GST and syrup for flavouring coffee

Is the entity, a food supplier, 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 syrup for flavouring coffee?

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

The entity is a food supplier. The entity supplies syrup for flavouring coffee. The syrup is available in various flavours. It is used specifically in coffee and is marketed for that purpose.

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.

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.

Subsection 38-4(1) of the GST Act defines food to include, amongst other things: • ingredients for beverages for human consumption (paragraph 38-4(1)(d) of the GST Act); and • goods to be mixed with or added to food for human consumption (including condiments, spices, seasonings, sweetening agents or flavourings) (paragraph 38-4(1)(e) of the GST Act).

The entity supplies syrup for flavouring coffee. Although the syrup is a flavouring, it is not used to flavour food for human consumption. The syrup is used specifically in coffee, a beverage for human consumption, and is marketed for that purpose . Therefore, paragraph 38-4(1)(e) of the GST Act does not apply and the syrup is an ingredient for a beverage under paragraph 38-4(1)(d) of the GST Act.

However, under paragraph 38-3(1)(d) of the GST Act, a supply of an ingredient for a beverage is not GST-free unless it is an ingredient of a kind that is specified in the table in clause 1 of Schedule 2 to the GST Act (Schedule 2).

Item 7 of Schedule 2 (Item 7) of the GST Act lists preparations for drinking purposes that are marketed principally as tea preparations, coffee preparations or preparations for malted beverages. This item applies to the preparations used to make tea, coffee or malted beverages.

The entity's syrup is not a preparation used to make coffee, rather the syrup that is used to add additional flavour to coffee. Therefore, the syrup is not covered by Item 7 and the entity is not making 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 any other provision in Division 38 of the GST Act, nor 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 supplies syrup for flavouring coffee.