Edited version of private advice

Authorisation Number: 1051572675098

Date of advice: 28 August 2019

Ruling

Subject: GST and food classification

Issue 1

Is a supply of Product A by an Australian entity (you) GST-free pursuant to section 38-2 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer 1

No, your supply of Product A is not GST-free under section 38-2 of the GST Act. Your supply of Product A is a taxable supply under section 9-5 of the GST Act and therefore subject to GST.

Issue 2

Is your supply of Product B GST-free pursuant to section 38-2 of the GST Act?

Answer 2

No, your supply of Product B is not GST-free under section 38-2 of the GST Act. Your supply of Product B is a taxable supply under section 9-5 of the GST Act and therefore subject to GST.

Relevant facts and circumstances

You are an Australian company which is registered for GST.

You wholesale Product A and Product B to several distributors throughout Australia. The distributors generally sell Product A and Product B by retail. Product A is blended according to your specifications and packaged in retail packaging by a third party packaging company.

Product A and Product B are marketed as a complimentary medicine (AUS L)- natural alternative product available to relieve inflammation within the body. The packaging of Product A and Product B stated that they are dietary supplements.

Product A and Product B is used for:

- Antioxidant/Reduce Free Radicals formed in the body

- Anti-inflammatory/Relieve Inflammation

- Carminative/Decrease/Reduce/relieve flatulence

- Maintain/Support Healthy digestion

- Decrease/Reduce/Relieve Symptoms of indigestion/dyspepsia

- Hepatoprotectant/Protect the liver

Product A is sold in screw-top plastic containers in 260gm, 360gm and 440gm

Product B is sold in screw-top plastic containers of 100 capsules and 200 capsules.

Directions for use Product A

Take one metric teaspoon morning and night.

Mix with water, yoghurt, smoothies, take as a herbal tea or add to food.

Great in coffee

Hot milk and honey

Directions for use Product B

Take 3 capsules with food once or twice daily

Relevant legislative provisions

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 subsection 38-3(1)

A New Tax System (Goods and Services Tax) Act 1999 Section 38-4

Reasons for decision

Under section 38-2 of the GST Act 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)

·         ingredients for food for human consumption (paragraph 38-4(1)(b) of the GST Act)

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

·         fats and oils marketed for culinary purposes (paragraph 38-4(1)(f) of the GST Act)

Section 38-3 of the GST Act provides that a supply of food is not GST-free if, among others, it is a supply of:

·         food of a kind specified in the table in clause 1 of Schedule 1 to the GST Act (Schedule 1) (paragraph 38-3(1)(c) of the GST Act)

·         a beverage (or an ingredient for a beverage), other than a beverage (or ingredient) of a kind specified in the table in clause 1 of Schedule 2 to the GST Act (Schedule 2) (paragraph 38-3(1)(d) of the GST Act).

Although 'food' as referred to in subsection 38-4(1) is not further defined in the GST Act, it will be taken to have its ordinary meaning. The Macquarie Dictionary 3rd Edition ('the dictionary') defines 'food' as 'what is eaten, or taken into the body for nourishment...'.

However, not all substances that provide nourishment will satisfy the definition of food in the GST Act.

Product A

We need to determine whether Product A satisfies definition of food for the purposes of subsection 38-4 (1) of the GST Act.

Supplements

Supplements (for example dietary supplements) are products that are generally added or mixed with existing food or consumed by mixing with water, juice or other types of liquids. They are also generally taken for therapeutic reasons to prevent or compensate for some real or imagined nutritional deficiency. It is also often the case that a supplement will have its consumption restricted to certain persons, directions that the product must be consumed under supervision or be consumed within a specified amount or dosage.

Given this, while supplements are able to be consumed like food, they are something other than the basic foods envisaged as being GST-free. For this reason, we consider that supplements are not considered to be food for GST purposes under section 38-4 of the GST Act.

We also consider that supplements are not ingredients for food. A product is taken to be an ingredient for food if the product (or some essential element of the product) is an integral part of that food. Something that is sprinkled on top of a food or mixed with the food and is not essential to that food is not considered to be an ingredient, with the food acting merely as a carrier for the supplement. This is because the product retains its own separate identity and does not become an integral part of the food it is added to. Therefore, the product is not considered to be basic food. If the supplement was not added to the food item, the food item would not cease to exist.

Based on the facts provided, Product A is a marketed as a dietary supplement and complimentary medicine (AUS L) to relieve inflammation within the body. Accordingly we consider that it is not a food for human consumption for the purposes of subsection 38-4 (1) of the GST Act.

Note that supplements marketed as an ingredient for a beverage are also excluded from being GST-free by section 38-3 of the GST Act (with reference to Schedule 2 of the GST Act) unless they are a dry preparation specifically marketed to be mixed exclusively with milk.

As Product A is marketed as a dietary supplement, it is excluded from being GST-free by section 38-3 of the GST Act.

Accordingly, your supply of Product A is not GST-free under section 38-2 of the GST Act. Furthermore, your supply of Product A does not satisfy any other GST-free provisions under the GST Act.

Therefore, your supply of Product A is a taxable supply under section 9-5 of the GST Act and subject to GST.

Product B

In the ATO's Food Industry Partnership - Issues register, issue 21 provides the following:

"...Vitamins and minerals are supplied in various forms:

·         capsule

·         caplet, or

·         tablet

Unlike food, vitamins and minerals are 'taken', not eaten. Instructions are often provided with the product including a recommended dosage and suggesting that the product be taken at certain times of the day, either on an empty stomach or with food or a beverage, such as water or juice. Often these products are taken for therapeutic or medicinal reasons, or to prevent or compensate for a nutritional deficiency.

Vitamins and minerals are commonly taken by swallowing or in some instances may be added to food.

It is considered that the essential character of vitamins and minerals is not that of food, but that of a supplement. Therefore, for GST purposes, vitamins and minerals are not considered to be food for human consumption under paragraph 38-4(1)(a) of the GST Act.

Support for this view can be found in the Chairman's comments in Grosvenor Commodities (LON/90/1805X) No 7221; [1992] BVC 761, where royal jelly capsules were not considered to be food. The Chairman said:

the capsules do not satisfy hunger... they do not look like food, taste like food or fill the stomach like food. In my mind the capsules are clearly not food.

Example

Multivitamin tablets are not considered to be food for human consumption for GST purposes. As a result, they are subject to GST."

Based on the facts provided, Product B is marketed as a dietary supplement and complimentary medicine (AUS L) to relieve inflammation within the body. Accordingly Product B is not a food for human consumption for the purposes of subsection 38-4 (1) of the GST Act.

As Product B is marketed as a dietary supplement and they are excluded from being GST-free by section 38-3 of the GST Act.

Accordingly, your supply of Product B is not GST-free under section 38-2 of the GST Act. Furthermore, your supply of Product B does not satisfy any other GST-free provisions under the GST Act.

Therefore, your supply of Product B is a taxable supply under section 9-5 of the GST Act and subject to GST.