Edited version of your written advice

Authorisation Number: 1051493899845

Date of advice: 18 March 2019

Ruling

Subject: GST and milk products

Question

Is the supply of the Products GST-free under section 38-2 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer

Yes

Relevant facts and circumstances

You are supplying to the Australian market a range of liquid milk products.

You provided a copy of the product line sheet showing the range of products (the Products):

The Products must be mixed with other milk before they can be fed to a baby. The different ranges identify different nutrition levels of the products.

The labels and literature of the Products provide the following:

● The Products are 100% milk-based nutritional products for special medical purpose.

● They are to be used under medical supervisions.

● They are used for the dietary management of infants.

● Each of the Products provides a specific amount of vitamins and minerals.

The Products are only administered through gavage feeds with a nasogastric tube or oral gastric tube.

You directed us to the website where the Products are advertised, which provide the Products are nutritional products for infants.

Reasons for Decision

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.

The term ‘food’ is defined in section 38-4 of the GST Act to include (among other things):

● beverages for human consumption (paragraph 38-4(1)(c) of the GST Act) and

● ingredients for beverages for human consumption (paragraph 38-4(1)(d) of the GST Act).

Paragraph 5 of Goods and Services Tax Determination (GSTD) 2002/2 provides the meaning of beverages as follows:

The meaning of beverage

5. The GST Act defines beverage to include water, but does not otherwise discuss the meaning of a beverage. The word beverage appears in a similar context in the former sales tax legislation and has been considered by the courts to mean 'a drink of any kind' and, in turn, drink as 'any liquid which is swallowed to quench thirst or for nourishment’.

The Products are in liquid form and mixed with other milk to be given to an infant for nourishment. Hence, the Products are ingredients for beverages for human consumption for the purposes of the GST Act and therefore, satisfy the definition of food under paragraph 38-4(1)(d) of the GST Act.

However, paragraph 38-3(1)(d) of the GST Act provides that a beverage (or an ingredient for a beverage) is not GST-free under section 38-2 of the GST Act unless it is a beverage (or an ingredient for a beverage) of a kind specified in the third column of the table in clause 1 of Schedule 2 to the GST Act (Schedule 2).

It is your contention that as the Products are identified as dairy products, you consider them to be GST-free as milk products of the kind listed in item 1 of the table in clause 1 of Schedule 2 to the GST Act.

Item 1(a) of Schedule 2 (item 1(a)) lists ‘milk, skim milk or buttermilk (whether liquid, powdered, concentrated or condensed)’.

In this case, the Products are made exclusively from 100% milk. Although we consider the term ‘milk’ for the purposes of item 1(a) to include animal-based milks and plant-based milk, we do not consider the Products to be milk of a kind covered by item 1(a).

Item 13 of Schedule 2 (item 13) provides that 'beverages, or ingredients for beverages, of a kind marketed principally as food for infants or invalids' is GST-free.

Item 13 has been considered in the Federal Court case, Cascade Brewery Co Pty Ltd v. Federal Commissioner of Taxation [2006] FCA 821; (Cascade). In the Cascade case, his Honour Sundberg J considered the meaning of "infants" in item 13 and stated as follows:

34. In my view “infants” in item 13 bears the primary meaning given by the dictionaries referred to: “a child during the earliest period of its life”; “a child during the earliest period of life …; now most usually applied to a child in arms, a babe”; “a child in the first period of life”. The Macquarie meaning is to the same effect as the primary meaning given by the Oxford Dictionary:

“1. a child during the earliest period of its life, or a baby.”

Issue 14 of Food Industry Partnership – issues register provides the ATO view on what products are considered ‘Beverages for infants’ and concludes:

It was clearly intended by the legislature that the beverages and ingredients for beverages referred to in item 13 are those to be consumed by people with special dietary needs. Therefore, the word 'infant' for the purposes of item 13 means 'a person up to the age of 12 months'.

The Products are 100% milk-based nutritional products for special medical purpose. They are used for the dietary management of infants. Each of the Products provides a specific amount of vitamins and minerals. The Products are only administered through gavage feeds with a nasogastric tube or oral gastric tube.

We consider that the Products are ingredients for beverages marketed principally as food for infants. Hence, the Products are of a kind listed in item 13 and the exclusion at paragraph 38-3(1)(d) of the GST Act does not apply. Therefore, as none of the other exclusions in section 38-3 of the GST Act apply, the supply of the Products is GST-free under section 38-2 of the GST Act.