Private ruling: GST and food
Date of advice: 19 August 2016
Published: September 2016
Ruling period: 1/07/2015 to 30/06/2016

Ruling: Q1: Is there a GST liability on the supply of your product X? | A1: No. The supply of X is GST-free.

Relevant facts and circumstances: You are registered for GST. You manufacture X, which you describe on your website as a delicious tasting X tea made from quality herbs in Australia. Various ingredients are combined for a taste sensation. X is mostly enjoyed as a hot or cold tea preparation - just add to water, and let infuse for 2-3 minutes. It should not be used to treat medical conditions'. X is not a health supplement for health, therapeutic or medicinal purposes and is not advertised as such on your website, the packaging or promotional material. You sell X as a tea made from a blend of spices and ingredients. The primary purpose of X is not stated to address a deficiency in food quality or promote health benefits of its nutrients. Its purpose is to provide a delicious tasting X tea to quench thirst. There is no reference to specific nutrients on the packaging but there is mention of it on the website for promotional purposes analogous to antioxidants in tea products. It is sold as a powdered tea blend making it easier for consumers to prepare to their taste preferences. It is prepared by mixing a serving of the product with hot water (or cold water) and leaving to infuse for 1-2 minutes. X is promoted online and occasionally at food festivals and events. It is available for purchase from these stockists: • Supermarkets and grocery stores • Health stores • Special events - markets, fairs, food festivals • Online The majority of X sales occur via physical retail outlets. It is sold as a delicious tasting powdered tea to be prepared wherever customers like to drink their tea.

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 - paragraph 38-4(1)(c) | A New Tax System (Goods and Services Tax) Act 1999 - Schedule 2 | A New Tax System (Goods and Services Tax) Act 1999 - Item 5 of Schedule 2 | A New Tax System (Goods and Services Tax) Act 1999 - Item 7 of Schedule 2

Reasons for decision: Summary: GST is payable on taxable supplies. You make a taxable supply where you satisfy the requirements of section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), which states: You make a taxable supply if: (a) you make the supply for *consideration; and (b) the supply is made in the course or furtherance of an *enterprise that you *carry on; and (c) the supply is *connected with the indirect tax zone; and (d) you are *registered, or *required to be registered. However, the supply is not a *taxable supply to the extent that it is *GST-free or *input taxed. (*Denotes a term defined in section 195-1 of the GST Act) The indirect tax zone is Australia. You satisfy the requirement of paragraphs 9-5(a) to 9-5(d) of the GST Act. This is because: • you supply the tea for consideration, • you supply the tea in the course or furtherance of an enterprise that you carry on, • the supplies are connected with the indirect tax zone (Australia), and • you are registered for GST. There are no provisions in the GST Act under which your supplies of the tea are input taxed. Therefore, what remains to be determined is whether your supplies of the tea are GST-free. A supply of food as defined in subsection 38-4(1) of the GST Act is GST-free under section 38-2 of the GST Act unless an exclusion in subsection 38-3(1) of the GST Act applies. In accordance with paragraph 38-4(1)(c) of the GST Act, food includes beverages for human consumption. Paragraph 38-3(1)(d) of the GST Act excludes beverages from being GST-free under section 38-2 of the GST Act unless they are beverages of a kind specified in the third column of the table in clause 1 of Schedule 2 to the GST Act (Schedule 2). Your product is called X Tea and is described as a herbal tea or to be mixed with white tea or water or added as a condiment to food. 'Tea' is not defined in the GST Act and is therefore given its ordinary meaning. The Macquarie Dictionary defines tea as: '1. the dried and prepared leaves of the shrub, Camellia sinensis (formerly Thea sinensis), from which a somewhat bitter, aromatic beverage is made by infusion in boiling water.... [and also] …..any of various infusions prepared from the leaves, flowers, etc, of other plants and used as beverages or medicines.' We consider the product to contain ingredients to make beverages, in particular herbal teas. Hence, the relevant item to consider in Schedule 2 is Item 5 which lists tea, (including herbal tea, fruit tea, ginseng tea and other similar beverage preparations). The definition of tea above includes infusions prepared from the leaves, flowers, etc of plants. This includes the root of the plant as evidenced by the specific inclusion of ginseng tea being GST-free in Item 5 therefore tea made from the X root can be a tea for the purposes of Item 5. Item 5 also does not dictate in what form the tea must have and it can be in tea bags, loose or powdered. The definition of tea also shows that tea can be consumed both as a beverage and as a medicine. However, for the purposes of the GST Act, the definition of food is referring to those beverages that are primarily consumed for the purposes of increasing bodily liquid levels, to quench thirst or to give pleasure. It does not cover beverages or ingredients for beverages that are primarily consumed for medicinal or therapeutic purposes. Therefore, Item 5 of Schedule 2 (Item 5) is limited to those teas that have the essential character of a beverage which by way of Item 5 is extended to include substitutes for those teas (herbal teas, fruit teas, ginseng, etc). Clause 2 of Schedule 2 states that none of the items in the table relating to the category of tea, coffee etc include any beverage that is marketed in a ready-to-drink form. | Detailed Reasoning - Beverage or medicine: The ATO view on tea is provided by Issue 25 of the Food Industry Partnership - issues register (Issue 25 - available from the ATO website www.ato.gov.au). Issue 25 provides that it is relevant to use the 'essential character' test adopted under the former wholesale sales tax regime. The ATO 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. Therefore, teas consumed for medicinal or therapeutic purposes have an 'essential character' of a medicine, not a beverage. In determining whether a supply is a supply of GST-free food, it is not only the physical characteristics of the product that are important but also the nature of the supply. It cannot be said that a supply of a product, which is promoted as a medicinal tea preparation, is a supply of food, even if it is identical in substance to the GST-free food product. The nature of the supply has changed. The product is primarily sold for medicinal purposes. A tea preparation will be considered to be differentiated for medicinal or therapeutic use where any of the following are satisfied: • the product has been designated as a medicinal or therapeutic tea preparation; • the labelling, invoicing, marketing or promotional material identify it as sold and purchased for a specific remedial purpose; • the directions for consumption (for example, dosage), are similar to those that would be issued with a medicinal product; or • the product is listed under the Therapeutic Goods Act 1989. Designated as a medicinal or therapeutic tea preparation In this case, the product has not been designated as medicinal or therapeutic tea preparations but as tea on your website. The product is marketed on the website principally as a product that is essentially for making herbal tea. Various statements are made about the product on your website about the therapeutic qualities of consuming this product. However, we consider these statements to be general enough as not to designate the products as being principally for a medicinal or therapeutic purpose. We consider the statements to be more in the nature of marketing so as to increase the consumer's conceived pleasure when consuming the product. These general types of statements are also found on the websites of certain plain teas currently sold in Australia where they also state the tea can relieve stress, maintain a healthy vascular function and assist with weight management. Sold and purchased for a specific remedial purpose As discussed above, the product is promoted and sold primarily as herbal tea and not for health benefits, treating specified specific illnesses or for a specific remedial purpose. The directions for consumption Some of the advertising recommends drinking a certain amount of the product daily. Again we consider this to be marketing not dissimilar to certain plain teas currently sold in Australia that also recommend on their websites that consumers drink a certain number of cups per day (presumably insuring the product is consumed quickly). It is also unlike instructions generally found on medicinal products (where dosages are stated) in that it is a recommendation only. Therapeutic Goods The product is not listed in the Therapeutic Goods Act 1989 . Given all this and that you are not supplying a ready to drink tea beverage, we consider the product to be herbal tea that is covered by Item 5. Consequently, your supplies of X are GST-free under section 38-2 of the GST Act.