Private ruling: GST and Food additive
Date of advice: 23 July 2018
Published: October 2018

Ruling: Q1: Are you making a taxable importation of the product under section 13-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)? | A1: No, you are not making a taxable importation of the product because your supply of the product is not subject to GST

Relevant facts and circumstances: You are registered for goods and services tax (GST). The product name is …The product is in liquid form and its recommended use is for use in food. You import the product into Australia. The labelling of the product is … You have provided product information from the manufacturer. The product requires it to be used in the manufacturing of meat. The product is not packaged and marketed for retail sale. The product is supplied to industrial meat processors. The product is only used in the food industry as a food additive. This product has no application outside the food industry. The product is essential to the processing and composition of food products manufactured.

Relevant legislative provisions: A New Tax System (Goods and Services Tax) Act 1999 (GST Act): section 38-2 | section 38-3 | paragraph 38-3(1)(e) | section 38-4 | paragraph 38-4(1)(e) | section 9-5 | section 13-5 | section 13-10 | A New Tax System (Goods and Services Tax) Regulations 1999 (GST Regulations) regulation 38-3.02 | subregulation 38-3.02(1) | subregulation 38-3.02(2) | paragraph 38-3.02(2)(a) | paragraph 38-3.02(2)(b)

Reasons for decision: Summary: The product is an exempt food additive under paragraph 38-3.02(b) of the A New Tax System (Goods and Services Tax) Regulations 1999 (GST Regulations) and it is therefore not food of a kind specified for the purposes of paragraph 38-3(1)(e) of the GST Act. In addition, your supply of the product does not fall within any of the other exclusions in section 38-3 of the GST Act. Therefore, you are making a GST-free supply under section 38-2 of the GST Act when you sell the product. Since the supply of the product is GST-free, your importation of the product is a non-taxable importation under paragraph 13-10(b) of the GST Act. The importation of the product does not satisfy section 13-5 of the GST Act. | Detailed Reasoning - Detailed reasoning: Section 13-5 of the GST Act provides that the importation of goods into Australia is taxable if they are entered for home consumption unless the importation is a non-taxable importation. The meaning of "non-taxable importation" is provided in section 13-10 of the GST Act: An importation is a non-taxable importation if: (a) it is a non-taxable importation under Part 3-2; or (b) it would have been a supply that was *GST-free or *input taxed if it had been a supply. Under paragraph 13-10(b) of the GST Act, an importation is a non-taxable importation if, had the importation been a supply, the supply would have been GST-free or input taxed. The supply of the product is not input taxed under the GST legislation or any other legislation. We will now discuss if the supply of the product is GST-free or not. A supply of food is GST-free under section 38-2 of 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); ….. The product is described as a food additive. The product is made and intended only for use in food as a modifying agent. The product is an ingredient for food for human consumption and therefore satisfies the definition of food in paragraph 38-4(1)(b) of the GST Act. However, under paragraph 38-3(1)(e) of the GST Act, a supply is not GST-free if it is food of a kind specified in regulations made for the purposes of subsection 38-3(1) of the GST Act. Regulation 38-3.02 of the GST Regulations, effective from 1 December 2001, deals with food additives. This regulation gives effect to paragraph 38-3(1)(e) of the GST Act and determines those foods that are not GST-free. Subregulation 38-3.02(1) of the GST Regulations provides that food additives, other than exempt food additives, will not be GST-free. Although the term 'food additive' is used in the regulation, it is not defined elsewhere in the GST Act. The word 'additive' is defined in The Macquarie Dictionary 1997, 3rd edn, The Macquarie Library Pty Ltd, New South Wales to mean '...a substance added to a product, usually to preserve or improve its quality'. The product labelling consists of X and Y, both are listed under Schedule 15 of the Australia New Zealand Food Standards Code as s ubstances used as food additives. The product is a preservative for food, and comes within the definition of 'additive'. It is therefore a food additive for GST purposes. The Food Industry Partnership- issues register states in Issue 11 at the following ATO page: https://www.ato.gov.au/Business/GST/In-detail/GST-issues-registers/Food-Industry-Partnership---issues-register/?page=10#Issue_11 Food is defined in subsection 38-4(1) of the GST Act to include ingredients for food for human consumption (paragraph 38-4(1)(b) of the GST Act), ingredients for beverages for human consumption (paragraph 38-4(1)(d) of the GST Act) and goods to be mixed with or added to food for human consumption (paragraph 38-4(1)(e) of the GST Act). The word 'additive' is defined in The Macquarie Dictionary (3rd edition, 1997) to mean '…3. a substance added to a product, usually to preserve or improve its quality'. Examples of products that are considered to be food additives for GST purposes include: ● colourings ● flavourings ● preservatives ● antioxidants ● sweeteners ● vitamins ● minerals ● modifying agents (vegetable gums, mineral salts, food acids, emulsifiers, humectants, thickeners) Some of these additives fall within the term 'ingredient for food for human consumption' as stated in paragraph 38-4(1)(b), whilst others are specifically included in paragraph of the GST Act as 'goods to be mixed with or added to food for human consumption'. Those products included in paragraph 38-4(1)(e) of the GST Act include: ● condiments (for example, tomato sauce, jam, chutney) ● spices (for example, pepper, cinnamon, cloves) ● seasonings ● sweetening agents ● flavourings (for example, vanilla essence) Products that satisfy paragraph 38-4(1)(e) are used for the purpose of adding to the taste or flavour of finished foods and are not products that are used in the manufacturing process (although some products may fall for consideration as both an ingredient for food and as a good to be mixed with or added to food for human consumption). As a result of the introduction of a regulation effective from 1 December 2001 the previous GST treatment of some additives will have changed….. | Detailed Reasoning - GST treatment from 1 December 2001: Effective from 1 December 2001 regulation 38-3.02 of the A New Tax System (Goods and Services Tax) Regulations 1999 (Regulations) applies to food additives. This regulation gives effect to paragraph 38-3(1)(e) of the GST Act and determines those foods that are not GST-free. Regulation 38-3.02(1) of the Regulations states that food additives other than exempt food additives will be subject to GST. The term 'exempt food additive' is defined in sub-regulation 38-3.02(2) to mean: ● a food additive which, at the time of supply is packaged and marketed for retail sale; or ● a food additive which, at the time of supply: n has a measurable nutritional value; and n is supplied for use solely or predominantly in the composition of food; and n is essential to the composition of that food. By excluding food additives available for retail sale from being subject to GST ensures that the supply of food additives, such as small bottles of vanilla essence or food colouring, purchased from a supermarket remain GST-free. If a food additive is not supplied at the retail level then it must have a measurable nutritional value, be supplied for use solely or predominantly in the composition of food and it must be essential to the composition of that food. These three tests are intended to limit the application of the GST-free provisions to food additives that play an integral part in the make-up of food. Although the term 'measurable nutritional value' is used in the regulation, it is not defined in the GST Act. The ATO will accept that a product has measurable nutritional value for the purposes of the regulation where the nutritional information is prepared in accordance with the Food Standards Code published by the Australia and New Zealand Food Authority (ANZFA), and that information contains any measured values of nutrition (such as sugars, protein, fat or carbohydrates). Similarly, the term 'essential' is used in the regulation and is not defined in the GST Act. The ATO will accept that a product is essential to an item of food where it is manufactured specifically for use in foods. Therefore, a supply of substances which have only an incidental use in the composition of food but are generally manufactured for other commercial purposes will be subject to GST. We will now consider if the product meets the requirement of the term 'exempt food additive' as defined in sub-regulation 38-3.02(2) of the GST Regulations. You do not package or market the product for retail sale at the time of supply. Therefore, the product is not an exempt food additive under paragraph 38-3.02(2)(a) of the GST Regulations. The next step is to consider paragraph (b) of sub-regulation 38-3.02(2) of the GST Regulations. We accept that the product has measurable nutritional value for GST purposes based on your product information. We also accept that the product satisfies the requirements of being supplied for use solely or predominantly in the composition of food, because the product is only used in the food industry as a food additive. The product has no application outside the food industry. We also accept that the product is essential to the processing and composition of food products manufactured, because the product information. In summary, the product meets the requirement of the term 'exempt food additive' in paragraph (b) of sub-regulation 38-3.02(2) of the Regulations because the product is: ● a food additive which, at the time of supply: n has a measurable nutritional value; and n is supplied for use solely or predominantly in the composition of food; and n is essential to the composition of that food. Therefore the product is an exempt food additive under paragraph 38-3.02(b) of the GST Regulations and it is therefore not food of a kind specified for the purposes of paragraph 38-3(1)(e) of the GST Act. In addition, your supply of the product does not fall within any of the other exclusions in section 38-3 of the GST Act. Therefore, you are making a GST-free supply under section 38-2 of the GST Act when you sell the product. Since the supply of the product is GST-free, your importation of the product is a non-taxable importation under paragraph 13-10(b) of the GST Act. The importation of the product does not satisfy section 13-5 of the GST Act.