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Edited version of your written advice
Authorisation Number: 1051379313462
Date of advice: 1 June 2018
Ruling
Subject: GST classification of a powdered health blend
Question
Is the supply of the Product GST-free pursuant to section 38-2 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?
Answer
No.
Relevant facts and circumstances
You prepare and distribute health blends in powder form for consumption at client’s homes.
You are not registered for GST. Currently, you are not required to be registered for GST as your turnover is below the registration turnover threshold. You intend to apply the outcome of the ruling once you register for GST.
The process for preparing the Product is to obtain raw ingredients that are then dried, ground, measured and mixed to your specifications. You then package and distribute the Product. There is no cooking or processing of the ingredients.
You directed us to your website which contains information about the Product.
● The Product is in powdered form and comprises various ingredients made from plants.
● The direction for serving the Product is to take it first thing in the morning, on an empty stomach. You add the required amount of powder to certain amount of water and mix thoroughly in a shaker. The Product can also be used to supercharge your favorite smoothie blend, added to juice, coconut water, or to various recipes.
● Your website also lists the benefits of using the Product as part of your daily routine.
● Your website contains recipes which include the Product as an ingredient.
You provided pictures of the label which gives the ingredients and serving direction as listed on your website.
The Product is packaged in various containers.
Currently, the Product is only sold via your website.
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 38-3.
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 Paragraph 38-4(1)(b).
A New Tax System (Goods and Services Tax) Act 1999 Paragraph 38-4(1)(d).
A New Tax System (Goods and Services Tax) Act 1999 Schedule 2.
Reasons for decision
The supply of the Product is not GST-free pursuant to section 38-2 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act). Where you are registered or required to be registered for GST, the supply of the Product is a taxable supply under section 9-5 of the GST Act.
Detailed reasoning
The Product is made up of various ingredients which by themselves may be GST-free. However, it is the end product that needs to be considered.
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 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:
● ingredients for food for human consumption (paragraph 38-4(1)(b) of the GST Act) and
● ingredients for beverages for human consumption (paragraph 38-4(1)(d) of the GST Act).
Ingredients that can be used for the purpose of making a drink or added to recipes may fall within either or both of these definitions.
Whilst a product can be characterised in more than one way, this is irrelevant for the purposes of the GST Act, as a product can only be classified as one particular item (Lansell House Pty Ltd & Anor FC of T 2011 ATC 20-239 at [7] (Lansell 2011)
Further in Customs and Excise Commissioners v. Ferrero UK Ltd [1997] STC 881 at 888, where the question to be answered as to the characterisation or classification of a product is one of fact and degree, as it was for biscuits, Lord Wolf MR concluded that where a product has the characteristics of two categories, it is placed in a category in which it has sufficient characteristics to qualify.
In determining whether a product is an ingredient for food or an ingredient for a beverage, it is important to determine the essential character of the product. There are products that are generally only used as an ingredient for a beverage – for example, milk powder. Although milk powder could be used as an ingredient for cooking, its essential character is that of an ingredient for a beverage.
The Product consists of a variety of powdered ingredients. The Product is recommended to be taken “first thing in the morning, on an empty stomach”.The serving suggestion is to add two heaped tablespoons (25g) to 300mls of quality water and mix thoroughly in a shaker. It can also be added to smoothie blend, juice, coconut water, or added to make energy balls.
The Product is marketed principally as an ingredient for beverages. We believe that a consumer will purchase the Product to be added to a liquid to produce a drink that will “provide energy to boost (your) whole body to its maximum potential”. The fact that the Product has subsidiary uses for food does not alter its characterisation as an ingredient for a beverage. Consequently, we agree with your conclusion that the Product is supplied as an ingredient for a beverage for human consumption under paragraph 38-4(1)(d) of the GST Act.
Although the Product satisfies the definition of food as an ingredient for a beverage, under paragraph 38-3(1)(d) of the GST Act the supply of the Product will only be GST-free if it is of a kind listed in the table in clause 1 of Schedule 2 of the GST Act (Schedule 2).
Of relevance are items 10, 11 and 12 of Schedule 2
Beverages that are GST-free | ||
Item |
Category |
Beverages |
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 | |
Note 3: Fruit and vegetable juices: For the purposes of items 11 and 12 in the table, herbage is treated as vegetables.
The Product is in powdered form and comprises various ingredients made from plants.
The Product does not contain at least 90% by volume of juices of fruits or vegetables (including herbs). Hence, the Product does not satisfy the requirements of items 10, 11, or 12 of Schedule 2. As such, the supply of the Product is excluded from being GST-free by paragraph 38-3(1)(d) of the GST Act.
It should be noted that the fact that the Product does not contain any artificial colours, additives or flavourings, does not alter the fact that the Product contains less than 90% by volume of juices of fruits or vegetables.
Therefore, as the Product is an ingredient for a beverage that is not of a kind listed in Schedule 2, the supply of the Product is not GST-free pursuant to section 38-2 of the GST Act.
Taxable supply
The supply of the Product is a taxable supply if the requirements of section 9-5 of the GST Act are satisfied.
Section 9-5 of the GST Act provides that you make a taxable supply if:
(a) you make the supply for consideration
(b) the supply is made in the course or furtherance of an enterprise that you carry on
(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.
In this case, the supply of the Product satisfies the requirements of paragraphs 9-5(a), 9-5(b) and 9-5(c) of the GST Act because:
● the supply of the Product is for consideration
● the supply of the Product is made in the course of your enterprise and
● the supply of the Product is connected with Australia.
The supply of the Product is neither GST-free nor input taxed under any provisions of the GST Act or another Act.
You are not currently registered for GST. However, if you are registered or required to be registered for GST, you will satisfy all the requirements of section 9-5 of the GST Act. Therefore, the supply of the Product will be a taxable supply.