Edited version of your written advice

Authorisation Number: 1012986525979

Date of advice: 6 May 2016

Ruling

Subject: GST and fruit infused water range

Question

Is your supply of the products GST-free?

Answer

No, your supply of the products is not GST-free, it is a taxable supply.

Relevant facts and circumstances

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

Your products are water which is infused with a small amount of fresh fruit, and are non-alcoholic, non-carbonated beverages. You do not supply the products for consumption on the premises from which they are supplied. The products will be sold in supermarkets.

This is the manufacturing process of the products: the water product is manufactured by taking a puree (that is, fruit) and placing the puree into a filter bag where the puree sits in the water for a period of time. This process infuses the fruit into the water.  The solids/filter bag is then removed and the water is pasteurised, followed by being bottled.

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 Section 38-3

A New Tax System (Goods and Services Tax) Act 1999 Section 38-4

A New Tax System (Goods and Services Tax) Act 1999 Section 9-5

Reasons for decision

A supply of food is GST-free under section 38-2 of the 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. The products are beverages 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).

The products are 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 non-carbonated bottled water range which is infused with a small amount of fresh fruit.

You have referred to ATO ID 2001/451 where water that is bottled from naturally carbonated water from a spring is considered a GST-free supply. Our decision in the ATO ID was based on the fact that the water has not been subject to further processing. The carbonation in the water occurs naturally.

The reasons for the decision in the ATO ID, provides that it is considered that the use of the word 'other' implies that the carbonation is considered to be an additive. As such, water that is carbonated would be excluded from Item 14 only if the carbonation is introduced as an additive. In the ATO ID, the carbonation in the water occurs naturally and there are no other additives.

However, in your case, the fruit is introduced into the water via the manufacturing process. The addition of the puree is consistent with the instructions on the label of the products that they have to be refrigerated at or below 4^oC, and: "Shake well. Contents may naturally settle".

Issue 11 in the Food Industry Partnership- issues register provides:

The word 'additive' is defined in the Macquarie Dictionary 3rd Edn (dictionary) to mean 'a substance added to a product, usually to preserve or improve its quality'. Examples of products that are considered to be additives for GST purposes include colourings, flavourings, preservatives, antioxidants, sweeteners, vitamins, minerals and modifying agents.

In your case, the addition of the puree means you have introduced additives to the water for any of, or any combination of the following purposes: colourings, flavourings, etc. The action of adding the fruit puree to the products is reflected in the names and pictures on the label of each product, which distinguishes the products from natural water in Item 14. The labels of the bottles have pictures of the relevant fruits and the fruit is mentioned on the names of the products

We also refer you to detailed food list from our website as follows

We consider that your products are flavoured still water, and hence they are not a beverage of a kind specified in Schedule 2 of the GST Act. The supply of the products will be a taxable supply.