ATO ID 2003/425: GST and malted milk powder
Date of decision: 30 January 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 sells malted milk powder marketed solely as a preparation for malted beverages?

Decision
Yes, the entity is making a GST-free supply under section 38-2 of the GST Act when it sells malted milk powder marketed solely as a preparation for malted beverages.

Facts
The entity is a food supplier. The entity is selling malted milk powder. Malted milk powder can be used to make malted beverages. Malted milk powder can also be used as an ingredient for confectionery. However, the entity markets the malted milk powder solely as a preparation for malted beverages. 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: As malted milk powder can be used as an ingredient both for confectionery and malted drinks, it falls within the definition of food. However, under paragraph 38-3(1)(c) of the GST Act, a supply of food is not GST-free if it is food of a kind that is specified in clause 1 of Schedule 1 to the GST Act (Schedule 1). Item 8 of Schedule 1 (Item 8) provides that food marketed as ingredients for confectionery is not GST-free. Although malted milk powder can be used as an ingredient for confectionery, the entity markets the malted milk powder solely as a preparation for malted beverages. Therefore, the malted milk powder does not fall within Item 8. Under paragraph 38-3(1)(d) of the GST Act, the supply of an ingredient for a beverage is only GST-free if it is an ingredient of a kind specified in the table in clause 1 of Schedule 2 to the GST Act (Schedule 2). Item 7 of Schedule 2 (Item 7) specifies preparations that are marketed principally as preparations for malted beverages. The entity markets the malted milk powder solely as a preparation for malted beverages. Therefore, the malted milk powder is an ingredient for a beverage of a kind specified in Item 7. Furthermore, the supply of the malted milk powder 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 sells malted milk powder marketed solely as a preparation for malted beverages.

Legislative references: A New Tax System (Goods and Services Tax) Act 1999 section 38-2 section 38-3 paragraph 38-3(1)(c) paragraph 38-3(1)(d) section 38-4 paragraph 38-4(1)(b) paragraph 38-4(1)(d) Schedule 1, clause 1 Schedule 1, clause 1, table item 8 Schedule 2, clause 1 Schedule 2, clause 1, table item 7
Related ATO interpretative decisions: ATO ID 2001/324 | ATO ID 2001/451
Subject references: Goods & services tax GST free GST food Ingredients for beverages