Edited version of private advice

Authorisation Number: 1051997799624

Date of advice: 25 August 2022

Ruling

Subject: GST and supply of powders

Question 1

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

Answer 1

No.

The supply of Product A is a taxable supply.

Question 2

Is the supply of Product B GST-free pursuant to section 38-2 of the GST Act?

Answer 2

No.

The supply of Product B is a taxable supply.

Relevant facts and circumstances

You are in the business of selling a variety of health-related products to the general public.

You are registered for GST.

The following two products (together, called the Products) are the subject of this private ruling request:

•                     Product A is a tasteless, odourless powder made from a specific ingredient and

•                     Product B is a tasteless powder made from a specific ingredient.

You purchase the Products from a supplier in their bulk raw form and you repackage them to pouches or single serve individual sachets. These are then sold to your customers.

The Products are in loose powder form and not contained in capsules or tables.

Your customers add the Products into their food and drinks to consume them for their health benefits.

The packaging promotes Product A as a way of adding your daily dose of essential nutrients in your food or beverage. It is an easy way of enjoying the benefits of the essential nutrients with very little effort. The packaging includes the importance of the essential nutrients in one's diet. The packaging includes a statement that it is a formulated supplementary sports food and if any health symptoms exist to seek medical or dietetic supervision to ensure the product is suitable for the user.

Product B is a powder mix that is easy to digest but also giving the benefits of essential nutrients. The packaging provides that you can add Product B to your drinks, like juices, cordial, smoothies, soft drinks, milkshakes, coffee and many more, and your food like cereals, pastas, breads, cakes, pancakes, soups, cookies, etc. The packaging of Product B states that it changes the way you have been taking nutritional supplements with a convenient and tasteless powder.

The packaging of the Products includes the direction to add one scoop/serving of the powder to water or any beverage or to food as desired.

You provided the flowchart for the production of the Products.

You provided a statement of compliance with food regulations from the manufacturer of the Products.

You provided a product information leaflet for Product A demonstrating that it is a food product.

You provided website links where the Products are promoted and sold. The website includes the same product information contained on the packaging and other additional information.

•                     Customer reviews of Product A provide that this supplement is an easy and convenient way to add essential nutrient in the diet, and it does the job.

•                     The frequently asked questions section of the website where Product B is sold states that it is a great way to increase your daily essential nutrient intake and aid your body with the nutrients needed. In addition, Product B is one of the highest essential nutrient content supplements on the market.

You provided screenshots of social media posts promoting the Products as easy and convenient way of adding essential nutrients to your diet. The Products can be added to food or beverages.

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 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) 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 Paragraph 38-4(1)(d).

Reasons for Decision

Summary

The supply of Product A and Product B (the Products) is not GST-free under section 38-2 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act). The supply of the Products is a taxable supply under section 9-5 of the GST Act.

Detailed reasoning

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 subsection 38-4(1) of the GST Act to include:

•                     food for human consumption (whether or not requiring processing or treatment) (paragraph 38-4(1)(a) of the GST Act)

•                     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).

In order to determine the correct classification of the Products, it is first necessary to consider whether they satisfy the definition of food contained in subsection 38-4(1) of the GST Act. The relevant paragraph to consider is paragraph 38-4(1)(a) of the GST Act - "food for human consumption (whether or not requiring processing or treatment)".

The word 'food' in paragraph 38-4(1)(a) is not defined in the GST Act and so takes its ordinary meaning. Macmillan Publishers Australia, The Macquarie Dictionary online, www.macquariedictionary.com.au, viewed 2 August 2022, defines 'food' as:

1. what is eaten, or taken into the body, for nourishment.

Issue 18 of the Food Industry Partnership - issues register, which considers whether XXXX XXXX XXXX are food for the purposes of the GST Act, highlights that 'not all substances that provide nourishment will satisfy the definition of food in the GST Act'.

The Detailed Food List (DFL) which is a public ruling for the purposes of the Taxation Administration Act 1953 provides that the supply of nutritional supplements is a taxable supply.

Determining the classification of a food for GST purposes is a matter of fact and degree. The analysis requires identification of all the relevant factors and making a judgment based on these factors to come to an overall impression Lansell House Pty Ltd v Commissioner of Taxation (Cth) [2011] FCAFC 6, Lansell House Pty Ltd v Commissioner of Taxation (Cth) [2010] FCA 329.

In the UK the Tribunal considered the meaning of food in Brewhurst Health Food Supplies [1993] BVC 610. In this case the issue was whether fruit cubes, containing a mixture of dried fruits were zero-rated for Value Added Tax purposes as food of a kind used for human consumption.

The appellant argued that the fruit cube was food of a kind used for human consumption because it had the essential characteristics of food in that it looked, tasted, smelled and felt like food.

The Commissioners ruled that the fruit cubes were not food, but a remedial preparation to counteract the effects of constipation so that the product was liable to VAT at the standard rate. The product in question was not food of a kind used for human consumption. Its bulk forming qualities provided a laxative effect. The nutritive value of the fruit cube was of marginal significance, and this pointed to it being something other than food.

Application to Product A:

Product A is a tasteless, odourless powder made from a specific ingredient.

The packaging promotes Product A as a way of adding your daily dose of essential nutrients in your food or beverage. It is an easy way of enjoying the benefits of the essential nutrients with very little effort. The packaging includes the importance of the essential nutrients in one's diet. The packaging includes a statement that it is a formulated supplementary sports food and if any health symptoms exist to seek medical or dietetic supervision to ensure the product is suitable for the user.

Customer reviews of Product A provide that this supplement is an easy and convenient way to add essential nutrient in the diet, and it does the job.

Based on the product information, Product A is taken to prevent or compensate for some real or imagined nutritional deficiency. We consider that the essential character of Product A is not that of food but that of a supplement. Therefore, for GST purposes, Product A is not considered to be food for human consumption under paragraph 38-4(1)(a) of the GST Act.

Your customers add Product A into their food and drinks to consume them for their health benefits. The direction for use is to mix or add a scoop of Product A to food or drinks.

We do not consider Product A to be an ingredient of those food or beverages. The food or beverages to which Product A are added are the means by which Product A is to be taken and is not considered to be an ingredient for the food or beverage itself. As such, Product A is not an ingredient for food for human consumption under paragraph (38-4(1)(b) of the GST Act, nor is it an ingredient for beverages for human consumption under paragraph (38-4(1)(d) of the GST Act.

As Product A does not satisfy the definition of food in section 38-4 of the GST Act, its supply is not GST-free under section 38-2 of the GST Act.

Application to Product B:

Product B is a tasteless powder made from a specific ingredient.

Product B is a powder mix that is easy to digest but also giving the benefits of essential nutrients. The packaging provides that you can add Product B to your drinks, like juices, cordial, smoothies, soft drinks, milkshakes, coffee and many more, and your food like cereals, pastas, breads, cakes, pancakes, soups, cookies, etc. The packaging of Product B states that it changes the way you have been taking nutritional supplements with a convenient and tasteless powder.

The frequently asked questions section of the website where Product B is sold states that it is a great way to increase your daily essential nutrient intake and aid your body with the nutrients needed. In addition, Product B is one of the highest essential nutrient content supplements on the market.

Your social media posts promote the Products as easy and convenient way of adding essential nutrients to your diet. The Products can be added to food or beverages.

Based on the product information, Product B is taken to prevent or compensate for some real or imagined nutritional deficiency. We consider that the essential character of Product A is not that of food but that of a supplement. Therefore, for GST purposes, Product B is not considered to be food for human consumption under paragraph 38-4(1)(a) of the GST Act.

Your customers add Product B into their food and drinks to consume them for their health benefits. The direction for use is to mix or add a scoop of Product B to food or drinks.

We do not consider Product B to be an ingredient of those food or beverages. The food or beverages to which Product A are added are the means by which Product B is to be taken and is not considered to be an ingredient for the food or beverage itself. As such, Product B is not an ingredient for food for human consumption under paragraph (38-4(1)(b) of the GST Act, nor is it an ingredient for beverages for human consumption under paragraph (38-4(1)(d) of the GST Act.

As Product B does not satisfy the definition of food in section 38-4 of the GST Act, its supply is not GST-free under section 38-2 of the GST Act.

Taxable supply

The supply of a product is a taxable supply if the requirements of section 9-5 of the GST Act are satisfied.

Section 9-5 of the GST Act provides that you make a taxable supply if:

a)            you make the supply for consideration

b)            the supply is made in the course or furtherance of an enterprise that you carry on

c)            the supply is connected with the indirect tax zone, and

d)            you are registered or required to be registered for GST.

However, the supply is not a taxable supply to the extent that it is GST-free or input taxed.

In this case, the supply of the Products satisfies the requirements of paragraphs 9 5(a), 9 5(b), 9-5(c) and 9-5(d) of the GST Act. Furthermore, the supply of the Products is neither GST-free nor input taxed under any provisions of the GST Act or another Act. Therefore, as all the requirements of section 9-5 of the GST Act are satisfied, the supply of the Products is a taxable supply.