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Edited version of your written advice
Authorisation Number: 1012761122725
Ruling
Subject: GST and Water Product
Question 1
Is the supply of your Water Product GST-free?
Answer
No.
Relevant facts and circumstances
• You are registered for the goods and services tax (GST).
• You are the distributor for your Water Product.
• Your Water Product is a living culture of live bacteria and yeasts that live in a symbiotic relationship and feed off sugar and other mineral rich foods (such as dried fruits and molasses).
• The production of your Water Product generally involves dissolving sugar into a jar of water and then adding grains to the water allowing the culture to ferment sugar water (brown or white sugar and filtered water) for around 48 hours. In this mixture are dried fruits, some molasses and salt.
• After 48 hours, the liquid is ready to bottle. At that time, different dried herbs are added to produce different types of varieties. They are mixed in and then the varieties are bottled.
• Your Water Product is a beverage suitable for the whole family to drink. It is stocked at various organic and health food stores.
• Your Water Product is 100% naturally carbonated -there are no external forces/machinery to carbonate it. It is a fermented product, meaning that the natural fermentation process creates the carbonation.
• Your Water Product is low in sugar and has a fizzy and coloured appearance.
Relevant legislative provisions
A New Tax System (Goods and Services Tax) Act 1999 Section 9-5,
A New Tax System (Goods and Services Tax) Act 1999 Section 38-2,
A New Tax System (Goods and Services Tax) Act 1999 Paragraph 38-4(1)(c) and
A New Tax System (Goods and Services Tax) Act 1999 Paragraph 38-4(1)(d).
Reasons for decision
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), provided that the supply does not come within any of the exclusions listed in section 38-3 of the GST Act.
Subsection 38-4(1) of the GST Act defines food for the purposes of section 38-2 of the GST Act. Paragraph 38-4(1)(c) of the GST Act provides that food includes beverages for human consumption. Your Water Product is a beverage for human consumption.
However, under paragraph 38-3(1)(d) of the GST Act, a beverage is only GST-free if it is a beverage of a kind specified in the table in clause 1 of Schedule 2 to the GST Act (Schedule 2).
Your Water Product is not specifically listed in Schedule 2. However, item 14 in Schedule 2 (Item 14) provides that a supply of water that is 'natural water, non-carbonated and without any other additives' is GST-free.
As such, it is necessary to determine whether water that is 'natural water, non-carbonated and without any other additives' includes your Water Product.
Natural water and additives are not defined in the GST Act and are therefore given its ordinary meaning.
The Third Edition of the Macquarie Dictionary defines
natural as
1. "existing in or formed by nature; not artificial:
2. based on the state of things in nature; constituted by nature:
3. of or relating to nature or the created universe:"
additive as
1. "to be added of the nature of an addition; characterised by an addition: an additive process.
2. Something added
3. A substance added to a product, usually to preserve or improve its quality.
Examples of products that are considered to be food additives for GST purposes include:
• colourings
• flavourings
• preservatives
• antioxidants
• sweeteners
• vitamins
• minerals
• modifying agents (vegetable gums, mineral salts, food acids, emulsifiers, humectants, thickeners).
Your Water Product is produced generally by dissolving sugar in water and then adding grains (along with salt or molasses and the optional choice of dried fruits and citrus). The fermentation process is then initiated and various dried herbs are added to produce the different varieties of your Water Product. This overall process involves an additive process and therefore does not fall under Item 14 for the purposes of the GST Act.
Furthermore, the supply of your Water Product will not be GST-free under any other provision of the GST Act. Therefore the supply of your Water Product is a taxable supply and will be subject to GST.