Edited version of private advice

Authorisation Number: 1051939953046

Date of advice: 9 February 2022

Ruling

Subject: GST classification of tea

Question

Is the supply of the Products GST-free pursuant to 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 a producer of tea and infusions in the Australian and global markets.

The Products are flavoured infusions consisting of a small bag containing herbal ingredients and natural flavourings, that is suggested to be placed into hot water to infuse the water with flavour.

The Products infuse in water in a similar manner to how tea bags infuse in water; that is, by placing the Product or tea bag in water, the contents are soaked to enable the flavour to be extracted/released.

The Products are supplied in dry form and are not in a ready-to-drink form.

The Products are blended and manufactured on the same production line as your current blend variants of teas and infusions.

The Products will be available in Australia in a number of varieties.

The Products will be advertised and sold alongside tea, coffee and other similar items in stores.

The Products are of a similar cost to teabags and other herbal infusions.

The Products contain certain added Vitamins and the labelling/packaging contain generic statements that highlight some of their health benefits.

The Products are not listed under the Therapeutic Goods Act 1989 ("TGA").

You provided sample of the Products. Each box has a number of sachets containing the flavoured teabags.

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 paragraph 38-3(1)(d).

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)(b).

A New Tax System (Goods and Services Tax) Act 1999 paragraph 38-4(1)(d).

A New Tax System (Goods and Services Tax) Act 1999 Schedule 2.

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

However, paragraph 38-3(1)(d) of the GST Act, a supply of food is not GST-free if it is 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).

Tea (including herbal tea, fruit tea, ginseng tea and other similar beverage preparations) is listed in item 5 of Schedule 2.

Clause 2 of Schedule 2 states that none of the items in the table relating to the category of tea, coffee etc include any beverage that is marketed in a ready-to-drink form.

Issue 25 of the Food Industry Partnership - issues register (issue 25) discusses what is considered to be a 'tea' for the purposes of item 5 of Schedule 2 of the GST Act, and it states (in part):

'Tea' is not further defined in the GST Act and is therefore given its ordinary meaning. The Macquarie Dictionary defines tea as:

'1. the dried and prepared leaves of the shrub, Thea sinensis, from which a somewhat bitter, aromatic beverage is made by infusion in boiling water.... 5. any of various infusions prepared from the leaves, flowers, etc., of other plants, used as a beverage or medicines.'

It is therefore determined that tea can be consumed both as a beverage and as a medicine. However, for the purposes of the GST Act, the definition of food is referring to those beverages that are primarily consumed for the purposes of increasing bodily liquid levels, to quench thirst or to give pleasure. It does not cover beverages or ingredients for beverages that are primarily consumed for medicinal or therapeutic purposes.

Therefore, item 5 of Schedule 2 of the GST Act is limited to those teas that have the essential character of a beverage, which by way of item 5 is extended to include substitutes for those teas (for example,. herbal teas, fruit teas, ginseng, etc). Therefore item 5 of Schedule 2 of the GST Act excludes teas consumed primarily for medicinal or therapeutic reasons.

Application to this case

The Products are herbal infusions in tea bag form. The Products contain added vitamins and the labelling/packaging contain generic statements that highlight some of their health benefits.

The Products do not make specific therapeutic claims on the labels/packaging. The Products are advertised and sold alongside tea, coffee and other similar items in stores.

The tea bags are brewed in boiling water to enable the flavour to be extracted/released. The resulting beverage is herbal or fruit tea beverage.

Based on the information provided, the Products are not differentiated for medicinal use and that they are beverages for human consumption.

The Products are of a kind covered under item 5 of Schedule 2, which includes tea (including herbal tea, fruit tea, ginseng tea and other similar beverage preparations). In addition, the Products are not ready to drink tea beverages. Hence, the exclusion at paragraph 38-3(1)(d) of the GST Act does not apply.

Furthermore, the supply of the Products does not fall within any of the other exclusions in section 38-3 of the GST Act. Therefore, your supply of the Products is GST-free under section 38-2 of the GST Act.