GST and sugar used in home brewing

Is the entity, a supplier of home brew 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 sells sugar as an ingredient for making alcoholic home brew?

No, the entity is not making a GST-free supply under section 38-2 of the GST Act when it sells sugar as an ingredient for making alcoholic home brew. The entity is making a taxable supply under section 9-5 of the GST Act.

The entity is a supplier of home brew products. The entity sells sugar that is packaged, labelled and sold for use in making alcoholic home brew.

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

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

Food is defined in paragraph 38-4(1)(d) of the GST Act to include ingredients for beverages for human consumption. In this case, sugar is used as an ingredient to make alcoholic home brew. Therefore, it falls within the definition of food as it is an ingredient for a beverage for human consumption.

However, under paragraph 38-3(1)(d) of the GST Act, the supply of an ingredient for a beverage is only GST-free if it is an ingredient of a kind specified in the table in clause 1 of Schedule 2 to the GST Act (Schedule 2).

Sugar, irrespective of whether it is used for making alcoholic or non-alcoholic beverages, is not of a kind listed in Schedule 2. As such, the sale of sugar that is packaged, labelled and sold for use in making alcoholic home brew is not a GST-free supply under section 38-2 of the GST Act.

The entity is registered for GST and the supply satisfies the other 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, the supply of sugar that is packaged, labelled and sold for use in making alcoholic home brew is a taxable supply under section 9-5 of the GST Act. [NOTE: Where a product such as sugar is sold separately and not identified as an ingredient for making alcoholic home brew, it is GST-free. For instance, if a supplier sells sugar that is labelled as sugar and not differentiated as 'brewer's sugar', this supply is GST-free].