Edited version of your written advice

Authorisation Number: 1012987997933

Date of advice: 23 March 2016

Ruling

Subject: Goods and services tax (GST) and food

Question

Is GST payable on your sales of the blended milk powders named X?

Answer

Yes.

Relevant facts and circumstances

You are registered for GST.

You blend and pack milk powder products.

The products in question are named X.

You buy all the raw ingredients in bulk. You then blend these ingredients in a blender. You pack the blended ingredients into bags and cartons.

The products are marketed to be added to hot beverages. The products are marketed to be added to coffee and tea.

You sell to vendors/distributors, which in turn either put the products into a hot beverage dispensing machine or on-sell, the bags of milk powder to their customer/end user.

There are a number of varieties of X products. Each variety contains milk (which makes up less than 95% of the product). Each blend also contains specified ingredients. The products do not contain coffee, tea, malt or flavouring.

You have provided the components of a number of blends.

You provided an extract of marketing material for an X product.

You supply the products wholly within Australia.

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 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 Schedule 2

Reasons for decision

Summary

Your sales of X products are not GST-free under section 38-2 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) because although they are food, the exclusion at paragraph 38-3(1)(d) of the GST Act applies.

Paragraph 38-3(1)(d) of the GST Act excludes a beverage (or an ingredient for a beverage), other than a beverage (or ingredient) of a kind specified in the third column of the table in clause 1 of Schedule 2 to the GST Act from being GST-free under section 38-2 of the GST Act. Your products are not beverages or ingredients listed in that table.

Detailed reasoning

GST is payable on any taxable supplies that you make.

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

You make a taxable supply if:

(a) you make the supply for *consideration; and

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

(c) the supply is *connected with the indirect tax zone; 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.

(*Denotes a term defined in the GST Act)

The indirect tax zone is Australia.

Your supplies of the blended milk powders satisfy the requirements of paragraphs 9-5(a) to 9-5(d) of the GST Act, because:

• you supply these products for consideration,

• these supplies are made in the course or furtherance of an enterprise that you carry on,

• these supplies are connected with Australia, and

• you are registered for GST.

There are no provisions in the GST Act under which your supplies of these products are input taxed.

Therefore, what remains to be determined is whether your supplies of these products are GST-free.

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 ingredients for beverages for human consumption (paragraph 38-4(1)(d) of the GST Act).

Your products are ingredients for beverages for human consumption and therefore they are covered by paragraph 38-4(1)(d) of the GST Act.

However, paragraph 38-3(1)(d) of the GST Act provides that a supply of a beverage (or an ingredient for a beverage), other than a beverage (or ingredient) of a kind specified in the third column of the table in clause 1 of Schedule 2 (Schedule 2) is not GST-free under section 38-2 of the GST Act.

The relevant items in Schedule 2 to consider in your case are items 1, 2, 5, 7 and 8.

Item 1

Item 1 lists:

(a) milk, skim milk or buttermilk (whether liquid, powdered, concentrated or condensed)

(b) casein;

(c) whey, whey powder or whey paste.

Your products contain skim milk, but they do not consist solely of skim milk or any of the other foods listed in item 1. Therefore, your products are not covered by item 1.

Item 2

Item 2 lists '*beverages consisting of products referred to in item 1 (or a combination of those products), to the extent of at least 95%, but not including flavoured beverages'.

Your products are not beverages. They are ingredients for beverages. Further, the products consist of only 50% to 70% milk. Therefore, they are not covered by item 2.

Item 5

Item 5 lists 'tea, coffee and coffee essence'.

Your products are not tea, coffee or coffee essence. Therefore, they are not covered by item 5.

Item 6

Item 6 lists 'malt extract, if it is marketed principally for drinking purposes'.

Your products are not malt extracts. Therefore, they are not covered by item 6.

Item 7

Item 7 lists preparations for drinking purposes that are marketed principally as tea preparations, coffee preparations, or preparations for malted beverages. Your products are marketed to be added to coffee and tea, rather than being marketed as coffee or tea preparations in their own right. Your products do not contain coffee or tea. Additionally, your products are not marketed as preparations for malted beverages. Therefore, your products are not covered by item 7.

Item 8

Item 8 lists 'preparations marketed principally as a substitute for preparations covered by item 6 or 7'.

You do not market your products as a substitute for preparations covered by item 6 or 7. Your products are marketed to be added to coffee and tea. Therefore, your products are not covered by item 8.

Your products are not covered by any of the other items in the table in clause 1 of Schedule 2. Therefore, the exclusion at paragraph 38-3(1)(d) of the GST Act applies. Hence, your sales of the X (with the components set out in the facts of this ruling) are not GST-free under section 38-2 of the GST Act.

There are no other provisions in the GST Act under which your sales of X products are GST-free.

As all of the requirements of section 9-5 of the GST Act are met, GST is payable on your sale of the products in question.