ATO ID 2005/272: GST and lecithin supplied as a food emulsifier
Date of decision: 26 November 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 sells lecithin as a food emulsifier?

Decision
Yes, the entity is making a GST-free supply under section 38-2 of the GST Act when it sells lecithin as a food emulsifier.

Facts
The entity is a food supplier. The entity sells lecithin and soy lecithin (derived from eggs and soybeans respectively) as a food emulsifier. The entity sells the lecithin in bulk and not for retail sale. As a food emulsifier, the lecithin is used in the production of a variety of foods as it helps mix fats with water and keeps them from separating. The lecithin contains measurable amounts of various ingredients including lipids (fats), trace elements and carbohydrates. The entity is registered for goods and services tax (GST).

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 food for human consumption under paragraph 38-4(1)(b) of the GST Act. Lecithin as a food emulsifier is an ingredient for food for human consumption and therefore satisfies the definition of food. However, under paragraph 38-3(1)(e) of the GST Act, a supply is not GST-free if it is food of a kind specified in regulations made for the purposes of subsection 38-3(1) of the GST Act. Regulation 38-3.02 of the A New Tax System (Goods and Services Tax) Regulations 1999 (GST Regulations), effective from 1 December 2001, deals with food additives. This Regulation gives effect to paragraph 38-3(1)(e) of the GST Act and determines those foods that are not GST-free. Subregulation 38-3.02(1) of the GST Regulations provides that food additives, other than exempt food additives, are not GST-free. Although the term 'food additive' is used in the regulation, it is not defined elsewhere in the GST Act. The word 'additive' is defined in The Macquarie Dictionary , 2001, rev. 3rd edn, The Macquarie Library Pty Ltd, NSW to mean '...a substance added to a product, usually to preserve or improve its quality'. As a food emulsifier, lecithin helps mix fats with water and keeps them from separating. Therefore, the lecithin improves the quality of food to which it is added and is a 'food additive' for GST purposes. Subregulation 38-3.02(2) of the GST Regulations outlines the requirements for an additive to be an 'exempt food additive', the supply of which is GST-free. Under paragraph 38-3.02(2)(a) of the GST Regulations, a food additive which, at the time of supply, is packaged and marketed for retail sale is an exempt food additive. The entity sells the lecithin in bulk and not for retail sale. As such, the lecithin is not an exempt food additive under paragraph 38-3.02(2)(a). To be an exempt food additive under paragraph 38-3.02(2)(b) of the GST Regulations, the lecithin must: The lecithin contains measurable amounts of various ingredients including lipids (fats), trace elements and carbohydrates. Therefore, the lecithin product has a measurable nutritional value for GST purposes. The entity supplies the lecithin as a food emulsifier. The lecithin is used in the production of a variety of foods to mix fats with water and to keep them from separating. Therefore, lecithin supplied as a food emulsifier is used solely or predominantly in the composition of food. For the purposes of the GST regulations, it is accepted that a product is 'essential' to an item of food where it is manufactured specifically for use in foods. The lecithin is a food emulsifier and therefore, is essential to the composition of food. Accordingly, lecithin supplied as a food emulsifier, is an exempt food additive under paragraph 38-3.02(2)(b) of the GST Regulations and it is not food of a kind specified for the purposes of paragraph 38-3(1)(e) of the GST Act. In addition, the supply of the entity's lecithin product does not fall within any of the other exclusions in section 38-3 of the GST Act. Therefore, the entity is making a GST-free supply under section 38-2 of the GST Act when it supplies lecithin as a food emulsifier.

Legislative references: A New Tax System (Goods and Services Tax) Act 1999 section 38-2 section 38-3 section 38-3(1) paragraph 38-3(1)(e) section 38-4 paragraph 38-4(1)(b)
Other references: The Macquarie Dictionary, 2001, rev. 3rd edn, The Macquarie Library Pty Ltd NSW
Subject references: Goods and services tax GST free GST food Food additives Food for human consumption Ingredients for food