Private ruling: goods and services tax (GST) and sale of activated nuts
Date of advice: 13 September 2017
Published: January 2018

Ruling: Q1: Is GST payable on your sales of various activated nut products (each product contains just one variety of nut)? | A1: Yes.

Relevant facts and circumstances: You are registered for GST. You sell whole activated nuts (each product contains just one variety of nut). You supply them wholly within Australia. Your business is based in mainland Australia. You market the products for human consumption. The products are marketed as organic super foods to be eaten as is, to be added to recipes, added to mueslis, cakes, breads, butters, milks. You take raw nuts then subject them to the following treatments: ● Step 1: Soaking them for (number) hours in a brine solution (filtered water and salt) to activate them (they release tannins and other gunk) ● Step 2: The nuts are thoroughly washed and rinsed in filtered water. ● Step 3: Slow dehydration over the course of a number of days, at low temperature ((number) degrees Celsius or less). This keeps them raw/uncooked. Your process is used not for the purpose of flavouring the nuts, but is instead done to improve digestion for humans. All nuts have been shelled before you activate and dry them. The process you subject the nuts to alters the flavour and texture and makes them crunchier. The process also increases the nutritional value and makes them easier to digest. The final product still has a nut taste. It is unlikely that one would taste any salt on the final product. The following information appears on the packaging for your activated (particular variety of nut) product: ● Information that promotes the taste of the nuts. ● Information that indicates that your treatment of the nuts improves the flavour. ● Details of the number of servings per pack.

Relevant legislative provisions: A New Tax System (Goods and Services Tax) Act 1999 subsection 7-1(1) | A New Tax System (Goods and Services Tax) Act 1999 section 9-5 | A New Tax System (Goods and Services Tax) Act 1999 section 9-40 | 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: Your sales of the activated nuts are not GST-free under the food exemption because they are the result of a treatment that has altered the flavour. | Detailed Reasoning - Detailed reasoning: GST is payable on your 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 the GST Act) The indirect tax zone includes mainland Australia amongst other things. You meet the requirements of paragraphs 9-5(a) to 9-5(d) of the GST Act. This is because: ● you supply the products for consideration ● you supply the products in the course or furtherance of an enterprise that you carry on ● these supplies are connected with the indirect tax zone, and ● you are registered for GST. There are no provisions of the GST Act under which your sales of the activated nuts are input taxed. Therefore, what remains to be determined is whether your sales of the activated nuts are GST-free. A supply of food is GST-free in accordance with section 38-2 of the GST Act if it satisfies the definition of food in section 38-4 of the GST Act and it does not come within any of the exclusions in section 38-3 of the GST Act. Your activated nuts are food for human consumption. Therefore, they are food pursuant to paragraph 38-4(1)(a) of the GST Act. Item 16 in the table in clause 1 of Schedule 1 to the GST Act (item 16) lists ‘seeds or nuts that have been processed or treated by salting, spicing, smoking or roasting, or in any other similar way’. ATO Interpretative Decision ATO ID 2003/1158 Goods and Services Tax GST and flavoured nuts states: Salting, spicing, smoking and roasting are all processes that alter the flavour of nuts. The entity uses various ingredients to flavour the nuts. Flavouring of nuts is similar to salting, spicing, smoking or roasting and is therefore covered by Item 16. Accordingly, the supply of the flavoured nuts is not GST-free under section 38-2 of the GST Act. Therefore, if nuts are not salted, spiced, smoked or roasted but they are processed or treated in some other way that alters the flavour of the nuts, then the nuts have been processed or treated in a ‘similar way’ for the purposes item 16. It is not essential that the method of processing the nuts involves adding additional ingredients to the nuts, such as salt in order for the nut product to come within the scope of item 16. Item 16 specifically refers to nuts that have been processed or treated by smoking and roasting (amongst other things) and these treatments do not involve adding ingredients to the nuts. You treat the nuts in your case by soaking them in a brine solution and then dehydrating them. This treatment alters the flavour of the nuts. Therefore, the nuts have been processed or treated in a similar way for the purposes of item 16. We do not consider that altering the flavour of the nuts must be the purpose of the treatment in order for nuts to come within the scope of item 16. Even if the treatment involved replicates what is produced by nature, in terms of the taste of the final product, we still consider that your nuts come within the scope of item 16. Therefore, your sales of the activated nuts are not GST-free under section 38-2 of the GST Act. There are no other provisions of the GST Act under which your sales of the activated nuts are GST-free. Therefore, as all of the requirements of section 9-5 of the GST Act are met, GST is payable on your sales of the activated nuts.