supplied as an ingredient for food or an ingredient for a beverage.

In this case you have advised that the primary use of the products would be as a food and not as an ingredient for a beverage.

Additional information

Whilst you have not asked us to rule on whether the importation is taxable or non-taxable the following general information is provided for your perusal.

Non-taxable importations

Division 42 of the GST Act deals with non-taxable importations.

Subsection 42-5(1) of the GST Act states:

(1) An importation of goods is a non-taxable importation if the goods are covered by item 4, 8, 15, 18A, 18B, 18C, 21, 21A, 23A, 23B, 24, 25A, 25B, 25C, 32A, 32B, 33A, 33B or 64 in Schedule 4 to the Customs Tariff Act 1995.

Subsection 42-5(1C) of the GST Act states:

An importation of goods is a non-taxable importation if the goods are

covered by:

(a) item 1A, 1B, 1C, 1D, 1E, 5, 6, 9 or 16 in Schedule 4 to the Customs Tariff Act 1995; and

(b) regulations made for the purposes of this subsection.

It is a matter for Australian Customs Service (Customs) to determine if an importation is covered by any of the above items (referred to in section 42-5 of the GST Act), as the Customs Tariff Act 1995 is legislation administered by Customs and not the Tax Office. Therefore, you may wish to contact Customs to determine if the products will be covered by the items referred to above. Customs is responsible for imposing GST on taxable importations.