GST and the dairy adjustment levy on flavoured milk

Is the entity, a retailer that makes a taxable supply of flavoured milk, required to pay GST under section 9-70 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) on the total value of its supply, including an amount to cover the dairy adjustment levy (DAL)?

Yes, the entity is required to pay GST under section 9-70 of the GST Act on the total value of its supply, including an amount to cover the DAL.

The entity is a retailer. The entity makes taxable supplies of flavoured milk. The sale of flavoured milk is subject to the DAL.

The DAL is a scheme administered by the Commonwealth Department of Agriculture, Fisheries, Forestry - Australia (AFFA), and is levied on all retail sales of liquid dairy products. The levy rate is 11 cents per litre and is collected from a retailer by its distributor/wholesaler who, in turns remits this to the processor and thence to the Commonwealth.

When the retailer sells its flavoured milk, it may maintain its profit margin by increasing the price of the supply by the levy amount.

The levy is an Australian, tax, fee or charge specified in the A New Tax System (Goods and Services Tax) (Exempt Taxes, Fees and Charges) Determination 2001 (Treasurer's Determination).

Subdivision 9-C of the GST Act sets out how much GST is payable on a taxable supply. Under section 9-70 of the GST Act, the amount of GST on a taxable supply is 10% of the value of the taxable supply.

The value of a taxable supply is 10/11th of the price, where the price is the sum of: • so far as the consideration is expressed as an amount of money, the amount (including any GST component); and • where the consideration is not expressed as an amount of money, the GST inclusive market value of that consideration (section 9-75 of the GST Act).

The entity is not making a supply of the DAL, it is making a supply of flavoured milk. The fact that the DAL is specified in the Treasurer's Determination is not relevant to the entity's customers. At that point, the amount of DAL collected represents a business cost to the entity.

If the entity chooses to pass this cost on to its customers, it merely becomes one of the components that make up the total cost of the milk. Other components may include the wholesale cost of the milk, the profit margin and various administrative costs. The GST payable is calculated on the total cost of the supply not on the individual components.

Accordingly, the entity is required to pay GST under section 9-70 of the GST Act on the total value of its supply, including an amount to cover the DAL.