Private ruling: GST and flavoured syrups
Published: August 2013

Ruling: Q1: Is your supply of flavoured syrups (the syrups) GST-free when they have a mixed use (i.e. in desserts, topping and added to beverages)? | A1: Yes. | Q2: If the supply of the syrups is GST-free, is there a point at which the supply of the syrups becomes taxable? | A2: Yes. Where the syrups are labelled and marketed primarily or exclusively as a beverage or an ingredient for a beverage, the supply of the syrups will be taxable.

Relevant facts and circumstances: ● You are registered for the goods and services tax (GST). ● You have a range of flavoured syrup products to be launched. ● The syrups have been designed as dessert syrups and it is your intention that they be sold through the dessert aisle of a supermarket, although (you advise) you realise you have no control of supermarket placement of your product. ● It is your marketing preference to promote all possible uses of the products. ● You have provided images of labels for each of the syrups. ● You believe that the syrups will be GST-free provided they are not exclusively marketed as flavoured syrups for beverages.

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 | A New Tax System (Goods and Services Tax) Act 1999 Schedule 2

Reasons for decision: Detailed Reasoning - 1. Is your supply of the flavoured syrups (the syrups) GST-free when they have a mixed use (i.e. in desserts, topping and added to beverages)?: 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 subsection 38-4(1) of the GST Act to include ingredients for food for human consumption (paragraph 38-4(1)(b) of the GST Act), ingredients for beverages for human consumption (paragraph 38-4(1)(d) of the GST Act) and goods to be mixed with or added to food for human consumption (paragraph 38-4(1)(e) of the GST Act). An explanation of goods to be mixed with or added to food for human consumption is provided under paragraph 38-4(1)(e) of the GST Act. It provides that the products included in paragraph 38-4(1)(e) of the GST Act include: ● condiments ● spices ● seasonings ● sweetening agents ● flavourings In your case, the syrups satisfy the definition of food under section 38-4 of the GST Act as they satisfy the definition of goods to be mixed with or added to food for human consumption under paragraph 38-4(1)(e) of the GST Act. Although the definition of food in the GST Act includes in its definition ingredients for beverages for human consumption, under paragraph 38-3(1)(d) of the GST Act, a beverage (or ingredients for beverages) are excluded from being GST-free unless they are of a kind specified in the table in clause 1 of Schedule 2 to the GST Act (Schedule 2). Schedule 2 does not specify flavoured syrups as a beverage or an ingredient for a beverage as being GST-free. Further guidance regarding the GST status of foods for human consumption is outlined in the ATO public ruling 'Detailed Food List'. The details on flavoured syrups from the Detailed Food List are as follows: Items GST status Notes syrups (such as maple syrup and ice-cream topping) for flavouring food GST-free Condiment. Paragraph 38-4(1)(e) of the GST Act applies. syrups for use only to flavour beverages Taxable Not a beverage of a kind specified in Schedule 2 of the GST Act. toppings (such as maple syrup and ice-cream topping) for flavouring food GST-free Condiment. Paragraph 38-4(1)(e) of the GST Act applies The Detailed Food List provides that syrups whose exclusive use is as a condiment for food would be GST-free, whilst syrups for use only to flavour beverages would be taxable. However, in your case, your supply of the syrups have a dual purpose, that is, they are used as goods to be mixed with or added to food and can be an ingredient for beverages. An approach the ATO has adopted when determining whether a product is an ingredient for food or an ingredient for a beverage, is that it is important to determine the essential character of the product. 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 the basic nature of the goods is and involves consideration of what the goods are made of and what they might be used for. The supplier must determine whether the product is held out for sale as an ingredient for food or an ingredient for a beverage. Where a product is supplied as a GST-free ingredient for food, the fact that it could be used as an ingredient for a beverage does not change the GST-free status of the product supplied. The supplier does not need to ascertain how a customer will use the product. However, where a product is differentiated and held out for sale as an ingredient for a beverage, GST will apply unless the ingredient is of a kind included in Schedule 2. In your case, the labelling on the syrups describe them as, flavoured or infused syrups that can be added to beverages. Your labelling does not emphasise the syrups' use as an ingredient for a beverage. For example, there are no pictures/graphics on the labels that show the syrups being used as an ingredient in a beverage, such as may be the case of coffee syrups or similar. You also intend to market the syrup as a dessert syrup (although you realise that you have no control of supermarket placement of your product). The use of your syrup in adding it to a beverage is not considered to be the principal use of the product. Given this, it can be considered that the product's use is primarily that of an ingredient for food. Given the labelling and marketing of your products, we consider that your syrups are a condiment added for the taste or flavour of food and are not excluded from being GST-free by section 38-3 of the GST Act. Thus, your supply of the syrups will be GST-free. | Detailed Reasoning - 2. If the supply of the syrups is GST-free, is there a point at which the syrups become taxable?: As discussed above in Question 1, a supply of food is GST-free if the product satisfies the definition of food in the GST Act and the supply is not excluded from being GST-free under the GST Act. Food is defined in the GST Act to include ingredients for beverages for human consumption. However a beverage or ingredients for a beverage are excluded from being GST-free unless they are of a kind specified in Schedule 2. Schedule 2 does not specify flavoured syrups as a beverage or an ingredient for beverages as being GST-free. The Detailed Food List also confirms that syrups for use only to flavour beverages are not a beverage of a kind specified in Schedule 2. Therefore, where the syrups are marketed and labelled for use primarily or exclusively as an ingredient only to flavour beverages, they will be excluded from being GST-free under paragraph 38-3(1)(d) of the GST Act and therefore would be taxable.

This notice must not be taken to imply anything about: | ● the binding nature of the private advice issued to the applicant | ● the correctness of other edited versions.