Private ruling: GST and beverage ingredients
Date of advice: 25 September 2015
Published: November 2015

Ruling: Q1: Is the supply of the product a GST-free supply pursuant to section 38-2 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)? | A1: Yes.

Relevant facts and circumstances: You will shortly commence the manufacture of the product and distribute it around Australia to at least one national retail supermarket and the wider route trade (cafes, convenience stores, restaurants etc.). The product will be launched in a few months. The product is designed to be enjoyed as a cold beverage (served with milk), hot beverage (served with coffee) and as a dessert (served with ice cream, ice or in dessert recipes). The product will be positioned in the coffee additive section of supermarkets. A product range microsite will be launched to coincide with the product on shelf date, providing consumers with further information on the product range, in addition to recipe pages for varying uses with the product range. Anticipated promotions include sampling, cross category buys (product + ice cream = % discount, etc.) and price promotion. Recipes will also be available on the microsite and promoted via social media and in store printed materials once the product is launched.

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: The supply of the product is a GST-free supply pursuant to section 38-2 of the GST Act. | Detailed Reasoning - Detailed reasoning: 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. Subsection 38-4(1) of the GST Act defines food for the purposes of section 38-2 of the GST Act. Of most relevance to the syrups are paragraphs 38-4(1)(a), 38-4(1)(d) and 38-4(1)(e) of the GST Act. Paragraph 38-4(1)(a) of the GST Act provides that food includes food for human consumption (whether or not requiring processing or treatment). Paragraph 38-4(1)(d) of the GST Act provides that food does include ingredients for beverages for human consumption. Paragraph 38-3(1)(d) excludes from GST-free status beverages and ingredients for beverages that are specified in Schedule 2 to the GST Act. Paragraph 38-4(1)(e) of the GST Act confers GST-free status to goods to be mixed with or added to food for human consumption, including flavourings. In determining whether a product is an ingredient for food, an ingredient for a beverage or a flavouring for food, it is important to determine the essential character of the product. There are products that are generally only used as an ingredient for a beverage - for example, milk powder. Although milk powder could be used as an ingredient for cooking, its essential character is that of an ingredient for a beverage. The supplier must determine whether the product is held out for sale as an ingredient for food, an ingredient for a beverage or a flavouring for food. Some examples of the ways products may be differentiated are: ● packaging the product in combination with other ingredients for either food or beverages, or ● labelling, invoicing, marketing or otherwise displaying the product as an ingredient for either food or beverages. Marketing in itself has a number of elements to consider, the GST food guide notes: … . When thinking about marketing, consider: ● how goods are promoted or advertised ● the name, price, labelling, instructions, packaging and placement of the goods in the store. The product is not packaged with any other ingredients. The labelling of the product indicates that the product is an ingredient for beverages, the front label stating ‘added to a beverage'. Invoicing practices are not known. When considering marketing you have stated that the product will be promoted in a number of ways at launch being: ● use of a microsite that will inform of the product range and have recipes for both beverages and desserts; ● sampling; ● cross category buys (product plus ice cream to obtain a discount); and ● price promotion. On balance the promotion indicates that the product is an ingredient for both food and beverages and as a flavouring for food. The name of the product is not indicative of one use predominantly over another (food v beverage v flavouring for food). The price of the product is not indicative of one use predominantly over another. The labelling and instructions are essentially the same words i.e. ‘added to a beverage' indicating use as an ingredient for beverages. The packaging of the product is not indicative of one use predominantly over another. The placement of the product in supermarkets in the coffee additive section is indicative that the product is an ingredient for beverages. We note that the product is to be sold in outlets other than supermarkets. On balance we consider that the product is predominantly an ingredient for beverages. However, the GST food guide notes that supplies of syrups for use only to flavour beverages are taxable whereas syrups and toppings (such as maple syrup and ice cream topping) (not those used exclusively for flavouring beverages) are GST-free. Given the product will be supplied for use as both an ingredient for beverages and as a topping, its supply will be GST-free pursuant to section 38-2 of the GST Act.

NOTICE: This private ruling was revised following issue. This edited version has therefore been replaced with the edited version of the private ruling with the authorisation number of 1013138433336