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Edited version of your written advice
Authorisation Number: 1051454026733
Date of advice: 4 December 2018
Ruling
Subject: GST and nutritional supplements
Question 1
Is the supply of the specified product (the Product) GST-free?
Answer
No. The supply of Product is a taxable supply and subject to GST.
Question 2
Is the supply of the Product to a non-resident outside Australia, for their use or enjoyed outside Australia, GST-free?
Answer
The supply of the Product to a non-resident outside Australia, for their use or enjoyed outside Australia, will be GST-free if the requirements of section 38-185 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) are met. Please refer to reasons for the decision.
Relevant facts and circumstances
You are carrying on enterprise and are registered for GST.
You manufacture the Product. The Product is in a powder form and includes a blend of food grade powdered ingredients to be added to liquid for human consumption.
Powdered ingredients which have been blended for a period of time are packaged into individual single use small X g pouches. A specified number of finished pouches are then packed together and intended for regular use.
The Product is classified as a food product by Food Standards in the Relevant countries.
The major components of the Product are specified dietary/nutritional supplements which are considered to have certain health and wellbeing benefits. The product also contains some fruit and vegetable powders.
You promote and sell the Product directly to your customers in Australia at a specified price.
You provided a sample of the Product. The information on the packaging:
● provides a list of the ingredients
● lists nutritional information
● sets out a recommended dosage, the time to be taken to be most effective and how often it should be taken
● directs the Product to be taken by adding to liquid such as water or fruit juice
● promotes the intended effect of the Product particularly the specified supplements in the Product in supporting and restoring certain structural and functional roles in the body.
● promotes the health benefits of the fruit and vegetable powders in the Product
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 9-40
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
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 subsection 38-4(2)
A New Tax System (Goods and Services Tax) Act 1999 subsection 38-185(1)
Question 1
Summary
The Product does not satisfy the definition of food in subsection 38-4(1) of the GST Act.
The supply of the Product is a taxable supply as it meets all the requirements of section 9-5 of the GST Act.
Detailed reasoning
Section 9-40 of the GST Act provides that you must pay the GST payable on any taxable supply that you make.
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.
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)
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 subsection 38-4(1) of the GST Act to include:
● food for human consumption (paragraph 38-4(1)(a) of the GST Act)
● ingredients for beverages for human consumption (paragraph (38-4(1)(d) of the GST Act)
Although 'food', as referred to in subsection 38-4(1) of the GST Act, is not further defined in the GST Act, it will be taken to have its ordinary meaning. The Macquarie Dictionary [Online], viewed on 30 November 2018, www.macquariedictionary.com.au defines 'food' as:
1. what is eaten, or taken into the body for nourishment
Issue 18 of the Food Industry Partnership - issues register, which considers whether psyllium seed husks are food for the purposes of the GST Act, highlights that ‘not all substances that provide nourishment will satisfy the definition of food in the GST Act’.
Further the Detailed Food List which is a public ruling for the purposes of the Taxation Administration Act 1953 provides that the supply of nutritional supplements is a taxable supply.
In this case, the Product is in a powder form. The major components of the Product are specified dietary/nutritional supplements which are considered to have certain health and wellbeing benefits. Whilst some of the specified dietary supplements can be found in some food and beverages the amounts in these foods are a small fraction of the amount in supplements. Although the Product also contains some fruit and vegetable powders, we consider that the essential character of the Product is not that of food but of a nutritional supplement. The Product is intended to restore and support certain structural and functional roles in the body. The Product is sold in a pack containing a specified number of small single use X g pouches. The information on the packaging sets out a recommended daily dosage, the time the Product should be taken to be most effective and how often it should be taken.
Based on the information provided, we do not consider that the Product is taken for nourishment. Therefore, for GST purposes, the Product is not considered to be food for human consumption under paragraph 38-4(1)(a) of the GST Act but rather in the nature of a nutritional supplement.
Alternatively, it needs to be determined whether the Product is an ingredient for a beverage in accordance with paragraph 38-4(1)(d) of the GST Act.
Subsection 38-4(2) of the GST Act defines beverage to include water. Therefore for GST purposes, a ‘beverage’ is any kind of drink including water.
The Product is not consumed by itself. The instructions on the packaging provide that the Product is to be consumed by mixing in liquid such as water or fruit juice. However, the Product is not an ingredient for those beverages. The beverages to which the Product is added are the means by which the Product is to be taken and it is not considered to be an ingredient for the beverage itself. As such, the Product is not an ingredient for a beverage for the purposes of the GST Act. Therefore it is not necessary to consider paragraph 38-4(1)(d) of the GST Act.
As the Product fails to satisfy the definition of food in subsection 38-4(1) of the GST Act, the supply of the product is a taxable supply under section 9-5 of the GST Act.
Question 2
Summary
A supply of goods, where those goods are exported from Australia, is GST-free if the requirements in subsection 38-185(1) of the GST Act are met.
Detailed reasoning
Subsection 38-185(1) of the GST Act specifies the circumstances where the supply of goods for consumption outside Australia is GST-free.
Relevant to your situation are items 1, 2 and 3 in the table in subsection 38-185(1) of the GST Act which state:
Item |
Topic |
These supplies are GST-free |
1 |
Export of goods – general |
A supply of goods, but only if the supplier exports them from the indirect tax zone before, or within 60 days (or such further period as the Commissioner allows) after: (a) the day on which the supplier receives any of the *consideration for the supply; or (b) if, on an earlier day, the supplier gives an *invoice for the supply - the day on which the supplier gives the invoice |
2 |
Export of goods - supplies paid for by instalments |
A supply of goods for which the *consideration is provided in instalments under a contract that requires the goods to be exported, but only if the supplier exports them from the indirect tax zone before, or within 60 days (or such further period as the Commissioner allows) after: (a) the day on which the supplier receives any of the final instalment of the consideration for the supply; or (b) if, on an earlier day, the supplier gives an *invoice for that final instalment - the day on which the supplier gives the invoice |
|
Export of goods - supplies to associates without consideration |
A supply of goods without *consideration to an *associate of the supplier, but only if the supplier exports them from the indirect tax zone. |
Exported goods are GST-free if they are exported from Australia within 60 days of the first of the following two events:
● the supplier receives any payment for the goods
● the supplier issues an invoice for the goods.
If the goods are paid for by instalments, the payment or invoice referred to is for the final instalment.
For further information on exports of goods please refer to Goods and Serves Tax Ruling GSTR 2002/6 Goods and Services Tax: Exports of goods, items 1 to 4A of the table in subsection 38-185(1) of the A New Tax System (Goods and Services Tax) Act 1999. The Ruling also addresses the operation of subsection 38-185(3) of the GST Act and how it expands the scope of items 1 and 2 of the table in subsection 38-185(1) in certain circumstances.