GST and food processing and packaging services

Is the entity, a supplier of processing and packaging services, making a taxable supply under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), when it supplies a processing and packaging service in relation to a food that is GST-free?

Yes, the entity is making a taxable supply under section 9-5 of the GST Act, when it supplies a food processing and packaging service in relation to a food that is GST-free.

The entity supplies a food processing and packaging service in relation to a food that is GST-free. This service is carried out in Australia. The entity does not purchase or own the food. Once the entity processes and packages the food, the entity either gives the processed food back to its clients or the entity exports the food on behalf of the clients. The entity receives consideration in return for supplying the food processing and packaging service.

The entity is registered for goods and services tax (GST) and supplies the food processing and packaging service in the course of its enterprise.

Under section 9-5 of the GST Act, an entity makes a taxable supply if: • it makes a supply for consideration; • it makes the supply in the course or furtherance of an enterprise that the entity is carrying on; • the supply is connected with Australia; and • the entity is registered or required to be registered.

However, a supply is not a taxable supply to the extent that it is GST-free or input taxed.

The entity is registered for GST and supplies the food processing and packaging service in the course of its enterprise. The entity supplies the service in Australia and the entity receives consideration in return for this service. As such, the supply satisfies the positive requirements of section 9-5 of the GST Act.

Subsection 38-6(1) of the GST Act states that 'A supply of the packaging in which food is supplied is GST-free if the supply of the food is GST-free'. This subsection of the GST Act applies to make packaging GST-free, only when GST-free food is supplied with the packaging. This subsection does not apply, however, in circumstances where the service of processing and packaging food is identifiable as a separate supply, for example, when the service is provided by an entity that does not supply the food.

In this instance, the entity does not supply the food, but is merely supplying the service of processing and packaging, before returning the processed food back to a client or exporting it on behalf of a client. Therefore, the supply of processing and packaging is a separate supply of a service only and is not GST-free under subsection 38-6(1) of the GST Act.

Furthermore, the supply is neither GST-free under any other section of Division 38 of the GST Act nor is it input taxed under Division 40 of the GST Act. Therefore, the entity is making a taxable supply under section 9-5 of the GST Act when it provides a food processing and packaging service.