Edited version of private advice

Authorisation Number: 1051992216562

Date of advice: 14 October 2022

Ruling

Subject: GST and ingredients for beverages

Question 1

Is the importation of the specified products (the Products) a taxable importation?

Answer

Yes.

Question 2

Is the supply of the Products to retailers in Australia a taxable supply?

Answer

Yes.

Question 3

Is the supply of the Products in beverages sold to consumers a taxable supply?

Answer

Yes.

Relevant facts and circumstances

You are registered for GST.

You sell specified beverages (the beverages) to consumers. The sale of the beverages are taxable supplies.

You import the Products into Australia.

You purchase the Products from overseas manufacturers who manufacture and market the Products predominantly for use in the beverages. You provided details of the overseas manufacturers of the Products.

You provided details of the Products. While the Products may have other uses in food, they are predominantly manufactured and marketed for use in the beverages.

You use the Products in your store. The consumers can elect for the Products to be added to their beverages. The Products are only sold with the beverages and for an additional charge.

You also sell the Products to retailers in Australia as ingredients for beverages. You sell the Products in the same size and packaging that the Products are imported into Australia.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 section 9-5

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

A New Tax System (Goods and Services Tax) Act 1999 section 13-10

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

Reasons for decision

Question 1

Is the importation of the Products a taxable importation?

Summary

The importation of the Products is a taxable importation under section 13-5 of the A Tax System (Goods and Services Tax) Act 1999 (GST Act) because, had it been a supply, the supply would not have been GST-free or input taxed. Therefore, GST is payable on the importation of the Products.

Detailed reasoning

Subsection 13-5(1) of the GST Act provides that an entity makes a taxable importation if:

(a) goods are imported, and

(b) the entity enters the goods for home consumption within the meaning of the Customs Act 1901.

However, the importation is not a taxable importation to the extent that it is a non-taxable importation.

Section 13-10 of the GST Act provides that an importation is a non-taxable importation if:

(a)         it is a non-taxable importation under Part 3-2 of the GST Act, or

(b)         it would have been a supply that was GST-free or input taxed if it had been a supply.

Paragraph 13-10(a) of the GST Act

The importation of the Products is not a non-taxable importation under Part 3-2 of the GST Act. Therefore, the importation of the Products is not a non-taxable importation under paragraph 13-10(a) of the GST Act.

Paragraph 13-10(b) of the GST Act

In this case, had the importation of the Products been a supply, the supply would not have been an input taxed supply. Therefore, what needs to be determined is whether, had the importation of the Products been a supply, the supply would have been a GST-free supply.

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 definition of food in subsection 38-4(1) of the GST Act includes:

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

•                    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 provides that a beverage or an ingredient for a beverage is not GST-free unless it is of a kind specified in the third column of the table in clause 1 of Schedule 2 to the GST Act (Schedule 2).

Issue 10 of the Food Industry Partnership Issues Register covers ingredients for beverages. It states:

Ingredients for beverages

What is an ingredient for a beverage?

Non-interpretative - straight application of the law.

The term 'ingredients for beverages for human consumption' (paragraph 38-4(1)(d)) is not limited except in that the ingredients must be for beverages for human consumption.

However, ingredients for beverages for human consumption are only GST-free to the extent that the ingredients are specified in the third column of Schedule 2 in accordance with paragraph 38-3(1)(d) of the Act.

The Products are an ingredient for the beverages. You purchase the Products from manufacturers that produce and market the Products predominantly for use in the beverages.

While the Products may have other uses in food, they are predominantly manufactured and marketed for use in the beverages.

Based on the facts, we consider that the essential characteristic of the Products is that of an ingredient for beverages as they are essentially produced and marketed as ingredients for the beverages. We consider that the Products therefore meet the definition of food in paragraph 38-4(1)(d) of the GST Act. However, as the Products are not of a kind of beverage ingredients listed in Schedule 2, they are therefore excluded from being GST-free.

Accordingly, had the importation of the Products been a supply, the supply would have been excluded from being GST-free by paragraph 38-3(1)(d) of the GST Act.

It follows that the importation of the Products is not a non-taxable importation as the requirement of paragraph 13-10(b) of the GST Act is also not met. The importation of the Products is a taxable importation under section 13-5 of the GST Act and GST is payable on the importation of the Products.

Question 2

Is the supply of the Products to retailers in Australia a taxable supply?

Summary

The supply of the Products to retailers in Australia is a taxable supply under section 9-5 of the GST Act as the Products are ingredients for beverages that are not of kind specified in Schedule 2.

Detailed reasoning

As stated above 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 it does not come within any of the exclusions listed in section 38-3 of the GST Act.

You supply the Products to retailers in Australia as ingredients for beverages. As explained above, we consider that the Products are ingredients for beverages and therefore meet the definition of food in paragraph 38-4(d) of the GST Act. However, the Products are not of a kind of beverage ingredients specified in Schedule 2 and are therefore excluded from being GST-free by paragraph 38-3(1)(d) of the GST Act.

Accordingly, the supply of the Products to retailers in Australia is not a GST-free supply. The supply is a taxable supply under section 9-5 of the GST Act and subject to GST.

Question 3

Is the supply of the Products in beverages sold to consumers a taxable supply?

Summary

The supply of the Products in beverages sold to consumers is a taxable supply as the Products are not of kind of beverage ingredients specified in Schedule 2.

Detailed reasoning

You supply the Products to consumers as ingredients for beverages and charge an additional fee.

As stated above, the Products are ingredients for the beverages. The Products are not of a kind of ingredients listed in Schedule 2. Therefore, the sale of the Products to the consumers is a taxable supply under section 9-5 of the GST Act and subject to GST.