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1 Is the supply of Product 1 GST-free under section 38-2 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

1 No. Question 2 Is the supply of Product 2 GST-free under section 38-2 of the GST Act? Answer 2 No. This ruling applies for the following period: XX XX 20XX to XX XX 20XX The scheme commence on: 17 June 20XX

You are registered for GST. You manufacture and supply the following products: •                 Product 1 - a concentrated product containing water, electrolytes, minerals and other elements. It is added to hot or cold drinks to make a beverage that aids in hydration. •                 Product 2 - a product that contains water, electrolytes, minerals and other element and aids in hydration. According to the flowcharts you provided, Product 1 and Product 2 are made by mixing and blending water and another liquid. The minerals and other elements are derived from the other liquid through a natural process. You sell Product 1 and Product 2 on your website and to other retailers.

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

s 1.               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. The definition of food in subsection 38-4(1) of the GST Act includes: •                 beverages for human consumption [paragraph 38-4(1)(c)]; and •                 ingredients for beverages for human consumption [paragraph 38-4(1)(d)]. Paragraph 38-3(1)(d) of the GST Act provides that a beverage or an ingredient for a beverage is not GST-free unless it is of a kind specified in Schedule 2. In other words, ingredients for beverages for human consumption are only GST-free to the extent that the ingredients are specified in the third column of Schedule 2. Based on the information provided, we consider that the essential characteristic of Product 1 is that of an ingredient for beverage as it is produced and marketed as something to be added to drinks to make a beverage that aids in hydration. As such, it satisfies the definition of food under paragraph 38-4(1)(d) of the GST Act.

However, Product 1 is not an ingredient for a beverage of a kind specified in Schedule 2. Therefore, the supply of Product 1 is not GST-free in accordance with paragraph 38-3(1)(d) of the GST Act. 2.               Product 2 is a beverage for human consumption and therefore meets the definition of food in paragraph 38-4(1)(c) of the GST Act. However, under paragraph 38-3(1)(d) of the GST Act, a supply of a beverage is only GST-free if it is a beverage of a kind specified in Schedule 2. Items 1-9 of Schedule 2 do not apply as these items covers milk, coffee, tea and malt including preparations and ingredients marketed for the purposes of those beverages. Items 10-12 of Schedule 2 do not apply as these items covers beverages that contain juices of fruits or vegetables. Item 13 of Schedule 2 does not apply as Product 2 is not marketed as food for infants and invalids. Item 14, the last item of Schedule 2, covers natural water that is non-carbonated and without any other additives.

While the principal ingredient of Product 2 is water, electrolytes, minerals and other elements derived through a process are added to it to make a hydration drink. As such, item 14 does not apply. Therefore, the supply of Product 2 is not GST-free in accordance with paragraph 38-3(1)(d) of the GST Act.