Private ruling: Goods and services tax (GST) and flavoured milk powders
Date of advice: 5 January 2017
Published: June 2017

Ruling: Q1: Is the sale of X Formula GST-free pursuant to section 38-2 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)? | A1: No. This will be the case regardless of who you sell to. | Q2: Is the sale of Y Formula GST-free pursuant to section 38-2 of the GST Act? | A2: No. This will be the case regardless of who you sell to.

Relevant facts and circumstances: You are registered for GST. You sell the following vanilla flavoured powdered milk formula products to retailers and end consumers: X Formula Y Formula You supply these products within Australia. The products contain mainly powdered full cream milk and powdered skim milk. X Formula contains 90% skim milk powder and full cream milk powder. Y Formula contains 82% skim milk powder and full cream milk powder The products also contain vanilla flavouring. The products are added to water by the consumer to make a flavoured milk beverage for human consumption. You provided the ingredients for X Formula and Y Formula The X Formula is not marketed at children but not infants or invalids.

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 sale of X Formula is not GST-free under section 38-2 of the GST Act because it is an ingredient for beverages for human consumption that is not covered by an item in the table in clause 1 of Schedule 2 to 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 does not come within any of the exclusions listed in section 38-3 of the GST Act. Food is defined in section 38-4 of the GST Act to include '*ingredients for beverages for human consumption' (paragraph 38-4(1)(d)). X Formula satisfies the definition of food as it is an ingredient for milk beverages for human consumption. However, under paragraph 38-3(1)(d) of the GST Act, a supply of a beverage or an ingredient for a beverage is not GST-free under section 38-2 of the GST Act unless it is of a kind listed in the table in clause 1 of Schedule 2 to the GST Act (Schedule 2). Item 1 of Schedule 2 (Item 1) lists: (a) milk, skim milk and buttermilk (whether, liquid, powdered, concentrated or condensed) (b) casein (c) whey, whey powder or whey paste. Item 2 of Schedule 2 (Item 2) lists milk products referred to in Item 1 (or a combination of those products) to the extent of at least 95%, but not including flavoured beverages. The percentage of Item 1 (milk powder) foods contained in X Formula is less than 95%. Therefore, this product is not covered by Item 1 or 2. Item 13 in Schedule 2 specifies beverages, and ingredients for beverages, of a kind marketed principally as food for infants or invalids. In accordance with issue 14 of the Food Industry Issues Register, an infant is a person 12 months old or younger. X Formula is not marketed for consumption by that age group. Therefore, X Formula is not covered by Item 13. X Formula is not covered by any of the items in Schedule 2. Hence, the exclusion at paragraph 38-3(1)(d) of the GST Act applies. Therefore, the sale of this product is not GST-free under section 38-2 of the GST Act. | Summary: The sale of Y Formula is not GST-free under section 38-2 of the GST Act because it is an ingredient for beverages for human consumption that is not covered by an item in the table in clause 1 of Schedule 2 to the GST Act. | Detailed Reasoning - Detailed Reasoning: Y Formula is an ingredient for a beverage for human consumption and therefore it is food for the purposes of the GST Act. The percentage of Item 1 (skim milk and full cream milk powder) foods contained in Y Formula is less than 95%. Therefore, this product is not covered by Item 1 or 2. Additionally, it is not covered by any other item in Schedule 2. The exclusion at paragraph 38-3(1)(d) of the GST Act applies. Therefore, the sale of this product is not GST-free under section 38-2 of the GST Act.