GST and flavoured nuts

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 sells flavoured nuts?

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

The entity is a food supplier that sells flavoured nuts. The nuts are for general consumption and can be eaten directly from the packet. The entity uses various ingredients to flavour the nuts.

The entity is registered for goods and services tax (GST) and 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 by section 38-3 of the GST Act.

Food is defined in section 38-4 of the GST Act to include food for human consumption (paragraph 38-4(1)(a) of the GST Act). Flavoured nuts are food for human consumption and therefore satisfy the definition of food in paragraph 38-4(1)(a) of the GST Act.

However, paragraph 38-3(1)(c) of the GST Act provides that a supply of food is not GST-free if it is food of a kind specified in the table in clause 1 of Schedule 1 to the GST Act (Schedule 1). Item 16 in Schedule 1 (Item 16) lists seeds or nuts that have been processed or treated by salting, spicing, smoking or roasting, or in any other similar way.

Salting, spicing, smoking and roasting are all processes that alter the flavour of nuts. The entity uses various ingredients to flavour the nuts. Flavouring of nuts is similar to salting, spicing, smoking or roasting and is therefore covered by Item 16. Accordingly, the supply of the flavoured nuts is not GST-free 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 of 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 sells flavoured nuts.