Edited version of private advice

Authorisation Number: 1052005364238

Date of advice: 11 July 2022

Ruling

Subject: GST classification of beverages product

Question:

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

Answer

No. The supply of the Product is not GST-free under section 38-2 of the GST Act.

Relevant facts

You are an Australian entity which is registered for GST.

You supply of Alkaline Water' ('Product') in Australia.

The Product is produced by sourcing readily available water in bulk and applying the various processes of filtration, ionisation and re-mineralisation. The process does not include carbonation. The re-mineralisation step of the process involves physically adding three mineral compounds.

The original source of water used to produce the Product is natural rainwater. The water is gathered via natural waterways and various reservoirs then treated by local water authorities to ensure safety for drinking.

The gathered water contains various naturally occurring minerals and trace metals and some organic contaminants. The water contains calcium, magnesium and potassium (and other minerals).

Then the process of filtration is applied and reverse osmosis to remove all minerals and contaminants.

The Product is remineralised by adding the following three chemical compounds:

•         Calcium Chloride

•         Magnesium Chloride

•         Potassium Bicarbonate

These substances are added to the water after the minerals have been removed during the purification process to improve the quality of the water and to give the user the best taste.

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 paragraph 38-3(1)(c)

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

Reasons for decision

Summary

The supply of the Product is not GST-free under section 38-2 of the GST Act as the Product is excluded from being GST-free by paragraph 38-3(1)(d) of the GST Act.

The Product is not a beverage of a kind specified in Schedule 2 of the GST Act and therefore is excluded from being GST-free by paragraph 38-3(1)(d) of the GST Act. The supply of the Product is taxable.

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.

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)(c) of the GST Act. Consequently, the Product is a beverage for human consumption.

However, subsection 38-3 of the GST Act lists food that is not GST-free. Paragraph 38-3(1)(d) of the GST Act provides:

(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 (Schedule 2)

The Product will not be GST-free unless it is a beverage 'of a kind' specified in the Schedule 2.

The Product is not specifically listed in Schedule 2. However, item 14 in Schedule 2 (Item 14) provides that a supply of water that is 'natural water, non-carbonated and without any other additives' is GST-free.

As such, it is necessary to determine whether the Product is 'natural water, non-carbonated and without any other additives'.

An accepted principle of statutory interpretation (the noscitur a sociis rule) states that words take their meaning from the words with which they are associated (Fox v. Warde [1978] VR 362: Supreme Court of Victoria). As such, the meaning of the words 'non-carbonated' can be derived from the context of the surrounding words, 'and without any other additives', used in Item 14.

It is considered that the use of the word 'other' implies that the carbonation is considered to be an additive. As such, water that is carbonated would be excluded from Item 14 only if the carbonation is introduced as an additive.

It follows that natural water that has other additives would be excluded from item 14.

Additives are not defined in the GST Act and are therefore given its ordinary meaning.

The Third Edition of the Macquarie Dictionary defines

additive as

1. To be added of the nature of an addition; characterised by an addition: an additive process.

2. Something added.

3. A substance added to a product, usually to preserve or improve its quality.

As noted above, the word 'additive' is defined to mean 'something added' or a substance added to a product, usually to preserve or improve its quality.

Consistent with the dictionary definition of additive, issue 11 of the Food Industry Partnership - issues register - Issue 11 Are food additives GST-free under section 38-2 of the GST Act? -discusses whether food additives are GST-free under section 38-2 of the GST Act. It lists examples of products that are considered to be food additives for GST purposes including minerals.

Through the process of remineralisation, you add the chemical compounds calcium chloride, magnesium chloride and potassium. These compounds satisfy the ordinary definition of an 'additive'. These substances are added to the water after the minerals have been removed during the purification process to improve the quality of the water and to give the user the best taste.

In addition, the amount of these added substances is higher than the water originally contains for the purpose of raising the water's PH level to achieve the best taste. The adding of these minerals is an enhancement to the water, which is consistent with the purpose of an additive, and it has changed the character of the nature water to an extent.

As the Product has other additives, it is excluded from item 14. Furthermore, the supply of the Product will not be GST-free under any other provision of the GST Act, therefore the supply of the Product is a taxable supply and will be subject to GST.