ATO ID 2003/1181: GST and yoghurt drink powder
Date of decision: 20 June 2002
Business line: Indirect Tax

Issue
Is the entity, a food supplier, 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 yoghurt drink powder?

Decision
No, the entity is not making a GST-free supply under section 38-2 of the GST Act when it supplies yoghurt drink powder. The entity is making a taxable supply under section 9-5 of the GST Act.

Facts
The entity is a food supplier. The entity is supplying yoghurt drink powder. The yoghurt drink powder is a powdered ingredient that can be mixed with water, milk or soy milk to make a yoghurt drink. The product is not marketed for the purpose of flavouring milk. It is marketed as a yoghurt drink powder and the directions for use indicate that it can also be added to cold water rather than milk. The entity is registered for goods and services tax (GST). The supply satisfies the other positive limbs of section 9-5 of the GST Act.

Reasons for decision
Summary: 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 to include ingredients for beverages for human consumption (paragraph 38-4(1)(d) of the GST Act). The yoghurt drink powder is an ingredient for a beverage for human consumption and therefore satisfies the definition of food in paragraph 38-4(1)(d) of the GST Act. However, paragraph 38-3(1)(d) of the GST Act provides that ingredients for beverages are only GST-free if they are of a kind specified in the table in clause 1 of Schedule 2 to the GST Act (Schedule 2). Item 9 in Schedule 2 (Item 9) lists dry preparations marketed for the purpose of flavouring milk. The product is not marketed for the purpose of flavouring milk. It is marketed as a yoghurt drink powder and the directions for use indicate that it can also be added to cold water rather than milk. As such, the yoghurt drink powder is not covered by Item 9. There are no other items in Schedule 2 that would cover yoghurt drink powder. Therefore, the entity is not making a GST-free supply under section 38-2 of the GST Act when it sells yoghurt drink powder. 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 any other provision in 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 when it supplies yoghurt drink powder.

Legislative references: A New Tax System (Goods and Services Tax) Act 1999 section 9-5 Division 38 section 38-2 section 38-3 paragraph 38-3(1)(d) section 38-4 paragraph 38-4(1)(d) Division 40 Schedule 2 clause 1 Schedule 2 clause 1 table item 9
Subject references: Goods and services tax GST free GST food Ingredients for beverages Taxable supply