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Edited version of your written advice
Authorisation Number: 1051333945966
Date of advice: 6 February 2018
Subject: GST classification of food
Ruling
Question 1
Is the supply of raw (unpasteurised) cream to food manufacturers for use in the manufacture of food for human consumption a taxable supply under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?
Answer 1
Yes.
Question 2
Is the supply of raw (unpasteurised) cream for use as stock feed a taxable supply under section 9-5 of the GST Act?
Answer 2
Yes.
Relevant facts and circumstances
You supply raw cream and are registered for GST.
Following are the facts as outlined in your letter:
● The raw cream you supply is separated from raw cow’s milk and is unpasteurised. Apart from this separation process, the raw cream is not subject to any other processes before it is sold to your customers.
● Raw cream that has not been heat treated (i.e. thermalised) is not able to be legally sold in Australia as food for human consumption.
● You do not have the plant capacity to heat treat all of your raw cream into a product that is fit for human consumption. As such, the raw cream that you currently supply is not fit for human consumption and is not legally able to be sold as such.
● You do not market your raw cream as food for human consumption and your customers are aware that the raw cream requires further processing before it can be used in food for human consumption.
● The raw cream is transported to your customers via bulk logistics (i.e. tanker transport) and as such there is no packaging or labelling.
● You supply raw cream to food manufacturers who then further process the raw cream (using heat) into food products fit for human consumption.
● The shelf life of raw cream is significantly less than thermalised or pasteurised cream by virtue of the lack of heat treatment processes that is subjected to, so it carries a higher risk of spoilage (which is a similar property to unprocessed cow’s milk).
● There may be instances in the future where the food manufacturers reject the raw cream that you supply due to quality issues. Where this occurs there may be an option to supply the rejected raw cream as stock feed.
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 38-4.
A New Tax System (Goods and Services Tax) Act 1999 Paragraph 38-4(1)(a).
A New Tax System (Goods and Services Tax) Act 1999 Paragraph 38-4(1)(b).
Reasons for decision
Summary
1. The supply of raw (unpasteurised) cream to food manufacturers for use in the manufacture of food for human consumption is a taxable supply under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act).
2. The supply of raw (unpasteurised) cream for use as stock feed is a taxable supply under section 9-5 of the GST Act.
Detailed reasoning
The supply of the raw cream is a taxable supply if the requirements of section 9-5 of the GST Act are satisfied.
Section 9-5 of the GST Act 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 for GST.
However, the supply is not a *taxable supply to the extent that it is *GST-free or *input taxed.
(* denotes a term defined in section 195-1 of the GST Act.)
In this case, the supply of the raw cream satisfies the requirements of paragraphs 9-5(a), 9-5(b), 9-5(c) and 9-5(d) of the GST Act because:
● the supply of the raw cream is for consideration
● the supply of the raw cream is made in the course of your enterprise
● the supply of the raw cream is connected with Australia and
● you are registered for GST.
The supply of the raw cream is not input taxed. It remains to be determined if the supply of the raw cream is GST-free.
A supply is GST-free it is GST-free under Division 38 of the GST Act or under a provision of another Act.
Of relevance is section 38-2 of the GST Act which provides that a supply of food is GST-free 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 food for human consumption whether or not requiring processing or treatment (paragraph 38-4(1)(a) of the GST Act).
Paragraph 1.13 of the Further Supplementary Explanatory Memorandum A New Tax System (Goods and Services Tax) Bill 1999 (EM) provides that food does not include food that is marketed for animals (eg. pet food, bird seed and food for livestock) as it is not food for human consumption.
Paragraph 1.14 of the EM states that food that is unfit for human consumption is not considered food for human consumption under this definition (for example, rotten meat or vegetables).
The term 'legal supply' has no application to the GST legislation (subsection 9-10(3) of the Act). For example, the food regulations per se have no standing in relation to the tax liability of a good, and a broad interpretation of the term 'food for human consumption' is to be applied.
Furthermore, there is no requirement for the supplier to ascertain how the purchaser will use the product. The GST status of the product depends on whether it is a supply of food for human consumption as defined in the GST Act, at the time of your supply.
1. In your case, the raw cream that you supply is separated from raw cow’s milk and is unpasteurised. Apart from this separation process, the raw cream is not subject to any other processes. You do not have the plant capacity to heat treat all of your raw cream into a product that is fit for human consumption. You do not market your raw cream as food for human consumption and your customers are aware that the raw cream requires further processing before it can be used as food for human consumption. The raw cream is transported to your customers via bulk logistics and as such there is no packaging or labelling. You supply your raw cream to food manufacturers who then further process the raw cream (using heat) into food products fit for human consumption.
You have determined that the raw cream that you supply to your food manufacturer customers is not fit for human consumption. Hence, the raw cream is not considered food for human consumption as defined in section 38-4 of the GST Act. Accordingly, your supply of the raw cream is not GST-free under section 38-2 of the GST Act.
The supply of the raw cream is not GST-free under any other provisions of the GST Act or another Act. Therefore, the supply of the raw cream to food manufacturers for use in the manufacture of food for human consumption is a taxable supply under section 9-5 of the GST Act.
2. You have advised that there may be instances in the future where the food manufacturers reject the raw cream that you supply due to quality issues. Where this occurs there may be an option for you to supply the rejected raw cream to piggeries (or similar) as stock feed.
The supply of raw (unpasteurised) cream to piggeries (or similar) for use as stock feed is not a supply of food as defined in section 38-4 of the GST Act. Hence, the supply of the raw cream is not GST-free under section 38-2 of the GST Act.
The supply of the raw cream is not GST-free under any other provisions of the GST Act or another Act. Therefore, the supply of the raw cream to piggeries (or similar) for use as stock feed is a taxable supply under section 9-5 of the GST Act.