Edited version of private advice

Authorisation Number: 1052039777190

Date of advice: 14 October 2022

Ruling

Subject: GST and delivery of livestock for slaughtering or processing

Question

Are you making a taxable supply of livestock under an arrangement under which you deliver livestock for slaughter or processing and the ownership passes to the buyer after the livestock is processed into food?

Answer

Yes.

Relevant facts and circumstances

You are a cattle farmer and registered for GST.

You have started selling livestock direct to a meat wholesaler/exporter (the buyer). You arrange transport of the animals to the processor for slaughter. The processing costs are incurred by the buyer. The processing costs are separated between kill fees and processing fees (processed into the different meat cuts). Both are invoiced to and paid for by the buyer.

The ownership of the animal carcass passes to the buyer only after it has been certified as being fit for human consumption. Once certified, the carcass is weighed and the buyer pays you based on a per kilogram price as per the Hot Standard Carcass Weight (HSCW) pricing grid. You are not paid for the live animal per kilogram. If an animal cannot be killed or processed, you do not get paid for it and are often charged a disposal fee.

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 subsection 9-10(3A)

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(g)

Reasons for decision

Question

Are you making a taxable supply of livestock under an arrangement under which you deliver livestock for slaughter or processing and the ownership passes to the buyer after the livestock is processed into food?

Summary

You are making a taxable supply under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) as pursuant to section 9-10(3A) of the GST Act, the supply takes place when the livestock is delivered and not when title passes.

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 section 38-4 of the GST Act, relevantly, as follows:

(1) Food means any of the these, or any combination of these:

(a)     food for human consumption (whether requiring procession or treatment);

...

but does not include:

(g) live animals (other than crustaceans or molluscs);

...

You arrange for the transport of livestock to the processor for slaughter. The buyer is liable for the processing costs. The ownership of the animal carcass passes to the buyer only after it has been certified as being fit for human consumption. Once certified, the carcass is weighed and the buyer pays you based on a per kilogram price as per the HSCW pricing grid.

It is acknowledged that some arrangements for the delivery of livestock or game for slaughtering or processing into food provide for the passing of title only after food has been produced. However, subsection 9-10(3A) the GST Act specifically provides that the supply takes place when delivery is made regardless of when the title passes.

Subsection 9-10(3A) of the GST Act states:

For the avoidance of doubt, the delivery of:

(a) livestock for slaughtering or processing into *food; or

(b)     game for processing into *food;

under an arrangement under which the entity making the delivery only relinquishes title after food has been produced, is the supply of the livestock or game (regardless of when the entity relinquishes title). The supply does not take place on or after the subsequent relinquishment of title.

The Revised Explanatory Memorandum to the Indirect Tax Legislation Amendment Bill 2000 that introduced subsection 9-10(3A) into the GST Act provides, relevantly:

Delivery of livestock or game

11.4 Livestock or game is not food, as defined by Subdivision 38-A, and its supply is not GST-free. Therefore, under the basic rules, the supply of livestock or game is a taxable supply.

11.5 Some arrangements for the delivery of livestock or game (for slaughtering or processing into food) state that title does not pass until after food has been produced. The purported effect of these arrangements is that the supply is postponed until it is a supply of food and GST-free under Subdivision 38-A. These arrangements are contrary to the Government's intention that, as far as practicable, farmers should be in a position to sell their produce subject to GST.

11.6 Item 3 inserts new subsection 9-10(3A) to make it clear that under these arrangements, the delivery of livestock is a supply under the GST Act. The supply takes place when delivery is made and not when title passes. It does not matter that the delivery is of livestock but the passing of title may relate to a carcass and by-products.

11.7 Therefore, any arrangement for the delivery of livestock or game for slaughtering or processing into food is a supply of livestock or game. It does not matter when title is relinquished under contract. This supply of livestock or game is a taxable supply. This will cover arrangements where, for example, livestock is either delivered to a processor directly or to another party who then has it processed.

Goods and Services Tax Ruling GSTR 2006/9 Goods and services tax: supplies, examines the meaning of 'supply' in the GST Act. In relation to subsection 9-10(3A) of the GST Act the ruling states:

Subsection 9-10(3A)

43. Subsection 9-10(3A) is an 'avoidance of doubt' provision. It provides that the delivery of livestock for slaughtering or processing into food, or of game for processing into food under an arrangement under which title does not pass until after food has been produced, is the supply of livestock or game.

44. In identifying the thing supplied, and in emphasising that the supply does not take place on or after the subsequent relinquishment of title, subsection 9-10(3A) clarifies both the time and character of the supply.

Accordingly, as provided by subsection 9-10(3A) of the GST Act, you make a supply of livestock when you deliver the livestock for slaughter or processing even if title does not pass to the buyer until after food has been produced.

As the supply of livestock is excluded from the definition of 'food' in section 38-4 of the GST Act, the supply is not GST-free. The supply is a taxable supply under section 9-5 of the GST Act.