Edited version of private advice

Authorisation Number: 1051917873209

Date of advice: 27 August 2021

Ruling

Subject: GST and flavoured syrups

Question

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

Answer

Yes, the supply will be GST-free under section 38-2 of the GST Act.

Relevant facts and circumstances

You are an Australian entity which is registered for GST.

You supply the Product to customers in Australia and overseas.

The Product consists of sugar, water, flavours and colours.

The Product is designed to be used as a flavouring for milk, a flavouring to alcohol for cocktails, an ingredient to make desserts and savoury foods and as a topping to ice cream.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999

Section 38-2

Section 38-3

Section 38-4

Schedule 2

Reasons for decision

Summary

The Product is considered an ingredient for beverage. The Product is an ingredient for a beverage of a kind specified in Schedule 2 of the GST Act. Hence the supply of the Product is a GST-free supply under section 38-2 of the GST Act.

Detailed reasoning

A supply of food is GST-free under section 38-2 of the GST Act if it satisfies the definition of 'food' in section 38-4 of the GST Act and it is not excluded by section 38-3 of the GST Act.

Food is defined in paragraph 38-4(1) of the GST Act to mean any of the following, or combination of them:

(a)  food for human consumption (whether or not requiring processing or treatment);

(b)  ingredients for food for human consumption;

(c)   *beverages for human consumption;

(d)  ingredients for beverages for human consumption;

(e)  goods to be mixed with or added to food for human consumption (including condiments, spices, seasonings, sweetening agents or flavourings)...

Paragraphs (f) to (i) then list a number of exclusions to the meaning of 'food', which are not relevant for present purposes.

Section 38-3(1) of the GST Act lists food that is not GST-free. This includes:

(c)   food 'of a kind' that is specified in the third column of the table in clause 1 of Schedule 1 or food that is a combination of one or more foods at least one of which is food of such a kind; or

(d)  a *beverage (or an ingredient for a beverage), other than a beverage (or ingredient) of a kind specified in the third column of the table in clause 1 of Schedule 2...

Accordingly, unless a 'beverage' or an 'ingredient for a beverage' is of a kind listed in the third column in the table to clause 1, Schedule 2 of the GST Act, it will be taxable and will not be GST-free.

Although the Commissioner accepts the Product is a food for the purposes of section 38-4, our view is that the Product is characterised as an ingredient for a beverage under paragraph 38-4(1)(d) of the GST Act. This being the case, the exemptions for food and beverages outlined by subsection 38-3(1) of the Act must also be considered.

Whilst the Commissioner acknowledges that not every item can be discreetly defined under one subsection in section 38-4, for the purposes of GST Act a product can only be classified as one particular item.[1] In making this determination, consideration must be given to the essential character of the product, which is ultimately a question of fact and degree.

Having regard to the characteristics of the Product (including, but not limited to appearance, taste, ingredients, marketing and packaging) we consider that the essential character of the Product is as an ingredient for a beverage. In particular:

•         the Product is sold in supermarkets alongside other additives and ingredients for beverages;

•         the website marketing for the Product contains a picture of the Product next to two glasses of liquid/milk.

•         the labelling on the Product reinforces the main use of the Product as to making a beverage;

•         although a number of uses for the Product are listed on the back label, specific instructions are provided for making a beverage;

•         the Product contains ingredients that are used to make beverages but itself is not consumed as a beverage.

We note this is consistent with the position taken by the retail stockist of the Product who have placed the item for sale with similar such ingredients for a beverage and not ingredients for food. We consider this to be the correct characterisation notwithstanding the Product may also have other subsidiary uses.

In circumstances where the Product is considered to be an ingredient for a beverage pursuant to section 38-4(1)(d), it is necessary to consider whether any of the exclusions in section 38-3(1) apply. In order for the supply to be GST-free and not excluded by subsection (1)(d), the Product must be of a kind specified in the third column of the table in clause 1 of Schedule 2 of the GST Act.

We note that relevantly this includes:

The Commissioner accepts the Product is an ingredient for a beverage of a kind specified in Item 7 of the third column of the table in clause 1 of Schedule 2 of the GST Act, being preparations for drinking purposes that are marketed principally as tea preparations, coffee preparations, or preparations for malted beverages.

This is demonstrated by the following factors:

(a)  the name of the Product;

(b)  the back label of the Product suggests a number of uses, such is in cakes, desserts, savoury recipes, as an ice cream topping or adding to a glass of milk. Instructions are provided on the label for making a beverage but no instructions are provided on the label regarding the other uses;

(c)   the Product is displayed alongside other additives for making coffee or chocolate beverages; and

(d)  your website description as to the history of the Product, suggests a predominant beverage use.

On this basis, the Commissioner considers the supply of the Product is GST-free pursuant to section 38-2 of the GST Act and the exclusion in 38-3(1)(d) does not apply.

Conclusion

The supply of the Product by you is GST-free under section 38-2 of the GST Act.

[1] See Lansell House Pty Ltd & Anor v Federal Commissioner of Taxation [2011] FCAFC 6