Edited version of private advice

Authorisation Number: 1051940387270

Date of advice: 23 June 2022

Ruling

Subject: GST and supplements

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

There are products which are GST-free as follows: tea, coffee, hemp seeds, hemp seed oil, hemp seed flour.

The supply of the tea and coffee Products is GST-free under section 38-2 of the GST Act because:

•         The Products satisfy the definition of food in paragraph 38-4(1)(d) of the GST Act as ingredients for beverages for human consumption; and

•         The supply of the Products is specified under item 5 in clause 1 of Schedule 2 of the GST Act, which states: 'tea (including herbal tea, fruit tea, ginseng tea and other similar beverage preparations, coffee and coffee essence)...'

The supply of the Hemp Products is GST-free under section 38-2 of the GST Act because:

•         the Hemp Seeds and Hemp Seed flour powder satisfy the definition of ingredients for food in paragraph 38-4(1)(b) of the GST Act as ingredients for food for human consumption; while the Hemp Seed oil satisfies the definition of fats and oils marketed for culinary purposes in paragraph 38-4(1)(f) of the GST Act; and

•         the supply of the Hemp Products does not fall within any other exclusions in section 38-3 of the GST Act.

The supply of the rest of the Products in the ruling is not a GST-free supply, it is a taxable supply because the Products do not satisfy the meaning of food in section 38-4 of the GST Act.

Relevant facts and circumstances

You sell extracted powders, oil, tinctures, supplements and tonic herbs online. The Products are for natural remedies. You are registered for GST.

Extract herbal products are extracted from tonic plants/herbs with hot water and alcohol.

Directions for use is to mix extract with hot liquids and stir or shake well before consuming. The Products are in various forms such as powder, capsules, oil and tincture.

You provided product information and use for each product.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 Section 13-5.

A New Tax System (Goods and Services Tax) Act 1999 Paragraph 13-10(b).

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)(c).

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)(a).

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 Schedule 1 clause 1.

Reasons for decision

We discuss the GST-free food first.

There are products which are GST-free as follows: tea, coffee, hemp seeds, hemp seed oil, hemp seed flour.

The supply of the tea and coffee Products is GST-free under section 38-2 of the GST Act because:

•         The Products satisfy the definition of food in paragraph 38-4(1)(d) of the GST Act as ingredients for beverages for human consumption; and

•         The supply of the Products is specified under item 5 in clause 1 of Schedule 2 of the GST Act, which states: 'tea (including herbal tea, fruit tea, ginseng tea and other similar beverage preparations, coffee and coffee essence)...'

The supply of the Hemp Products is GST-free under section 38-2 of the GST Act because:

•         the Hemp Seeds and Hemp Seed flour powder satisfy the definition of ingredients for food in paragraph 38-4(1)(b) of the GST Act as ingredients for food for human consumption; while the Hemp Seed oil satisfies the definition of fats and oils marketed for culinary purposes in paragraph 38-4(1)(f) of the GST Act; and

•         the supply of the Hemp Products does not fall within any other exclusions in section 38-3 of the GST Act.

Now we discuss the supply of the rest of the Products in the ruling: the supply of these Products is not a GST-free supply, because the Products do not satisfy the meaning of food in section 38-4 of the GST Act. Hence it is a taxable supply.

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 defines 'food' as 'what is eaten, or taken into the body for nourishment...'.

For a product to be food for the purposes of the GST Act, it must be food for human consumption.

The mere fact that a product is edible or provides nourishment is not sufficient for it to qualify as food for the purposes of the GST Act. On the other hand, a product will not be food for human consumption if, in the course of its supply, the supplier differentiates it from food supplied for human consumption. There is a borderline between food and food supplements (not food for consumption for GST purposes).

It is therefore relevant to use the 'essential character' test adopted under the former wholesale sales tax regime. The Australian Taxation Office adopts the view that the essential character of goods assists in determining their GST classification. This involves ascertaining what the goods essentially are, as distinct from merely identifying one of a number of characteristics the goods might have. This approach relies upon deciding what is the basic nature of the goods and involves consideration of what the goods are made of; what they might be used for and whether they are differentiated from food by the supplier. In addition, as outlined previously, where appropriate, we should follow the various Courts in adopting a common sense, practical approach to form an 'overall impression'.

In the current case, there are two groups of items that are considered not food for human consumptions.

The first group are herbal substances with real or imagined therapeutic qualities, that are derived from plants which, while not claiming specific medicinal qualities, do not have any generally accepted mainstream culinary use, similar to ginseng or evening primrose, such as pine pollen. The items derived from such plants are not food for human consumption for the purpose of the GST Act, it does not matter what form they are in: powder, or capsules, or oil or tincture.

The second group contains items made from ingredients which would normally be seen as food (for example, mushroom), but are in the form of extracts.

We consider extracts from food item no longer retain their original characters as food because they have lost the taste, texture of the food they are extracted from and are not to be eaten as part of a general diet. These items are also not in a form general used for culinary purposes, as such are not food for GST purposes. For example, it is well accepted that mushrooms are food for human consumption. However, when mushrooms are processed using the similar method as described in the current case, the substance that is extracted from the mushrooms can be more appropriately considered as minerals and vitamins as such not food anymore.

There is information on your website describes the meaning of extracts.

There is one example of how the products in the second group is manufactured, which follows the above meaning of extracts.

This can be distinguished from the scenario when mushrooms are made into powder in which case whether the powder is food or not depending on whether it is sold for culinary purposes.

We note that the UK courts take a similar approach in this regard that in the early case of Marfleet Refining Co Ltd (LEE/73/0033), the tribunal found that cod liver oil products (capsules and syrup), although undoubtedly having nutritional value, were not eligible for relief as food whatever form they are supplied in.

In the case of Nature's Balance Ltd (LON/93/2953A) the tribunal found that a dietary supplement product consisting of edible micro-algae compressed into tablet form was not food but a dietary supplement even though the natural dried product might be accepted as food.

We note that some of the Products are consumed by being added to hot water or other liquids, stirred vigorously and marketed as tonic tea.

However, we consider that the hot water/ other liquids are simply a means by which the Products are ingested, that is, the Products are not considered as tea/coffee or tea/coffee preparation in Schedule 2 of the GST Act.

In addition, we consider these herbal extracts while are not sold to relieve any specific medical condition, and making no specific medicinal claims, are taken for therapeutic reasons. That is, to prevent or compensate for some real or imagined nutritional deficiency. The 'overall impression' of these products is that while they are not what most people would consider strictly medicines, they would not be thought of by the average person as food but nutrition supplements. This overall impression is formed based on various factors such as the appearance, the texture, preparation and manufacturing process, promotion, packaging, taste and intended use of the products.

For example, there are similar statements made by you for the range of products that the products have unique health benefits such as to prevent or compensate nutritional deficiency or enhance general wellbeing. Below are a few of these statements for illustration purpose....

In addition, in the product descriptions for every item, after making the statements to claim these products have unique health benefits, there is a disclaimer that the Products are not intended to diagnose, treat, cure or prevent any disease. We consider that these herbal extracts while are not sold to relieve any specific medical condition, and making no specific medicinal claims, are taken by consumers for therapeutic reasons. That is, to prevent or compensate for some real or imagined nutritional deficiency.

Further, for some of the products, there is a waning message about the possible limitation for taking the products. In our view, these create an impression that these products are close to those for medicinal items. For example...

For completeness, we note the ATO view in issue 21 (vitamins and minerals) of Food Industry Partnership - issues register that the 6 capsule products are not GST-free food because they are vitamins and mineral, not food.

In summary, we consider that the products in both groups are not considered to be food for human consumption for GST purposes. Hence they do not satisfy section 38-4 of the GST Act and are not GST-free food under section 38-2 of the GST Act.