Edited version of your written advice

Authorisation Number: 11051353407361

Date of advice: 6 April 2018

Ruling

Subject: GST and herbal beverages

Question

ls your supply of the (product) GST-free under the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer

No, your supply of the product is not GST-free, it is a taxable supply.

Relevant facts and circumstances

You are registered for GST.

You import the product into Australia. You supply the product in a can, which contains beverage ready to be consumed.

One of the major herbs in the product is a plant with medicinal properties. The product’s marketing is how it helps maintain good health and supports one’s health on every level.

Relevant legislative provisions

All references are to the A New Tax System (Goods and Services Tax) Act 1999 (GST Act):

Section 38-2

Section 38-3

Section 38-4.

Reasons for decision

Summary

Your supply of the product is not GST-free because the product is a tea beverage that is marketed in a ready-to-drink form.

Detailed reasoning

A supply of food as defined in subsection 38-4(1) of the GST Act is GST-free under section 38-2 of the GST Act unless an exclusion in subsection 38-3(1) of the GST Act applies.

In accordance with paragraph 38-4(1)(c) of the GST Act, food includes beverages for human consumption.

Paragraph 38-3(1)(d) of the GST Act excludes beverages from being GST-free under section 38-2 of the GST Act unless they are beverages of a kind specified in the third column of the table in clause 1 of Schedule 2 to the GST Act (Schedule 2).

Tea (including herbal tea, fruit tea, ginseng tea and other similar beverage preparations) is listed under Item 5 in the third column of the table in clause 1 of Schedule 2 (item 5).

Clause 2 of Schedule 2 states that 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.

You contend that your product is characterised as a tea drink.

Issue 25 of the Food Industry Partnership – issues register (issue 25) discusses what sort of tea is GST-free as food. It states:

What is considered to be a 'tea' for the purposes of item 5 of Schedule 2 of the GST Act?

For source of ATO view, refer to the Detailed food list.

Generally a supply of food will be GST-free in accordance with Section 38-2 of the GST Act. 'Food' is defined in subsection 38-4(1) of the GST Act and includes:

'(c) beverages for human consumption; (d) ingredients for beverages for human consumption;...'

However, food (including beverages) will not be GST-free where the provisions of section 38-3 of the GST Act apply. Paragraph 38-3(1)(d) of the GST Act operates to subject the following foods to GST:

'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;...'

Therefore, beverages for human consumption are only GST-free to the extent that they are specified in clause 1 of Schedule 2 of the GST Act.

In this case the relevant item is item 5 of Schedule 2 of the GST Act which states:

'tea (including herbal tea, fruit tea, ginseng tea and other similar beverage preparations)...'will be GST-free.

Although, it should be noted that tea that is in a ready to drink form will be subject to GST - clause 2 of Schedule 2 of the GST Act.

Tea' is not further defined in the GST Act and is therefore given its ordinary meaning. The Macquarie Dictionary 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.'

It is therefore determined 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 of the GST Act is limited to those teas that have the essential character of a beverage, which by way of item 5 is extended to include substitutes for those teas (for example,. herbal teas, fruit teas, ginseng, etc). Therefore item 5 of Schedule 2 of the GST Act excludes teas consumed primarily for medicinal or therapeutic reasons.

How do we determine whether tea is a beverage or a medicine for the purposes of the GST Act?

In all cultures, plants are traditionally accredited with real or imagined medicinal properties, and there has always been an overlap between 'medicinal' teas and traditional herbal teas.

It is therefore relevant to use the 'essential character' test adopted under the former wholesale sales tax regime. The Australian Taxation Office 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 for medicinal or therapeutic purposes have an 'essential character' of a medicine, not a beverage…

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

Marketing a product as being for specific remedial purpose

You import the product into Australia. The information on the internet indicates that the product possesses a number of therapeutic benefits and that the plant from which it is derived is considered in general to be an all-purpose ‘medicinal plant’ and can be used as a remedy for various diseases and heath conditions.

However, it is not specifically stated on the internet or on the labelling that the product is a medicinal or therapeutic preparation/medicine. The internet lists a wide range of health benefits of consuming your product, including medical uses. However, there is no specific therapeutic claims on the labels of the product. You do not identify the product as being sold and purchased for a specific remedial purpose.

We consider that the internet information about the product lists how it helps maintain good health and supports one’s health on every level, which are general statements about how it can prevent health problems, rather than statements of how it remedies a specific illness. The labelling does not prescribe a ‘dosage’, or what amount must be taken each day. Your product is not listed in the Therapeutic Goods Register.

You state that the product is a beverage that is primarily consumed for the purposes of increasing bodily liquid levels, to quench thirst and to give pleasure. You did not differentiate the product as a medicinal tea preparation Therefore, your product has the essential character of a tea beverage.

Considering all information above, we are satisfied that you have not designated your product as being a medicinal or therapeutic preparation. However, the product is not covered by item 5 because tea that is in a ready to drink form will be subject to GST - clause 2 of Schedule 2 of the GST Act.

Therefore, the exclusion at paragraph 38-3(1)(d) of the GST Act does not apply. None of the other exclusions in subsection 38-3(1) of the GST Act apply. Hence, your supply of the product is not GST-free under section 38-2 of the GST Act. It is a taxable supply, and GST is payable on your supply of the product.