ATO ID 2001/271: GST and Certified seed potatoes
Date of decision: 26 July 2000
Business line: Indirect Tax

Issue
Is the entity, a farmer, making a GST-free supply under section 38-2 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), when it supplies certified seed potatoes to another farmer to use to grow potato crops?

Decision
No, the entity is not making a GST-free supply under section 38-2 of the GST Act when it supplies certified seed potatoes to another farmer to use to grow potato crops. The entity is making a taxable supply under section 9-5 of the GST Act.

Facts
The entity, a farmer, grows seed potatoes. The entity sells the seed potatoes to another farmer as seed for their next crop. The seed potatoes are sold as certified seed potatoes. They are potatoes that are grown under special conditions to ensure that they are disease free and have a high purity level. A certified seed potato crop is differentiated from other potato crops in that it is grown in accordance with a system of management protocols and is subjected to crop health checks determined by the certification authority. When harvested, the seed potatoes are visually no different from any other potatoes of the same variety, however they are able to be labelled as certified seed potatoes and generally attract a premium price if sold for seed purposes. The entity is registered for goods and services tax (GST). The supply meets the other positive limbs of section 9-5 of the GST Act.

Reasons for decision
Summary: Under section 38-2 of the GST Act a supply of 'food' is GST-free. Subsection 38-4(1) of the GST Act sets out what amounts to food for the purposes of section 38-2 of the GST Act. Of most relevance to this case is paragraph 38-4(1)(a) of the GST Act which provides that food includes 'food for human consumption (whether or not requiring processing or treatment)'. Therefore, the issue at hand is whether the certified seed potatoes are considered to be 'food for human consumption' under paragraph 38-4(1)(a) of the GST Act. The certified seed potatoes are sold to another farmer as seed for their next crop. Furthermore, the certified seed potato crop is differentiated from other potato crops and is labelled as 'certified seed potatoes'. As the certified seed potatoes are sold for the purposes of growing potato crops, they are not considered to be food for human consumption for the purposes of paragraph 38-4(1)(a) of the GST Act. Therefore, the supply of seed potatoes to another farmer to use to grow potato crops is not GST-free under section 38-2 of the GST Act. The entity is registered for GST and the supply satisfies the other positive limbs of section 9-5 of the GST Act. Furthermore, the supply is neither GST-free under Division 38 of the GST Act nor input taxed under Division 40 of the GST Act. Therefore, the entity is making a taxable supply under section 9-5 of the GST Act.

Legislative references: A New Tax System (Goods and Services Tax) Act 1999 section 9-5 Division 38 section 38-2 subsection 38-4(1) paragraph 38-4(1)(a) Division 40
Other references: Food Industry Issues Register - Issue No.17
Subject references: Goods & services tax GST free GST food Food for human consumption GST primary production Taxable supply