Edited version of your written advice

Authorisation Number: 1013139429550

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You cannot rely on this edited version in your tax affairs. You can only rely on the advice that we have given to you or to someone acting on your behalf.

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Date of advice: 19 December 2016

Ruling

Subject: Goods and services tax (GST) and food classification for importation purposes

Question 1

Are your importations of products A, B and C taxable under subsection 13-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer

The importations of products A and B are non-taxable importations and product C is a taxable importation.

Relevant facts and circumstances

You are registered for an Australian Business Number (ABN) but not for GST.

You intend to import products A, B and C.

Products A and B are air dried and grounded into powder. They contain no additives. They will be used as ingredients to add to beverages, foods or tea.

The predominant marketing for product B will be as a tea.

Product C will be sold as a health enhancing product or as part of a beauty regime.

You provided us with copies of the product labels which you intended to use for marketing these products.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 subsection 13-5(1)

A New Tax System (Goods and Services Tax) Act 1999 paragraph 13-10(b)

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 paragraph 38-3(1)(c)

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

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

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

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

A New Tax System (Goods and Services Tax) Act 1999 section 38-50

A New Tax System (Goods and Services Tax) Act 1999 subsection 38-50(5)

A New Tax System (Goods and Services Tax) Act 1999 subsection 38-50(7)

A New Tax System (Goods and Services Tax) Act 1999 Division 40

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

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

A New Tax System (Goods and Services Tax) Act 1999 Item 5 Schedule 2

Reasons for decision

Subsection 13-5(1) of the GST Act states that:

You make a taxable importation if:

(a) goods are imported; and

(b) you enter the goods for home consumption (within the meaning of the Customs Act 1901).

However, the importation is not a taxable importation to the extent that it is a non-taxable importation.

As products A, B and C will be imported into Australia and be available for sale to the public, subsection 13-5(1) of the GST Act are satisfied. This means there will be GST liabilities on the importations unless they are non-taxable importations.

Under paragraph 13-10(b) of the GST Act, an importation is a non-taxable importation if it would have been a supply that was GST-free or input taxed if it had been a supply.

Input taxed supplies are outlined in Division 40 of the GST Act and do not apply to these products.

Instead these products will be GST-free if they are considered to be 'food' under section 38-2 of the GST Act, by satisfying the definition of food in section 38-4 of the GST Act and their supplies are not excluded from being GST-free by section 38-3 of the GST Act.

'Food' is defined in section 38-4 of the Act to include:

(a) food for human consumption (whether or not requiring further processing or treatment);

(b) ingredients for food for human consumption;

(c) *beverages for human consumption;

(d) ingredients for beverages for human consumption;

(e) goods to be mixed with or added to food for human consumption (including condiments, spices, seasonings, sweetening agents for flavourings);…

(* denotes a defined term under section 195-1 of the GST Act)

Furthermore, paragraph 38-4(1)(h) of the GST Act provides that 'food' does not include any grain, cereal or sugar cane that has not been subject to any process or treatment resulting in an alteration of its form, nature or condition.

Product A

Based on the information provided, product A is a powder made from air dried foods which has inherent nutritional value and can be added to provide nutrition to beverages, food or tea. Product A will be marketed as food for humans. Hence, product A is considered food for human consumption and is not excluded by paragraph 38-4(1)(h) of the GST Act. Accordingly, product A satisfies the definition of food in section 38-4 of the GST Act.

Under paragraph 38-3(1)(c) of the GST Act, a supply of food is not GST-free if it is food of a kind specified in the table in clause 1 of Schedule 1 to the GST Act (Schedule 1). Product A is not food of a kind specified in Schedule 1 and does not fall within any of the other exclusions in section 38-3 of the GST Act.

Accordingly, as product A satisfies the definition of food and is not excluded from being GST-free, the supply of product A will be a GST-free supply. Therefore, your importation of this product will be a non-taxable importation under paragraph 13-10(b) of the GST Act.

Product B

The definition of food in subsection 38-4(1) of the GST Act includes beverages for human consumption and ingredients for beverages for human consumption.

Food will not be GST-free where the provisions of section 38-3 of the GST Act apply. In particular, paragraph 38-3(1)(d) of the GST Act makes the supply of the following foods taxable:

● 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 of the GST Act (Schedule 2).

Therefore, beverages and ingredients for beverages are only GST-free to the extent they are beverages (or ingredients for beverages) of a kind similar to those beverages or ingredients listed in Schedule 2.

As you have advised that this product will be marketed predominantly as a tea, we consider the product to be an ingredient to make beverages. Hence, the relevant item to consider in Schedule 2 is Item 5 which lists tea, (including herbal tea, fruit tea, ginseng tea and other similar beverage preparations).

Tea is not defined in the GST Act and is therefore given its ordinary meaning. The Macquarie Dictionary (5^th edition) defines tea as:

1. the dried and prepared leaves of the shrub, Thea sinensis, from which a somewhat bitter, aromatic beverage is made by infusion in boiling water.....

5. any of various infusions prepared from the leaves, flowers, etc., of other plants, used as a beverage or medicines.

This definition shows that tea can be consumed both as a beverage and as a medicine. However, for the purposes of the GST Act, the definition of food is referring to those beverages that are primarily consumed for the purposes of increasing bodily liquid levels, to quench thirst or to give pleasure. It does not cover beverages or ingredients for beverages that are primarily consumed for medicinal or therapeutic purposes.

Therefore, Item 5 of Schedule 2 (Item 5) is limited to teas that have the essential character of a beverage, which by way of Item 5 is extended to include substitutes for those teas (ie herbal teas, fruit teas, ginseng teas, etc).

Beverage or medicine

The ATO view on tea is provided by Issue 25 of the Food Issues Register (Issue 25 - available from the ATO website www.ato.gov.au).

Issue 25 provides that it is relevant to use the 'essential character' test adopted under the former wholesale sales tax regime. The ATO adopts the view that the essential character of goods assists in determining their GST classification. This involves ascertaining what the goods essentially are, as distinct from merely identifying one of a number of characteristics the goods might have. This approach relies upon deciding what is the basic nature of the goods and involves consideration of what the goods are made of and what they might be used for. Therefore, teas consumed primarily for medicinal or therapeutic purposes may have an 'essential character' of a medicine rather than a beverage.

In determining whether a supply is a supply of GST-free food, it is not only the physical characteristics of the product that are important but also the nature of the supply. It cannot be said that a supply of a product, which is promoted as a medicinal tea preparation, is a supply of food, even if it is identical in substance to the GST-free food product. The nature of the supply has changed. The product is primarily sold for medicinal purposes.

A tea preparation will be considered to be differentiated for medicinal or therapeutic use where any of the following are satisfied:

● the product has been designated as a medicinal or therapeutic tea preparation;

● the labelling, invoicing, marketing or promotional material identify it as sold and purchased for a specific remedial purpose;

● the directions for consumption (for example, dosage), are similar to those that would be issued with a medicinal product; or

● the product is listed under the Therapeutic Goods Act 1989.

Designated as a medicinal or therapeutic tea preparation

In this case, the product will not be designated as medicinal or therapeutic tea preparation by you but rather simply as a tea or an ingredient for tea.

Various statements are nevertheless made about the product's health benefits eg is highly renowned for its medicinal properties, improves memory, treats depression, reduces stress, has anti-flammatory and pain relieving effects, and promotes skin, eye and hair health.

However, we consider these statements to be general enough as not to designate the products as being principally for a medicinal or therapeutic purpose. We consider the statements to be more in the nature of marketing so as to increase the consumer's perceived pleasure when consuming the product.

Sold and purchased for a specific remedial purpose

As discussed above, the product will be primarily promoted as a tea or an ingredient for tea and not for a specific remedial purpose.

The directions for consumption

No recommendations will be made as to the number of times the product is to be consumed per day. Only the proportion of powder to water will be stated to give the correct amount or suggested amount in beverages, cereal yogurt etc.

Therapeutic Goods

The product is not listed in the Therapeutic Goods Act 1989.

Given all this, we consider the product to be a herbal tea that is covered by Item 5. As a result, the supply of this product would be GST-free and the importation of this product would be a non-taxable importation.

Product C

Food

Before a supply of food is GST-free under section 38-2 of the GST Act it must satisfy the definition of food in section 38-4 of the GST Act. 'Food' is defined in section 38-4 of the Act to include:

(a) food for human consumption (whether or not requiring further processing or treatment);

(b) ingredients for food for human consumption;

(c) *beverages for human consumption;

(d) ingredients for beverages for human consumption;

(e) goods to be mixed with or added to food for human consumption (including condiments, spices, seasonings, sweetening agents for flavourings);…

Product C is used for taking as a health enhancing product or as part of a beauty regime. It is neither food for human consumption nor an ingredient for food for human consumption and thus is not GST-free under section 38-2 of the GST Act.

The only other possible way it could be GST-free would be as a drug or medicinal preparation.

Medicinal preparation

A drug or medicinal preparation is GST-free under section 38-50 of the GST Act provided certain requirements are met. Generally, to be GST-free under this provision the drug or medicinal preparation has to be restricted in some way. For example, its supply is on prescription or it must be supplied by a medical practitioner, dental practitioner or pharmacist (or a person permitted under that law to do so). The drug or medicinal preparation must also be supplied to an individual for their private or domestic use or consumption (subsection 38-50(7) of the GST Act).

Product C is not sold under prescription. Therefore the only subsection of section 38-50 of the GST Act that is of relevance is subsection 38-50(5) which provides that a supply of a drug or medicinal preparation is GST-free if:

(a) the drug or medicinal preparation is an analgesic that has a single active ingredient the supply of which as a drug or medicinal preparation would be GST-free under subsection 38-50 (2) of the GST Act if it were supplied in a larger quantity; and

(b) the drug or medicinal preparation is of a kind the supply of which is declared by the Health Minister to be GST-free, by determination in writing.

In this case, product C is not a drug or medicinal preparation that has been determined in writing by the Health Minister to be GST-free. Hence, your supply of product C will not be GST-free under section 38-50 of the GST Act. As a result, the importation of this product will be a taxable importation and there will be GST liabilities on importation.