Edited version of private advice

Authorisation Number: 1051659576229

Date of advice: 16 April 2020

Ruling

Subject: Goods and Services Tax (GST) and a Product

Question

Is the supply of a Product 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

No. The supply of the Product by you is not GST-free under section 38-2 of the GST Act. The supply of the Product by you will be a taxable supply under section 9-5 of the GST Act and therefore subject to GST.

The following period(s)

Relevant facts and circumstances

You are an Australian entity which is registered for GST.

You import the Product in bulk form on behalf of an Entity, who then uses it as a treatment in the water supply.

The Product is labelled as food grade.

The Product is supplied in bulk.

The Product is often used in manufacturing of food products. However, in this instance the Product is used for treatment of water.

The nutritional information for the Product is nil.

The nutritional value for the Product is zero.

The Product has no measurable nutritional value.

At the time of the supply the Product is not packaged or marketed for retail sale.

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 Section 38-4

A New Tax System (Goods and Services Tax) Regulations 1999 Regulation 38-3.02

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.

Food is defined in section 38-4 of the GST Act to include ingredients for food for human consumption. The Product is used in the food. Therefore, the Product is an ingredient for food for human consumption under paragraph 38-4(1)(b) of the GST Act.

However, under paragraph 38-3(1)(e) of the GST Act, a supply is not GST-free if it is food of a kind specified in regulations made for the purposes of subsection 38-3(1) of the GST Act.

Regulation 38-3.02 of the A New Tax System (Goods and Services Tax) Regulations 1999 (GST Regulations) applies to food additives. This regulation gives effect to paragraph 38-3(1)(e) of the GST Act and determines those foods that are not GST-free.

Subregulation 38-3.02(1) of the GST Regulations states that food additives, other than exempt food additives, are not GST-free.

Although the term 'food additive' is used in the regulation, it is not defined elsewhere in the GST Act.

Issue 11 of the Food Industry Partnership - issues register discusses whether food additives are GST-free under section 38-2 of the GST Act and it states:

The word 'additive' is defined in The Macquarie Dictionary (3rd edition, 1997) to mean '...3. a substance added to a product, usually to preserve or improve its quality'. Examples of products that are considered to be food additives for GST purposes include:

·         colourings

·         flavourings

·         preservatives

·         antioxidants

·         sweeteners

·         vitamins

·         minerals

·         modifying agents (vegetable gums, mineral salts, food acids, emulsifiers, humectants, thickeners)

Some of these additives fall within the term 'ingredient for food for human consumption' as stated in paragraph 38-4(1)(b), whilst others are specifically included in paragraph of the GST Act as 'goods to be mixed with or added to food for human consumption'.

Based on the information provided, the Product comes within the definition of 'additive' and is therefore a food additive for GST purposes.

Subregulation 38-3.02(2) of the GST Regulations outlines the requirements for an additive to be an 'exempt food additive', the supply of which is GST-free. To be an exempt food additive the product must be:

(a)  a food additive which, at the time of supply is packaged and marketed for retail sale; or

(b)  a food additive which, at the time of supply:

·         has a measurable nutritional value

·         is supplied for use solely or predominantly in the composition of food, and

·         is essential to the composition of that food.

Based on the information provided, you are an importer, and do not package or market the Product for retail sale at the time of the supply. Therefore, the Product supplied by you to the Entity A is not an exempt food additive under paragraph 38-3.02(2)(a) of the GST Regulations.

You stated that the Product has no measurable nutritional value. Therefore, the Product is not an exempt food additive under paragraph 38-3.02(2)(b) of the GST Regulations.

As the Product is a supply of food of a kind specified in the GST Regulations, the supply of it is excluded from being GST-free by paragraph 38-3(1)(e) of the GST Act.

Based on the information provided, the supply of the Product by you to the Entity A satisfy the requirements of paragraphs 9-5(a) to 9-5(d) of the GST Act because:

·         you supply the Product for consideration;

·         the supply of the Product is made in the course of your enterprise;

·         the supply of the Product is connected with Australia; and

·         you are registered for GST.

Furthermore, your supply of the Product is not input taxed or/and GST-free under any provisions of the GST Act or any other legislation.

Accordingly, the supply of the Product by you to the Entity A will be a taxable supply and subject to GST.