Edited version of your written advice

Authorisation Number: 1013003011531

Date of advice: 27 April 2016

Ruling

Subject: Goods and Services Tax (GST) and supply of tree water

Question 1

Are supplies of X GST-free under section 38-2 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer

No

Question 2

Are supplies of Y, which are X with added citric acid acidity regulator, GST-free under section 38-2 of the GST Act?

Answer

No

Relevant facts and circumstances

You are registered for GST.

You intend to supply two products being.

1. X, and

2. Y

Neither of the products is carbonated nor flavoured.

X and Y are sap from a tree.

Your harvesting of the sap will result in two products:

Product X

Certified organic tree sap with no additives or preservatives and requires no heat treatment.

Product Y

Organic tree sap (99.86%) - pasteurised with regulator of acidity - citric acid.

Taxpayer contentions

The sap is actually water which is GST-free

The sap is analogous to syrup from a maple tree which is GST-free

Goods and Services Tax Industry Issues Detailed Food List states that acidity regulators (food additives with nutritional value) are GST-free, therefore the mineral compounds in the sap with nutritional value should also be GST-free.

The sap is a juice of at least 90% of a vegetable and should be GST-free.

ATO ID 2003/951 shows that the addition of a secondary food product to a beverage may not of itself alter the taxation treatment.

This ruling should be consistent with those in Edited Versions 1011701759034, 1011579151531 and 1011432864573.

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 Schedule 2

A New Tax System (Goods and Services Tax) Act 1999 Schedule 2 item 12

Reasons for decision

Division 38 of the GST Act sets out supplies that 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 beverages for human consumption (paragraph 38-4(1)(c) of the GST Act). The sap will be supplied as a beverage for human consumption.

Therefore, X and Y come within the meaning of food contained in section 38-4 of the GST Act as a beverage for human consumption.

However, under paragraph 38-3(1)(d) of the GST Act, a supply of a beverage is not GST-free unless it is a beverage of a kind specified in the table in clause 1 of Schedule 2 to the GST Act (Schedule 2). Schedule 2 states:

*Beverages specified in the third column of the table are GST-free.

Beverages that are GST-free
Item	Category	Beverages
1	Milk products	any of the following products: (a) milk, skim milk or buttermilk (whether liquid, powdered, concentrated or condensed); (b) casein; (c) whey, whey powder or whey paste
2		*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
3		lactose
4	Soy milk and rice milk	*beverages consisting principally of soy milk or rice milk, but not including flavoured beverages
5	Tea, coffee etc.	tea (including herbal tea, fruit tea, ginseng tea and other similar *beverage preparations), coffee and coffee essence, chicory and chicory essence, and malt
6		malt extract, if it is marketed principally for drinking purposes
7		preparations for drinking purposes that are marketed principally as tea preparations, coffee preparations, or preparations for malted *beverages
8		preparations marketed principally as substitutes for preparations covered by item 6 or 7
9		dry preparations marketed for the purpose of flavouring milk
10	Fruit and vegetable juices	concentrates for making non-alcoholic *beverages, if the concentrates consist of at least 90% by volume of juices of fruits
11		non-alcoholic carbonated *beverages, if they consist wholly of juices of fruits or vegetables
12		non-alcoholic non-carbonated *beverages, if they consist of at least 90% by volume of juices of fruits or vegetables
13	Beverages for infants or invalids	*beverages, and ingredients for beverages, of a kind marketed principally as *food for infants or invalids
14	Water	natural water, non-carbonated and without any other additives

2 Tea, coffee etc.

None of the items in the table relating to the category of tea, coffee etc. include any ^*beverage that is marketed in a ready-to-drink form.

3 Fruit and vegetable juices

For the purposes of items 11 and 12 in the table, herbage is treated as vegetables.

Of most relevance to your products are item 12 of Schedule 2 (Item 12), which provide that non-alcoholic non-carbonated beverages that consist of at least 90% by volume of juices of fruits or vegetables are GST-free. X and Y are not from the fruit or seeds of the tree. Accordingly, the sap from a tree is not considered to be the juice of a fruit.

Your contention that the sap from a tree is a juice of vegetables is not accepted. The Macquarie Dictionary definition of a tree is:

noun 1.  a perennial plant having a permanent, woody, self-supporting main stem or trunk, usually growing to a considerable height, and usually developing branches at some distance from the ground.

2.  any of various shrubs, bushes, and herbaceous plants, as the banana, resembling a tree in form or size.

Vegetable is defined as:

noun 1.  any herbaceous plant, annual, biennial, or perennial, whose fruits, seeds, roots, tubers, bulbs, stems, leaves, or flower parts are used as food, as tomato, bean, beet, potato, asparagus, cabbage, etc.

2.  the edible part of such plants, as the fruit of the tomato or the tuber of the potato.

3.  any member of the vegetable kingdom; a plant.

Based on the above definitions, there is a clear distinction between a tree and a vegetable and Item 12 refers to vegetables and not trees.

X and Y do not fall within the coverage of any of the other items in Schedule 2.

We do not agree with you that the sap from a tree is simply water. The Macquarie Dictionary defines water as:

noun 1. the liquid which in a more or less impure state constitutes rain, oceans, lakes, rivers, etc., and which in a pure state is a transparent, odourless, tasteless liquid, a compound of hydrogen and oxygen, H2O, freezing at 32°F or 0°C, and boiling at 212°F or 100°C. It contains 11.188 per cent hydrogen and 88.812 per cent oxygen, by weight.

While it may be called tree 'water', it is actually a sap which the Macquarie Dictionary defines as:

noun 1.  the juice or vital circulating fluid, especially of a woody plant.

The fact that there is citric acid in the sap which may be GST-free as a food additive, doesn't give the sap from the tree a different food status. The GST-free status applies to a food additive which is supplied separately.

Your submission that tree sap is analogous to syrup from a maple tree which is GST-free is also not accepted as maple or maple flavoured syrup is GST-free as a condiment, not as a beverage. See Goods and Services Tax Industry Issues Detailed Food List:

In response to your other contentions:

1. ATO ID 2003/951 shows that the addition of a secondary food product to a beverage may not of itself alter the taxation treatment.

In this ATO ID, it was held the addition of sugar to fruit wine does not constitute the addition of a flavour, and therefore does not prevent the beverage from being 'fruit or vegetable wine' as defined in section 31-4 of the A New Tax System (Wine Equalisation Tax) Act 1999. Your contention is not accepted as the finding in this ATO ID is not relevant to your situation because the facts are materially different and not analogous. In your situation, the tax treatment of the original product is not GST-free.

2. This ruling should be consistent with those in Edited Versions 1011701759034, 1011579151531 and 1011432864573.

These matters concern fruit juice, juice and fruit/vegetable juice respectively so are not relevant to your situation.