Private ruling: GST and supply of food additives
Date of advice: 6 November 2018
Published: March 2019

Ruling: Q1: Is the supply of the Product GST-free pursuant to section 38-2 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)? | A1: Yes. | Q2: Is the importation of the Product a non-taxable importation under paragraph 13-10(b) of the GST Act? | A2: Yes.

Relevant facts and circumstances: The Product is a mixture of a number of minerals manufactured overseas. The Product is a food additive ingredient for food for human consumption. The Product has a European Economic Community Additive Number and is manufactured in compliance with European Union Commission Regulation for food additives. The Product is packaged and sold to you in bulk containers. You do not market, promote or sell the Product on itself. The Product is a preservative and you use it as a food additive ingredient in the manufacture of your products. You provided a copy of a product data sheet and product information which shows the product is used in the manufacture of food.

Relevant legislative provisions: A New Tax System (Goods and Services Tax) Act 1999 Section 13-5. | A New Tax System (Goods and Services Tax) Act 1999 Paragraph 13-10(b). | 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 Subsection 38-3(1). | A New Tax System (Goods and Services Tax) Act 1999 Paragraph 38-3(1)(e). | A New Tax System (Goods and Services Tax) Act 1999 Section 38-4. | A New Tax System (Goods and Services Tax) Act 1999 Paragraph 38-4(1)(b). | A New Tax System (Goods and Services Tax) Regulations 1999 Regulation 38-3.02. | A New Tax System (Goods and Services Tax) Regulations 1999 Subregulation 38-3.02(1). | A New Tax System (Goods and Services Tax) Regulations 1999 Subregulation 38-3.02(2).

Reasons for decision: Detailed Reasoning - Question 1: The supply of the Product would have been GST-free under section 38-2 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act). | Detailed Reasoning - Question 2: The importation of the Product is a non-taxable importation under paragraph 13-10(b) of the GST Act. | Detailed Reasoning - Detailed reasoning: You do not market, promote or sell the Product on itself. You import the Product for use in manufacturing your products. Before we can determine the GST implications of the importation of Product, we must first determine if had it been a supply, the supply would have been GST-free. | Detailed Reasoning - Question 1: 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 Product is used in the production of your products. It is a preservative. The Product is considered to be an ingredient for food for human consumption for the purposes of the GST Act and therefore, satisfies the definition of food under paragraph 38-4(1)(b) of the GST Act. However, under paragraph 38-3(1)(e) of the GST Act, a supply is not GST-free if it is food of a kind specified in regulations made for the purposes of subsection 38-3(1) of the GST Act. Regulation 38-3.02 of the A New Tax System (Goods and Services Tax) Regulations 1999 (GST Regulations) applies to food additives. This regulation gives effect to paragraph 38-3(1)(e) of the GST Act and determines those foods that are not GST-free. Subregulation 38-3.02(1) of the GST Regulations states that food additives, other than exempt food additives, are not GST-free. Although the term 'food additive' is used in the regulation, it is not defined elsewhere in the GST Act. Issue 11 of the Food Industry Partnership – issues register discusses whether food additives are GST-free under section 38-2 of the GST Act and it states: The word 'additive' is defined in The Macquarie Dictionary (3rd edition, 1997) to mean '…3. a substance added to a product, usually to preserve or improve its quality'. Examples of products that are considered to be food additives for GST purposes include: ● colourings ● flavourings ● preservatives ● antioxidants ● sweeteners ● vitamins ● minerals ● modifying agents (vegetable gums, mineral salts, food acids, emulsifiers, humectants, thickeners) Some of these additives fall within the term 'ingredient for food for human consumption' as stated in paragraph 38-4(1)(b), whilst others are specifically included in paragraph of the GST Act as 'goods to be mixed with or added to food for human consumption'. The Product is a preservative and comes within the definition of ‘additive’. It is therefore a food additive for GST purposes. Subregulation 38-3.02(2) of the GST Regulations outlines the requirements for an additive to be an 'exempt food additive', the supply of which is GST-free. To be an exempt food additive the product must be: (a) a food additive which, at the time of supply is packaged and marketed for retail sale; or (b) a food additive which, at the time of supply: ● has a measurable nutritional value ● is supplied for use solely or predominantly in the composition of food, and ● is essential to the composition of that food. The Product is not packaged or marketed for retail sale but packaged and sold to you in bulk containers. Hence, The Product is not an exempt food additive under paragraph 38-3.02(2)(a) of the GST Regulations. However if a food additive is not supplied at the retail level then it must have a measurable nutritional value, be supplied for use solely or predominantly in the composition of food and it must be essential to the composition of that food. These three tests are intended to limit the application of the GST-free provisions to food additives that play an integral part in the make-up of food. Although the term 'measurable nutritional value' is used in the GST Regulations, it is not defined in the GST Act. The ATO will accept that a product has measurable nutritional value for the purposes of the regulation where the nutritional information is prepared in accordance with the Relevant Standards Code, and that information contains any measured values of nutrition (such as sugars, protein, fat or carbohydrates). Similarly, the term 'essential' is used in the GST Regulation and is not defined in the GST Act. The ATO will accept that a product is essential to an item of food where it is manufactured specifically for use in foods. A supply of substances which have only an incidental use in the composition of food but are generally manufactured for other commercial purposes will be subject to GST. We consider that the Product is an exempt food additive under paragraph 38-3.02(2)(b) of the GST Regulations because: ● it is a food grade product used in the manufacture of your products as a preservative ● it contains ingredients having measurable nutritional value ● it is supplied for use solely or predominantly in the composition of food, and ● we accept for the purposes of the GST Regulations, it is essential to the composition of food as it is manufactured specifically for use in foods . Hence, the Product is not food of a kind specified for the purposes of paragraph 38-3(1)(e) of the GST Act. In addition, the supply of the Product does not fall within any of the other exclusions in section 38-3 of the GST Act. Therefore, had it been a supply, the supply of the Product would have been GST-free under section 38-2 of the GST Act. | Detailed Reasoning - Question 2: GST is payable on all taxable importation of goods into Australia. Section 13-5 of the GST Act provides that an entity makes a taxable importation if: ● goods are imported and ● the entity enters the goods for home consumption within the meaning of the Customs Act 1901 . However, an importation is not a taxable importation to the extent that it is a non-taxable importation. Paragraph 13-10(b) of the GST Act provides that an importation is a non-taxable importation to the extent that, had it been a supply, the supply would have been a GST-free or input taxed supply. As discussed in Question 1 above, the Product is an ingredient for food for human consumption and is an exempt food additive. Hence, had it been a supply, the supply of the Product would have been GST-free under section 38-2 of the GST Act. Therefore, the importation of the Product is a non-taxable importation under paragraph 13-10(b) of the GST Act.