Edited version of your written advice

Authorisation Number: 1012978842225

Date of advice: 7 March 2016

Ruling

Subject: GST and Anhydrous Milk Fat

Question

Is the supply of Anhydrous milk fat (product) GST-free?

Answer

Yes

Under section 38-2 of A New Tax System (Goods and Services Tax) Act 1999 (GST Act), a supply of food is GST-free. The meaning of the term food for GST purposes is defined in section 38-4 of the GST Act. This definition of food includes food for human consumption, whether or not it requires processing or treatment.

The product is ingredients for food for human consumption, and therefore satisfy the definition of food under paragraph 38-4 (1) (b) of the GST Act.

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

The product is not food listed, or of a kind listed, at any of the items in Schedule 1 of the GST Act. Additionally, the product is not food that is a combination of one or more foods at least one of which is food of such a kind. Hence, the product is not excluded from being GST-free by paragraph 38-3(1)(c) of the GST Act.

Additionally, the product is not excluded from being GST-free by virtue of any of the other paragraphs of subsection 38-3(1) of the GST Act. Therefore, the product is GST-free under section 38-2 of the GST Act.

Relevant facts and circumstances

This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.

You are registered for the goods and services tax (GST) in Australia. You are a food wholesaler and you supply Anhydrous Milk Fat (product) in bulk.

The product is commonly known as butter oil. The ingredients of the product, as per the manufacturer website consist of 99% pure milk fat made from fresh cream. It is virtually free of moisture and contains no chemical additive, preservatives, flavours, foreign fat or other impurities.

The product is essentially the fat concentrate that is obtained from cream by removing water and solids but not fat content. The product is a rich source of milk fat amongst dairy products.

The processes for the production of anhydrous fat, using cream as the raw material, are based on the emulsion splitting principle. In brief, the processes consist of the cream first being concentrated to 75% fat or greater, in two stages. In both of these stages, the fat is concentrated in a hermetic solids-ejecting separator. The fat globules are then broken down mechanically, so that phase inversion occurs and the fat is liberated. This forms a continuous fat phase containing dispersed water droplets, which can be separated from the fat phase by centrifugation. This is similar to the concentration method for butter making, with the addition of the mechanical rupture of the emulsion and additional separator for removal of the residual water phase.

Although the product is an ingredient for food, it is not marketed as an ingredient for any specific product it is simply sold as a commodity used to manufacture a number of products such as chocolate, confectionery products, ice cream mixes and cheese processing. There is also a range of specialised milk fat blends supplied at a variety of melting points that can be used in the manufacture of vegetable or oil based spreads and sauces.

There is no packaging for the product - it is essentially a commodity that is shipped in bulk in consignments.

Your contention:

The product is ingredients for food for human consumption, and therefore satisfy the definition of food under paragraph 38-4 (1) (b) of the GST Act. You do not market the product to be ingredients for confectionery. The product can be used as ingredients for many products including cheese and confectionery products. There is no requirement for the supplier to ascertain how the purchaser will use the product. Hence the product is not listed under Schedule 1 item 8 of the GST Act (food marketed as ingredients for confectionery). In summary, the supply of the product should be GST-free.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 section 38-2

A New Tax System (Goods and Services Tax) Act 1999 paragraph 38-3(1)(c)

A New Tax System (Goods and Services Tax) Act 1999 paragraph 38-4(1)(a)

A New Tax System (Goods and Services Tax) Act 1999 Schedule 1