ATO ID 2001/450: GST and lactose used in home brewing
Date of decision: 11 September 2001
Business line: Indirect Tax

Issue
Is the entity, a supplier of home brew products, making a GST-free supply under section 38-2 of the A New Tax System (Goods & Services Tax) Act 1999 (GST Act), when it supplies lactose as an ingredient for making alcoholic home brew?

Decision
Yes, the entity is making a GST-free supply under section 38-2 of the GST Act when it supplies lactose as an ingredient for making alcoholic home brew.

Facts
The entity is a supplier of home brew products. The entity sells lactose that is packaged, labelled and sold for use in making alcoholic home brew. The entity is registered for goods and services tax (GST).

Reasons for decision
Summary: Generally, a supply of food is GST-free under section 38-2 of the GST Act provided that it does not come within any of the exclusions listed in section 38-3 of the GST Act. Food is defined in paragraph 38-4(1)(d) of the GST Act to include ingredients for beverages for human consumption. In this case, lactose is used as an ingredient to make alcoholic home brew. Therefore, it falls within the definition of food as it is an ingredient for a beverage for human consumption. However, 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). Lactose is listed at item 3 of Schedule 2. It is irrelevant whether the lactose is sold for use in making an alcoholic or non-alcoholic beverage. Accordingly, the entity is making a GST-free supply under section 38-2 of the GST Act when it supplies lactose as an ingredient for beverages for human consumption.

Legislative references: A New Tax System (Goods & Services Tax) Act 1999 section 38-2 section 38-3 paragraph 38-3(1)(d) paragraph 38-4(1)(d) Schedule 2 clause 1 Schedule 2 clause 1 table item 3
Related ATO interpretative decisions: ATO ID 2001/438 | ATO ID 2001/439 | ATO ID 2001/440 | ATO ID 2001/441 | ATO ID 2001/442 | ATO ID 2001/450
Other references: Food Industry Issues Register - Issue 24
Subject references: Goods & services tax GST free GST food Food for human consumption GST beverages Ingredients for beverages Taxable supply