| Disclaimer This edited version has been archived due to the length of time since original publication. It should not be regarded as indicative of the ATO's current views. The law may have changed since original publication, and views in the edited version may also be affected by subsequent precedents and new approaches to the application of the law. You cannot rely on this record in your tax affairs. It is not binding and provides you with no protection (including from any underpaid tax, penalty or interest). In addition, this record is not an authority for the purposes of establishing a reasonably arguable position for you to apply to your own circumstances. For more information on the status of edited versions of private advice and reasons we publish them, see PS LA 2008/4. |
Edited version of your written advice
Authorisation Number: 1051177699174
Date of advice: 5 January 2017
Ruling
Subject: Goods and services tax (GST) and flavoured milk powders
Question 1
Is the sale of X Formula GST-free pursuant to section 38-2 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?
Answer
No. This will be the case regardless of who you sell to.
Question 2
Is the sale of Y Formula GST-free pursuant to section 38-2 of the GST Act?
Answer
No. This will be the case regardless of who you sell to.
Relevant facts and circumstances
You are registered for GST.
You sell the following vanilla flavoured powdered milk formula products to retailers and end consumers:
X Formula
Y Formula
You supply these products within Australia.
The products contain mainly powdered full cream milk and powdered skim milk.
X Formula contains 90% skim milk powder and full cream milk powder.
Y Formula contains 82% skim milk powder and full cream milk powder
The products also contain vanilla flavouring.
The products are added to water by the consumer to make a flavoured milk beverage for human consumption.
You provided the ingredients for X Formula and Y Formula
The X Formula is not marketed at children but not infants or invalids.
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
Reasons for decision
Question 1
Summary
The sale of X Formula is not GST-free under section 38-2 of the GST Act because it is an ingredient for beverages for human consumption that is not covered by an item in the table in clause 1 of Schedule 2 to the GST Act.
Detailed Reasoning
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 does not come within any of the exclusions listed in 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)). X Formula satisfies the definition of food as it is an ingredient for milk beverages for human consumption.
However, under paragraph 38-3(1)(d) of the GST Act, a supply of a beverage or an ingredient for a beverage is not GST-free under section 38-2 of the GST Act unless it is of a kind listed in the table in clause 1 of Schedule 2 to the GST Act (Schedule 2).
Item 1 of Schedule 2 (Item 1) lists:
(a) milk, skim milk and buttermilk (whether, liquid, powdered, concentrated or condensed)
(b) casein
(c) whey, whey powder or whey paste.
Item 2 of Schedule 2 (Item 2) lists milk products referred to in Item 1 (or a combination of those products) to the extent of at least 95%, but not including flavoured beverages.
The percentage of Item 1 (milk powder) foods contained in X Formula is less than 95%. Therefore, this product is not covered by Item 1 or 2.
Item 13 in Schedule 2 specifies beverages, and ingredients for beverages, of a kind marketed principally as food for infants or invalids. In accordance with issue 14 of the Food Industry Issues Register, an infant is a person 12 months old or younger. X Formula is not marketed for consumption by that age group. Therefore, X Formula is not covered by Item 13.
X Formula is not covered by any of the items in Schedule 2. Hence, the exclusion at paragraph 38-3(1)(d) of the GST Act applies. Therefore, the sale of this product is not GST-free under section 38-2 of the GST Act.
Question 2
Summary
The sale of Y Formula is not GST-free under section 38-2 of the GST Act because it is an ingredient for beverages for human consumption that is not covered by an item in the table in clause 1 of Schedule 2 to the GST Act.
Detailed Reasoning
Y Formula is an ingredient for a beverage for human consumption and therefore it is food for the purposes of the GST Act.
The percentage of Item 1 (skim milk and full cream milk powder) foods contained in Y Formula is less than 95%. Therefore, this product is not covered by Item 1 or 2. Additionally, it is not covered by any other item in Schedule 2. The exclusion at paragraph 38-3(1)(d) of the GST Act applies. Therefore, the sale of this product is not GST-free under section 38-2 of the GST Act.