GST and Drinking yoghurts

Is the entity, a supplier of dairy products, making a GST-free supply under section 38-2 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) when it supplies drinking yoghurt?

No, the entity is not making a GST-free supply under section 38-2 of the GST Act when it supplies drinking yoghurt. The entity is making a taxable supply under section 9-5 of the GST Act.

The entity is a supplier of dairy products and supplies drinking yoghurt.

Drinking yoghurt is a drink that may contain real fruit.

Drinking yoghurt consists mostly of cultures.

Drinking yoghurt does not contain 95% milk, skim milk, buttermilk, or whey.

The entity is registered for goods and services tax (GST). The supply satisfies all the other positive limbs of section 9-5 of the GST Act.

Section 38-2 of the GST Act states that a supply of food is GST-free provided that the supply does not come within any of the exclusions listed in section 38-3 of the GST Act.

The term 'food' is defined in section 38-4 of the GST Act to include: food for human consumption (whether or not requiring processing or treatment); ingredients for food for human consumption; or beverages for human consumption. In this case, drinking yoghurt is a beverage for human consumption.

In accordance with section 38-3 of the GST Act, some foods are not GST-free. This includes food or a combination of food specified in clause 1 of Schedule 1 of the GST Act (Schedule 1) and beverages other than those specified in clause 1 of Schedule 2 of the Act (Schedule 2). Therefore, consideration needs to be given as to whether drinking yoghurt is a beverage that is listed as GST-free in Schedule 2.

Drinking yoghurt will be GST-free if, according to item 2 of Schedule 2, the beverage consists of at least 95% milk, skim milk, buttermilk, casein whey, whey powder, or whey paste. This does not include flavoured versions of these items.

In this case, the drinking yoghurt consists mostly of cultures. It does not contain 95% milk, skim milk, buttermilk, or whey. Therefore, the supply of drinking yoghurt is not GST-free as it is not specifically listed in Schedule 2. It does not matter if the drinking yoghurt contains fruit or not.

The entity is registered for GST and the supply meets the positive limbs of section 9-5 of the GST Act. Furthermore, the supply is neither GST-free under Division 38 of the GST Act nor input taxed under Division 40 of the GST Act. Therefore, entity is making a taxable supply under section 9-5 of the GST Act