Private ruling: GST and two food products
Published: December 2012

Ruling: Q1: Are the two products considered to be food for the purposes of the A New Tax System (Good and Services Tax) Act 1999 (GST Act)? | A1: Yes. | Q2: If yes, is your supply of the two products a GST-free supply under section 38-2 of the GST Act)? | A2: No.

Relevant facts and circumstances: You are an Australian based company. You are registered for the goods and services tax (GST). You import and sell two separate food products. Both of the products come in powder form. The products have to be added to a food/beverage to be consumed. The products are ready for human consumption either with other food stuffs or flavours can be added by the consumers at the time of consumption. You advise that the products are consumed to supplement protein in a person's diet. They are mainly for people who do not get enough protein from food, or for example, are vegetarians. You advise that the products can be added to a variety of meals, such as cereals, or consumed as a beverage by adding to water/juice/milk etc. prior to consumption. The products can be the protein portion of a meal replacement formula. You advise that the products could be consumed on their own but would not be very pleasant. You import the products in bulk and then sell to wholesalers and retailers. You advise that all your customers are registered businesses. You advise that you do not market the products as you only sell to other companies and not end consumers. You have provided a sample of the products.

Relevant legislative provisions: A New Tax System (Goods and Services Tax) Act 1999 Section 38-2 | A New Tax System (Goods and Services Tax) Act 1999 Section 38-3 | A New Tax System (Goods and Services Tax) Act 1999 Section 38-4

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. The definition of food in section 38-4 of the GST Act includes (amongst other things), food for human consumption, whether or not requiring processing or treatment (paragraph 38-4(1)(a) of the GST Act), ingredients for food for human consumption (paragraph 38-4(1)(b) of the GST Act), and ingredients for beverages for human consumption (paragraph 38-4(1)(d) of the GST Act). You advise that the products are foods for human consumption and are consumed by adding to a variety of food and that they can also be mixed with milk, water or juice and then consumed. Accordingly, both of the products satisfy the definition of food contained in section 38-4 of the GST Act. Therefore, to determine the primary use of the products it is necessary to refer to the Australian Taxation Office (ATO) view concerning the 'essential character' test of a product. The Food Industry Partnership - Issues Register on the ATO website, which is considered to be the ATO view, provides that, in certain circumstances it is necessary to adopt the 'essential character' test to assist in determining the GST classification of a product. The Food Industry Partnership - Issues Register states: "...It is therefore relevant to use the 'essential character' test adopted under the former wholesale sales tax regime. The Australian Taxation Office adopts the view that the essential character of goods assists in determining their GST classification. This involves ascertaining what the goods essentially are, as distinct from merely identifying one of a number of characteristics the goods might have. This approach relies upon deciding what is the basic nature of the goods and involves consideration of what the goods are made of and what they might be used for. …" Determining the classification of a product was also discussed in the Federal Court case Lansell House Pty Ltd & Anor v FC of T 2010 ATC20-173 (Lansell). At paragraph 16 of the Lansell judgement the Court stated: 16. The primary judge said at [108] that classification decisions for GST tax purposes are often prescribed as questions of fact and degree, a matter of impression and a combination of fact-finding and evaluative judgment. When classifying the products it is therefore necessary to adhere to the ATO view. Taking that into consideration, we have looked at all the facts you have provided, ascertaining what the products essentially are and what they might be used for, together with information available in the market. You advise that the products can be added to a variety of food or consumed as a beverage by adding to water/juice/milk etc. prior to consumption. Therefore the products you supply can be used as a substitute to take the place of food and are also used as an ingredient for a beverage. It is generally accepted in the market that the products are predominately used as ingredients for beverages. Therefore it is in this context, that is, that the products are an ingredient for a beverage for human consumption, that we will consider the correct classification of your products. As explained above, 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. Therefore, even though a supply of food may be GST-free under section 38-2 of the GST Act, it may be excluded from being GST-free because of section 38-3 of the GST Act. Paragraph 38-3(1)(d) of the GST Act provides that 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). Therefore, if a beverage or an ingredient for a beverage is not specified in Schedule 2 of the GST Act, it will not be GST-free. The products are not a beverage or an ingredient for a beverage of a kind specified in Schedule 2. Therefore, as the products are not items listed in Schedule 2 to the GST Act, they are excluded from being GST-free as beverages or ingredients for beverages under section 38-3 of the GST Act. In your case, you are registered for GST and the supply you make of the products satisfies the other positive limbs of a taxable supply under 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 the products is a taxable supply under section 9-5 of the GST Act. Thus, you are not making a GST-free supply under section 38-2 of the GST Act when you make a supply of the products. Non taxable importation Section 13-10 of the GST Act provides that an importation is a non-taxable importation if: · it is a non-taxable importation under Part 3-2 of the GST Act, or · it would have been a supply that was GST-free or input taxed if it had been a supply (for example, it would be a GST-free supply had the supply been made in Australia). In your case, as your supply of the products in Australia will not be GST-free and will be taxable under the GST Act, it will be a taxable importation under the GST legislation. However, we note that Australian Customs and Border Protection Service administer importations of products into Australia. Generally, Customs would treat the importation of taxable food products as a taxable importation, however, you would need to contact Customs as to how they would treat the importation for GST purposes under their legislation. Please note, that if you supply the products specifically to be used as food for human consumption or ingredients for food for human consumption only and the facts concerning your supply differ from those that you have provided in this instance, the GST status of the supply may change.

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