ATO ID 2002/224: GST and whey protein powder
Date of decision: 28 September 2001
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 whey protein powder?

Decision
No, the entity is not making a GST-free supply under section 38-2 of the GST Act when it supplies whey protein 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 supplies whey protein powder. The whey protein powder is a derivative of whey. The whey protein powder contains a large amount of protein and also contains flavouring. The instructions for consumption of the product state that the whey protein powder can be mixed with either milk, water or any other liquid and consumed as a beverage. The product is marketed as a tool for use in muscle and strength building and is designed for consumption by people seeking a healthy, high protein, low carbohydrate diet. The entity is registered for goods and services tax (GST). The supply satisfies all of 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 it satisfies the definition of food in section 38-4 of the GST Act and it does not come within any of the exclusions listed in section 38-3 of the GST Act. The meaning of food in section 38-4 of the GST Act includes ingredients for beverages for human consumption (paragraph 38-4(1)(d) of the GST Act). The product is mixed with milk, water or any other liquid and then consumed. Therefore, the whey protein powder is an ingredient for a beverage for human consumption. Therefore, the whey protein powder satisfies the definition of food contained in paragraph 38-4(1)(d) of the GST Act. However, under paragraph 38-3(1)(d) of the GST Act, a supply of a beverage is not GST-free unless it is a beverage, or an ingredient for a beverage, of a kind specified in the table in clause 1 of Schedule 2 to the GST Act (Schedule 2). Whey protein powder is not specifically listed in Schedule 2. As such, it must be determined whether whey protein powder is an ingredient of a kind specified in Schedule 2. The items from Schedule 2 that are of relevance are: In relation to item 1(c) in Schedule 2 (Item 1(c)), the terms 'whey', 'whey powder' and 'whey paste' are not defined in the GST Act. Therefore, it is necessary to rely on the ordinary meanings of those words. The Macquarie Dictionary (1997) defines 'whey' as 'milk serum, separating as a watery liquid from the curd after coagulation, as in cheese making'. Accordingly, 'whey powder' and 'whey paste' are taken to be the powdered and paste versions of this substance. The product in question is described as 'whey protein powder'. Therefore, it must be determined whether 'whey protein powder' is the same as 'whey powder'. Where a word or phrase has a special or technical meaning, it is necessary to determine that meaning by reference to the industry to which that word or phrase relates ( Herbert Adams Pty Ltd v. FCT (1932) 47 CLR 222). 'Whey powder' is produced after whey is concentrated (via reverse osmosis or evaporation) and dried (via spray or roller). However, to produce 'whey protein powder', whey must be submitted to a far more complex process in order to isolate and extract the protein from the whey. The whey must undergo precipitation by polyelectrolytes, centrifugation or filtration, separation of precipitation reagents, concentration by evaporation, and spray drying. 'Whey powder' is a complete whey product whereas 'whey protein powder' is one derivative of whey. Therefore, although both products come from the same source (whey), they are produced differently and ultimately possess different characteristics. Accordingly, the 'whey protein powder' is not an ingredient 'of a kind' listed in Item 1(c). In relation to item 9 of Schedule 2 (Item 9), it is necessary to determine whether whey protein powder is a dry preparation marketed for the purpose of flavouring milk. Although the whey protein powder contains flavouring, it not marketed for the purpose of flavouring milk; rather, it is marketed as a muscle and strength building product. As such, the whey protein powder is not covered by Item 9. Although whey protein powder is an ingredient for a beverage, it is not an ingredient of a kind specified in Schedule 2. Therefore, the entity is not making a GST-free supply under section 38-2 of the GST Act when it sells whey protein 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 Division 38 of the GST Act nor input taxed under Division 40 of the GST Act. Therefore, the supply of whey protein powder is 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 section 38-3 paragraph 38-3(1)(d) section 38-4 paragraph 38-4(1)(c) Division 40 Schedule 2 clause 1 Schedule 2 clause 1 table item 1 paragraph (c) Schedule 2 clause 1 table item 9
Case references: Herbert Adams Pty Ltd v. FCT 47 CLR 222
Other references: The Macquarie Dictionary, 1997, 3rd Edition, The Macquarie Library Pty Ltd, New South Wales
Subject references: Goods & services tax GST free GST food Ingredients for beverages GST supplies & acquisitions Taxable supply