Is the supply of the specified products (the Products) GST-free pursuant to section 38-2 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?
No. This ruling applies for the following period : ddmmyyyy to ddmmyyyy The scheme commenced on: ddmmyyyy
You are an Australian entity which is registered for GST. You supply beverages to customers in Australia and overseas. Within Australia, you supply the Products to supermarkets, for subsequent retail sale. The Products are newly developed by you. The Products consist of predominantly natural flavours, water and sugar. The Products are in liquid form. They have an easy flowing consistency, thicker than water, but not overly viscous. You provided images of the Products in their packaging including the front and back label artworks. The labelling provides that the Products are for flavouring coffee. The instructions provide to add a specified amount to coffee beverages. You provided website links and content of marketing and promotional materials, which promote the Products as coffee flavouring syrups. The Products are displayed on the supermarket shelf along with other products/additives for preparing coffee beverages including powders, pods, instant and other syrups. The retail price at the supermarket is $X per item.
A New Tax System (Goods and Services Tax) Act 1999 section 38-2 A New Tax System (Goods and Services Tax) Act 1999 section 38-3 A New Tax System (Goods and Services Tax) Act 1999 section 38-4 A New Tax System (Goods and Services Tax) Act 1999 Schedule 2
Summary The Products are not beverages of a kind specified in the third column of the table in clause 1 of Schedule 2 to the GST Act (Schedule 2). The supply of the Products therefore is excluded by paragraph 38-3(1)(d) of the GST Act from being GST-free under section 38-2 of the GST Act. The supply of the Products is a taxable supply. Detailed reasoning Section 9-5 of the GST Act provides that you make a taxable supply if the supply meets the following conditions: (a) you make the supply for consideration (b) the supply is made in the course or furtherance of an enterprise that you carry on (c) the supply is connected with Australia, and (d) you are registered, or required to be registered for GST. However, the supply is not a taxable supply to the extent that it is GST-free or input taxed. Your supply of the Products meets the requirements of paragraphs 9-5(a) to 9-5(d) of the GST Act. Additionally, the supply of the Products is not input taxed. Therefore, what is left to determine is whether the supply of the Products is GST-free.
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 Products are ingredients for flavouring coffee beverages for human consumption therefore they meet the definition of food in paragraph 38-4(1)(d) of the GST Act. However, pursuant to paragraph 38-3(1)(d) of the GST Act, a beverage or an ingredient for a beverage is not GST-free unless it is of a kind of beverage or an ingredient that is specified in Schedule 2. Accordingly, the Products will not be GST-free unless they are 'of a kind' of an ingredient for a beverage specified in Schedule 2. In this case the beverages category in Schedule 2 that is relevant for consideration is the category of 'Tea, coffee etc.', which states: Table 1: In this case, the beverages category in Schedule 2 that is relevant for consideration is the category of 'Tea, coffee etc.', which states: Beverages that are GST-free Item Category
Beverages 5 6 7 8 9 Tea, coffee etc. tea (including herbal tea, fruit tea, ginseng tea and other similar *beverage preparations), coffee and coffee essence, chicory and chicory essence, and malt malt extract, if it is marketed principally for drinking purposes Preparations for drinking purposes that are marketed principally as tea preparations, coffee preparations, or preparations for malted *beverages Preparations marketed principally as substitutes for preparations covered by item 6 or 7 dry preparations marketed for the purpose of flavouring milk Item 7 specifies 'preparations for drinking purposes that are marketed principally as tea preparations, coffee preparations, or preparations for malted *beverages'. The Products are not coffee preparations. That is, they are not ingredients for making coffee beverages. Rather they are designed to be added to coffee beverages for the purpose of flavouring the coffee beverages. In respect of syrups for flavouring beverages, the Detailed Food List, which is a public ruling for the purpose of the Taxation Administration Act 1953, relevantly states:
Table 2: In respect of syrups for flavouring beverages, the Detailed Food List, which is a public ruling for the purpose of the Taxation Administration Act 1953, relevantly states: 1034 coffee flavouring syrup taxable Not an ingredient for a beverage of a kind specified in Schedule 2 of the GST Act. 778 syrups for use to flavour beverages taxable Paragraph 38-3(1)(d) of the GST Act applies as the product is an ingredient for a beverage that is not of a kind specified in Schedule 2 of the GST Act. Paragraph 38-3(1)(d) of the GST Act applies even if the product has a subsidiary use as an ingredient for non-beverage food products. Determining whether a product is an ingredient for a beverage or is an ingredient for a non-beverage food product requires identifying the essential character of the product. Factors to consider include the appearance, viscosity, taste, ingredients, marketing and packaging of the product. The Products are not ingredients for making coffee beverages. While the Products become part of the final product when added to a coffee beverage, they are not of a kind of beverage ingredient specified in Schedule 2.
As the Products are ingredients for flavouring coffee beverages rather than preparations for making coffee beverages, they are not of a kind covered by item 7. Further the Products are not of a kind covered by any other item specified in Schedule 2. As the Products are not of a kind specified in Schedule 2, they are excluded by paragraph 38-3(1)(d) of the GST Act from being GST-free under section 38-2 of the GST Act. The supply of the Products is a taxable supply as it meets all the requirements of section 9-5 of the GST Act.