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Edited version of your written advice
Authorisation Number: 1051187189352
Date of advice: 17 February 2017
Ruling
Subject: GST and beverage
Question 1
Is your supply of products GST-free?
Answer
No
Relevant facts and circumstances
You are registered for GST.
You supply beverages intended to be consumed as beverages for human consumption.
The primary ingredients are X. These are hydrated and are digestible by the human body. They are blended with various fruit concentrates and purees.
Relevant legislative provisions
A New Tax System (Goods and Services Tax) Act 1999:
Section 38-2
Section 38-4
Paragraph 38-3(1)(d)
Schedule 2
Reasons for decision
A supply of food is GST-free in accordance with section 38-2 of the GST Act, if it satisfies the definition of food in section 38-4 of the GST Act and it does not come within any of the exclusions in 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 meaning of the term beverage for the purposes of the GST Act is determined by subsection 38-4(2) of the GST Act. This section provides that beverage includes water.
As this definition does not assist in determining whether the herbal drink is a beverage for the purposes of the GST Act, it is necessary to consider how the courts have defined 'beverage'.
Lockhart J in Bristol-Myers Co. Pty. Ltd. V Federal Commissioner of Taxation (1990) 21 ATR 417 describes 'a beverage' as 'a drink of any kind'. Lockhart J goes on to say that:
…"Drink" when used as a noun is defined in slightly different ways by dictionaries, but in my view it means any liquid which is swallowed to quench thirst or for nourishment.
Therefore, a beverage is considered to be any liquid that is swallowed for nourishment or to quench thirst. Liquid providing nourishment will sustain life by assisting in growth or providing energy. A nutritional purpose may be contrasted with a medicinal purpose, which arises where a liquid is provided for the treatment of disease or has curative or remedial purposes.
Your ingredient X can be hydrated for liquid drinks. As they can be consumed as a drink and provide nutrition, they can each be described as 'a drink of any kind' and therefore are regarded as beverages for human consumption within the meaning of food in section 38-4 of the GST Act.
Under paragraph 38-3(1)(d) of the GST Act, a supply of a beverage is not GST-free unless it is a beverage, or an ingredient for a beverage, of a kind specified in the table in clause 1 of Schedule 2 to the GST Act (Schedule 2) and does not come within any of the other exclusions listed in section 38-3 of the GST Act.
Schedule 2 provides that the following beverages 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 |
Of possible relevance here are the following items in Schedule 2 of the GST Act:
● Item 10 Fruit and vegetable juices concentrates for making non-alcoholic beverages, if the concentrates consist of at least 90% by volume of juices of fruit
● Item 11 non-alcoholic carbonated beverages, if they consist wholly of juices of fruits or vegetables
● Item 12 non-alcoholic non-carbonated beverages, if they consist of at least 90% by volume of juices of fruits or vegetables
Item 10 does not apply as the fruit juice concentrates volumes for each product do not consist of at least 90%.
Item 11 does not apply as the products are not carbonated.
Item 12 of Schedule 2 to the GST Act provides that making non-alcoholic non-carbonated beverages will only be GST-free if they consist of at least 90% of juices of fruits or vegetables by volume.
The Macquarie Dictionary defines 'vegetable' 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.
Your ingredient X is a vegetable for the purposes of item 12 in the table.
The Macquarie Dictionary defines juice as
noun 1. the liquid part of plant or animal substance….
3. any extracted liquid, especially from a fruit.
Ingredient X is hydrated with water. This is not the liquid part of X but rather water added to it. There is no extraction of substance from X but a placement of water into it. Therefore, the hydrated X is not a juice for the purposes of the GST Act even though they may be sometimes marketed as such.
The amounts of puree and concentrates in each product are not relevant as puree is not a juice as it is pulp of liquidised or crushed fruit or vegetables and there is no evidence the various concentrates, even if regarded as juices without being reconstituted, are at least 90% by volume.
In summary, your products as beverages are not GST-free as they are not beverages, or ingredients for beverages, of a kind specified in the table in clause 1 of Schedule 2 to the GST Act.