Private ruling: GST and Food classification- supply of dietary supplement
Date of advice: 14 January 2016
Published: March 2016

Ruling: Q1: Is the supply of the product GST-free? | A1: No, your supply of the product is not GST-free, it is a taxable supply.

Relevant facts and circumstances: You are registered for goods and services tax (GST). You manufacture the product, which is 100% natural whole plant dietary fibre. The product contains various nutrients. It does not add flavour to food. You supply it to retailers in Australia and directly to end-consumers via on-line facilities. The product is not to be consumed as a dry powder. The product is marketed as a powder to combine with other foods and liquids. The labelling of the product is as follows: • is a convenient fibre powder to be mixed with your favourite beverage or food • assists with digestive health, regularity and acts as an appetite suppressant • is a natural source of antioxidants and vitamins. The directions for use give recommended quantities and serves per day. The marketing of the product provides that consumers add the product to their food and beverages daily to improve digestive health.

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 Section 9-5

Reasons for decision: Summary: Your supply of the product is not a GST-free sale of food under section 38-2 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act). The product does not satisfy any of the definitions of food in subsection 38-4(1) of the GST Act. | Detailed Reasoning - Detailed reasoning: GST is payable on taxable supplies. Section 9-5 of the GST Act provides that an entity makes a taxable supply if: (a) it makes the supply for consideration; and (b) the supply is made in the course or furtherance of an enterprise that the entity carries on; and (c) the supply is connected with Australia; and (d) the entity is registered, or required to be registered. However, a supply is not a taxable supply to the extent that is GST-free or input taxed. In your case, you will sell the product for consideration and in the course of your business. You will sell the product in Australia; hence the supply will be connected with Australia. Furthermore, you are registered for GST. Therefore, all the requirements in paragraphs 9-5(a) to 9-5(d) of the GST Act will be satisfied. The sale of the product is not input taxed under any provisions of the GST Act. As such the sale of the product will be a taxable supply unless it is GST-free. 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 as: (a) food for human consumption (whether or not requiring processing or treatment); (b) ingredients for food for human consumption; (c) beverages for human consumption; (d) ingredients for beverages for human consumption; (e) goods to be mixed with or added to food for human consumption (including condiments, spices, seasonings, sweetening agents or flavourings); ….. In order to determine whether the product is food for the purposes of the GST Act it is necessary to consider whether the product satisfies any of paragraphs 38-4(1)(a), (b), (c) (d) or (e) of the GST Act. | Detailed Reasoning - Is the product food for human consumption (whether or not requiring processing or treatment) - paragraph 38-4(1)(a) of the GST Act?: You contended that the product is food because it is has been processed into a form enabling it to be sold as food for human consumption. It is marketed as food and is eaten combined with other foods or liquids. It is a principle of statutory construction that the legislature is considered not to have used superfluous language. In Hill v William Hill (Park Lane) Ltd [1949] AC 530, Viscount Simon explained the principle: When the legislature enacts a particular phrase in a statute the presumption is that it is saying something which has not been said immediately before. The rule that a meaning should, if possible, be given to every word in a statute implies that, unless there is good reason to the contrary, the words add something which would not be there if the words were left out. Therefore, the 'food for human consumption' referred to in paragraph 38-4(1)(a) excludes both 'ingredients for food' and 'goods to be mixed with or added to food'. Paragraph 38-4(1)(a) therefore refers to food that exists in its own right (whether or not it requires processing or treatment). The word 'food' in paragraph 38-4 (1)(a) is not itself defined and so will bear its ordinary meaning. The Macquarie Dictionary 3 rd edition, defines 'food' as: 1. what is eaten, or taken into the body, for nourishment. 2. more or less solid nourishment (as opposed to drink); 3. a particular kind of solid nourishment: a breakfast food. The dictionary definition of 'food' refers to the function of nourishment. It is accepted that the product may provide nutrition to varying degrees because it contains various nutrients. However, Food Industry Partnership Issues Register, Item 18, provides that not all substances that can be taken into the body and that also provide nourishment will satisfy the definition of food in the GST Act. For example, a particular medicine may incidentally provide some nourishment although its primary purpose is medicinal. It may be said to be 'taken into the body' and to provide 'nourishment', yet its essential character is that of a medicine. You contended that the product is marketed as food. The facts indicate that the product is marketed as a powder to combine with other foods and liquids. In addition, most food products for human consumption are not labelled 'food'. It is unnecessary to label them as food since they have the character of food and are readily recognised as food. The product is not currently listed on the Therapeutic Goods Administration register of therapeutic goods. However, the labelling of the product states it is a fibre powder to be mixed with favourite beverage or food. This indicates that it is to be 'taken' by any convenient means; a factor that indicates the product is prophylactic or therapeutic in nature. The directions for use indicate the product should be used in recommended quantities, similar to dosages. This reinforces the product's therapeutic nature. The marketing of the product on your website provides that consumers add the product to their food and beverages daily to improve digestive health. We consider that the essential character of the product is not that of a food but that of a supplement. Dietary supplements are taken for the purpose of supplementing an inadequate diet or to prevent illness or debility. It is acknowledged that dietary supplements can be food in certain circumstances, for example, if they are provided in the form of a biscuit which can be eaten at meal times. The emphasis in the marketing material of the product is on the healthy properties. It is therefore concluded that the product has the character of a dietary supplement rather than food. The product is not to be taken on its own as a dry powder. Further, it is not designed to be re-hydrated by adding water (such as dried flake potato). We consider that the product is not food in its own right. The product does not satisfy paragraph 38-4(1)(a) of the GST Act because it is not food for human consumption. Is the product ingredients for food for human consumption- paragraph 38-4(1)(b) of the GST Act? There is no definition of 'ingredient' in the GST Act, so the word will bear its ordinary meaning. The Macquarie Dictionary 3 rd edition defines 'ingredient' as: 1. something that enters as an element into a mixture: the ingredients of a cake 2. a constituent element of anything.. It is the ATO view that in paragraph 38-4(1)(b) of the GST Act, the use of the word 'for' in the phrase 'ingredients for food for human consumption' narrows the ordinary meaning of the word ingredient. The phrase ' ingredients for food' implies that, for an ingredient to fall within paragraph 38-4(1)(b), it must be 'for the purpose of' production of food. Where a particular substance is combined with food ingredients to enable the substance to be ingested, that substance is not itself an ingredient for food. A bread or cake, for example, would exist without additional ingredients such as nuts, grains, fruit pieces. However, such ingredients are all integral to the particular bakery item. For example: • almond fruit and nut cake • grain bread However if a non-food product were added along with the ingredients of either product, it would not be an ingredient for that particular product; rather the food is a carrier for the non-food product. The foods of choice to which the product is to be added exist independently of the product itself. The product is not ingredient for the food, the food is simply a means by which the product can be ingested. Hence, the product does not satisfy paragraph 38-4(1)(b) of the GST Act, it is not ingredients for food for human consumption. Is the product ingredients for beverage for human consumption- paragraph 38-4(1)(d) of the GST Act? You contended that the serving suggestions for the product including mixing it with a liquid (such as water, juice, milk, tea or coffee) and drinking, hence it is an ingredient for beverage . Paragraph 38-3(1)(d) of the GST Act specifies kinds of foods that are not GST-free including: (d) a beverage (or an ingredient for a beverage), other than a beverage (or ingredient) of a kind specified in the third column of the table in clause 1 of Schedule 2; Water, tea, coffee, juice, and milk are beverages listed in the table in clause 1 of Schedule 2 of the GST Act. The words 'ingredient' and "for" have been discussed in paragraph 38-4(1)(b) of the GST Act as above. The product is not to be consumed in its own form as a powder, but to be added to any one of a variety of liquids that are all beverages in their own right. The beverages to which the product is to be added exist independently of the product itself. The product is not ingredient for the beverages, the beverages are simply a means by which the product can be ingested. Therefore, the product is not an ingredient for a beverage. It does not satisfy the definition of food in paragraph 38-4(1)(d) of the Act. It is therefore not necessary to consider the items listed in the third column of clause one of Schedule 2 to the GST Act. Is the product goods to be mixed with or added to food for human consumption (including condiments, spices, seasonings, sweetening agents or flavourings) paragraph 38-4(1)(e) of the GST Act? Food Industry Partnership Issues Register, Item 18, provides that goods that satisfy paragraph 38-4(1)(e) of the GST Act ) are for the purpose of adding to the taste or flavour of food, as indicated by the scope of the words in the brackets 'including condiments, spices, seasonings, sweetening agents or flavourings'. In addition, the use of the phrase 'to be' in paragraph 38-4(1)(e), implies that for the goods to satisfy this paragraph they must be ' for the purpose of ' mixing with or adding to food. To conclude that 'to be' means ' can be ' mixed with or added to food would lead to an unintended result. Such an interpretation would mean that any substance that can be mixed with food would satisfy the definition of food in the GST Act. For example, a medicine can be added to food for the purpose of ingestion. It would clearly be an unintended result to conclude that medicine is GST-free food because it is a good to be mixed with or added to food for human consumption. The product is mixed with or added to food in order that they can be ingested. Although the product can be mixed with food, it is not designed for mixing with food or for adding to food. Further, it is not for the purpose of enhancing the taste or flavour of the food with which the product can be combined. On the contrary, the marketing of the product indicates that the product has no flavour. The product does not satisfy paragraph 38-4(1)(e) of the GST Act. In conclusion, as the product does not satisfy the definition of food in subsection 38-4(1) of the GST Act, the sale of the product will not be GST-free under section 38-2 of the GST Act. In addition, the sale of the product will not be GST-free under any other provisions of the GST Act. Accordingly, as all the requirements of section 9-5 of the GST Act will be satisfied, the sale of the product will be a taxable supply.