ATO ID 2004/496: GST and lye water
Date of decision: 26 May 2003
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 lye water?

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

Facts
The entity is a food supplier. The entity supplies lye water in bottles. The product is diluted with water to make a solution. This solution is used to refresh dried seafood before cooking. Food needs to be rinsed to remove the lye water solution before cooking. The ingredients are: water, potassium carbonate and sodium bi-carbonate. 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 food for human consumption. The lye water is used as a solution to refresh dried seafood before cooking. The food needs to be rinsed to remove the lye water solution before cooking. Although the lye water is applied to the food it is rinsed off before the food is cooked and as such is not an ingredient for that food. Accordingly, the lye water is not considered to be an ingredient for food for human consumption. As lye water does not come within the meaning of 'food' in section 38-4 of the GST Act, it 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 any other provision of 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 lye water.

Legislative references: A New Tax System (Goods and Services Tax) Act 1999 section 9-5 section 38-2 section 38-3 section 38-4 Division 38 Division 40
Subject references: Goods and services tax GST food Ingredients for food Taxable supply