GST and powdered fruit drink

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 powdered fruit drink?

No, the entity is not making a GST-free supply under section 38-2 of the GST Act when it supplies powdered fruit drink.

The entity is making a taxable supply under section 9-5 of the GST Act.

The entity is a food supplier. The entity supplies powdered fruit drink. The product is prepared for consumption by adding it to water.

The powdered fruit drink contains hydrolysed gelatin, whey protein concentrate, natural extract of chicory root, citric acid, fructose, beet powder colour, natural and artificial flavours, potassium citrate, surculose, red 40 and phenylalanine.

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.

Food is defined in section 38-4 of the GST Act to include ingredients for beverages for human consumption (paragraph 38-4(1)(d) of the GST Act). The powdered fruit drink is an ingredient for a beverage for human consumption and therefore, satisfies the definition of food contained in paragraph 38-4(1)(d) of the GST Act.

However, paragraph 38-3(1)(d) of the GST Act provides that ingredients for beverages are only GST-free if they are of a kind specified in the table in clause 1 of Schedule 2 to the GST Act (Schedule 2).

The powdered fruit drink is not an ingredient for a beverage of a kind specified in Schedule 2. Accordingly, the supply is excluded from being GST-free by paragraph 38-3(1)(d) of the GST Act. As such, 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 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 supplies powdered fruit drink.