GST issues registers
Primary production industry partnership2 Crops
Question
What is the GST treatment in relation to the packaging of food in the following circumstances a farmer grow apples, and has them bagged by a third party. The farmer pays for this service then sells the bagged apples at the market?
For the source of the ATO view, refer to - Goods and Services Tax: when is the supply of food packaging GST-free in terms of section 38-6 of the A New Tax System (Goods and Services Tax) Act 1999?
Answer
The bagging service is a taxable supply as per section 9-5 and paragraph 9-10 (2)(b) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act).
In relation to the sale of the bagged apples, the apples will be GST-free as per section 38-2 of the GST Act. In addition it is considered that in most cases the packaging of the apples will be GST-free as per section 38-6 of the GST Act as the packaging will usually be necessary and normal. Paragraph 1 and 2 of Goods and Services Tax Determination GSTD 2000/6 discusses this.
Explanation
Section 38-6 of the GST Act states:
'Packaging of food'
It is considered, in most cases, that the packaging component of bagged apples will be intended to contain, promote or protect the apples. Consequently such packaging will be GST-free.
The issue of packaging for food is considered in GSTD 2000/6 - Goods and Services Tax: when is the supply of food packaging GST-free in terms of section 38-6 of the A New Tax System (Goods and Services Tax) Act 1999?
2.3.1 - Commonwealth grain levies
Question
Are commonwealth grain levies (of a kind described in the explanation below) that are not subject to GST by virtue of Division 81 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) deducted from the value or the price of the product?
Non-interpretative - straight application of the law - calculation issue only
Answer
These levies are calculated on the value of the product. They are then deducted from the price of the product. The price is GST-inclusive.
Explanation
Ordinarily, the purchaser deducts the amount of the levy from amounts payable to the grower and forwards this amount on the grower's behalf to the levying agency.
| Value of product | $100 |
| GST payable | $10 |
| Total | $110 |
| Less levy (1% of $100) | $1 |
| The amount payable to the grower. | $109 |
In the example above, the grower will be liable to remit $10 to the Australian Taxation Office leaving them with a balance of $99. This would put the grower in the same position with respect to payment of the levy as they would have been prior to the introduction of the GST. The purchaser on making a creditable acquisition may be entitled to an input tax credit of $10.
Question
Are seed potatoes 'food' for GST purposes?
For the source of the ATO view, refer to the Detailed food list.
Answer
Seed potatoes are normally subject to GST as they are not food for human consumption pursuant to paragraph 38-4(1)(a) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act). However, where the grower determines that the seed potatoes be supplied to the market as food, the supply will be GST-free.
Explanation
This decision is made on the basis of information provided by industry that seed potatoes are generally used to grow potato crops. Seed potatoes are sold as certified seed potatoes. They are potatoes that are grown under special conditions to ensure they are disease free and have a high purity level. A certified seed crop is differentiated from other potato crops in that it has followed a system of management protocols and crop health checks determined by the certification authority. When harvested, the potatoes are visually no different from any other potatoes of the same variety, but they are able to be labelled as certified seed and generally attract a premium price if sold for seed purposes.
Section 38-2 of the GST Act states that a supply of food is GST-free. The meaning of food is contained in section 38-4 of the GST Act and includes food for human consumption. As seed potatoes are used to grow potato crops, they are not considered to be food for human consumption.
Information from industry indicates that seed potatoes are sold as food for human consumption when the grower can obtain a good price for the potatoes. At the time the farmer decides to sell the seed potatoes as food rather than for the purpose of growing crops, the potatoes are food for human consumption pursuant to paragraph 38-4(1)(a) of the GST Act and this sale will be GST-free.
Example
A farmer sells certified seed potatoes to another farmer to use to grow potato crops. As the seed potatoes are for the purpose of growing potato crops, they are not food for human consumption.
Example
A seed potato grower sells some of his seed potatoes to the local fish and chip shop. The potatoes are sold as food for human consumption pursuant to paragraph 38-4(1)(a) of the GST Act and they will be GST-free in accordance with 38-2 of the GST Act.
2.5.1 - At what point do pulses become food for the purposes of the GST Act?
Question
At what point do pulses, for example peas, chick peas, mung beans and lupins, become food for the purposes of the GST Act?
For the source of the ATO view, refer to GSTB 2001/1 - Pulses supplied as food for human consumption.
Answer
A supply of food is, subject to certain exceptions, GST-free.
Pulses are the hard, dried, edible seeds of leguminous plants such as field peas, lentils, chick peas, soya beans, mung beans and faba beans.
Only machine dressed pulses supplied as food for human consumption will be treated as food under the A New Tax System (Goods and Services Tax) Act 1999 (GST Act).
The fresh (not dried) produce of leguminous plants, such as garden peas or beans will be treated as food under the GST Act provided they are supplied as food for human consumption.
Similarly, bean, pea or mung beans that have been sprouted and are sold fresh for immediate consumption are food under the GST Act if they are supplied as food for human consumption.
Explanation:
To be considered food for GST purposes, the definition of food in the GST Act must be satisfied.
The GST Act defines 'food' to mean:
- •
- food for human consumption
- •
- ingredients for food for human consumption
- •
- beverages for human consumption
- •
- ingredients for beverages for human consumption
- •
- goods to be mixed with or added to food for human consumption
- •
- fats and oils marketed for culinary purposes.
If a supply of something is not for human consumption, it is not food. Even though produce may be supplied for human consumption there are exclusions from the definition of food that may also need to be considered. These exclusions can prevent produce from meeting the definition of food.
For pulses, the relevant definition is:
'any grain, cereal or sugar cane that has not been subject to any process or treatment resulting in an alteration of its form, nature or condition.'
The word 'grain' is not defined in the GST act and therefore takes it ordinary meaning. Although 'grain' most commonly implies the edible seeds of cereal, it can also apply to other hard seeds, such as sunflower seeds, linseed, rapseed (canola) and dried pulses. It is common practice in the industry for pulse growers to call themselves grain growers and to refer to pulses as pulse grains. Government departments and peak bodies also commonly treat pulses as grain and treat pulse growers as grain growers.
For the purposes of the GST Act the ATO interprets the term 'grain' to include dried pulses.
As pulses are grains for GST purposes, they are not considered food unless they have been subjected to a process or treatment that has altered their form, nature or condition.
Machine dressing is a process that alters pulses' condition. Farm dressing, by contrast is part of the harvesting process. Pulses that are merely farm dressed have not been subjected to a process or treatment that has altered their form, nature or condition and are therefore not considered food for human consumption.
Accordingly, pulses supplied for human consumption that have been machine dressed are food for the purposes of the GST Act.
For further details please refer to - Pulses supplied as food for human consumption.
Question
Which entity is the entity making a taxable supply of sugar cane in the following situation: the sugar cane assignment holder (A) provides the land and sugar assignment to a related business entity (B) by virtue of a written agreement, lease or contract and that related entity then produces and sells cane to the mill. The related business entity is neither subcontracted by the assignment holder nor acts as agent of the holder.
Non-interpretative - straight application of the law
Answer
In this situation, it is considered that it is the business entity (B) which sells the cane to the mill that is making the taxable supply to the mill (as unprocessed cane is not food), not the assignment holder (A).
Explanation
Only the entity that is entitled to the proceeds or legally incurs the expenses is liable for GST and can claim input tax credits for creditable acquisitions. The business entity (B) will need to apply for an ABN and register for GST if required to do so. It may also be possible for the cane assignment holder (A) to register for an ABN, provided that they meet the necessary requirements.
If the cane assignment holder (A) is registered or required to be registered for GST and provides the land and cane assignment to the business entity (B) by way of a lease or contract, the normal GST rules will apply, provided that the consideration is based on commercial rates. The cane assignment holder (A) will make a taxable supply to the business entity (B) and will be liable for GST on that transaction. The business entity (B) will entitled to claim input tax credits for any creditable acquisitions that it makes.
Where the cane assignment holder (A) is registered or required to be registered for GST and there is a written agreement, lease or contract under which there is no consideration payable or where the consideration is not based on commercial rates, it will be necessary to consider the application of Division 72 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act).
This Division ensures that supplies to, and acquisitions from, your associates without consideration are brought within the GST system, and that supplies to your associates for inadequate consideration are properly valued for GST purposes. Associate is a defined term in section 195-1 of the GST Act. It has the meaning given by section 318 of the Income Tax Assessment Act 1936.
It is important to note that Division 72 will only apply if the recipient of the supply is not entitled to a full input tax credit. The recipient will not be entitled to a full input tax credit where they are not registered or required to be registered or if the acquisition was not solely for a creditable purpose.
Additional information on this issue can be viewed at issue 2.6.3.
Question
What are the GST implications where the sugar cane assignment holder, under a sharefarming agreement, receives the proceeds of sale and pays 85% to a share farmer who pays all operating and harvesting costs.
Non-interpretative - straight application of the law
Answer
Sharefarming arrangements can be complex. Regardless of the complexity of the arrangement, the basic rule remains that only the person who is entitled to the proceeds or who legally incurs the expenses is liable to pay GST or claim an input tax credit. Accordingly, in the case of shared proceeds of sale, both parties would be liable to GST in proportion to their respective shares. Similarly, each party would be entitled to input tax credits based on the extent to which they were personally liable for the expenses. Where sharefarmers are carrying on separate enterprises for GST purposes and are registered or required to be registered, any transactions between the parties would be subject to GST.
Generally, because of the diversity of sharefarming arrangements each case will need to be decided on its own particular facts.
Explanation
Only the entity that is entitled to the proceeds or legally incurs the expenses is liable for GST and can claim input tax credits for creditable acquisitions.
The GST legislation is transaction based. It deals with supplies that take place between entities. In order to be able to determine the GST implications of sharefarming arrangements, it is necessary to identify the entities involved and the particular transactions that they undertake. Once this has been established, the parties will be subject to the normal GST rules that apply to the facts.
For additional information on this issue see issue 2.6.3.
2.6.3 - Sugar cane - GST-free status
Question
At what point in the production/distribution chain does the status of sugar cane change from a taxable supply to a GST-free supply of food?
Non-interpretative - straight application of the law
GST policy/law
The supply of food is GST-free. Food is a defined term and has the meaning given by section 38-4 of the GST Act. Sugar cane is specifically exempted from the definition of food, however, sugar is considered to be food.
Answer
The supply of sugar will be a taxable supply until the point in the production/distribution chain where it becomes either DC Raw (for domestic consumption) and/or refined sugar. DC Raw is raw sugar that has been refined to the stage where it is for direct human consumption. The product is produced and handled in ways consistent with being a food grade product and does not require further processing.
Sugar becomes GST-free as food when it leaves the refinery as it is sufficiently processed for human consumption. Any transactions prior to this will be taxable supplies.
2.6.4 - Sugar cane production area (CPA) issues
This issue is no longer relevant as the CPA system was abolished in 2005. The issue previously stated:
Question
Which entity is making the taxable supply of cane to the mill for the purposes of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?
Non-interpretative - straight application of the law
Background information
It is understood that the sugar industry in Queensland is governed by the Sugar Industry Act 1999 (Qld) (SIA). Under the provisions of the SIA, a person may hold an entitlement called a CPA (Cane Production Area). The CPA entitles a grower to enter into a supply agreement with a mill owner to supply cane grown on the CPA to the mill. The CPA is considered to be property and may be sold, leased, subleased or otherwise transferred, so long as certain formal requirements are satisfied.
It is further understood that it is accepted within the industry that the CPA holder may be a different entity from the entity which grows the sugar cane.
Answer
Given the diversity and complexity of the various arrangements that exist in the sugar industry, it is not possible to provide one answer which will satisfy all situations. Therefore, each case will have to be decided on its particular facts.
It is the responsibility of the entities involved to examine their existing arrangements and determine which entity is making the taxable supply of cane to the mill. This will be a question of fact. The supplier of the cane will need to apply for an ABN and, if required, register for GST. If this entity is different from the CPA holder, the supplier of the CPA - or right to use the CPA - may also be required to have an ABN and be registered for GST. The supply of the right to use the CPA would be a supply for the purposes of GST.
Where the entity making the taxable supply of cane to the mill quotes its ABN prior to any payment being made, this will be sufficient to avoid the application of the PAYG withholding provisions.
Generally, the mills are not responsible for ensuring that a supplier's quoted ABN is correct.
Possible scenarios
1. CPA holder provides land and CPA to a related entity
It is understood that it is common for CPA holders to provide land and/or the CPA to a related business entity which grows the cane and sells it to the mill. The payment for the cane goes to the business entity via a banking directive provided to the mill by the CPA holder. Under these arrangements it is understood that the business entity is neither a sub-contractor nor acts as an agent of the holder.
Where this type of arrangement occurs, it is considered that it is the business entity which makes the taxable supply of cane to the mill. The business entity should register for an ABN and provide that number to the mill in order to avoid the PAYG withholding provisions. Quotation must be made prior to any payments being made.
2. Transfer as per the SIA
Where the grower has transferred its entitlement to the CPA as per the requirements of the SIA, it is the transferee who will hold the CPA and be entitled to make supplies of cane to the mill. If this supply satisfies the requirements of a taxable supply, the CPA holder must return GST on the supply.
If the above is the case, the CPA holder should apply for an ABN and, if required, register for GST. The transferee should quote its ABN to the mill, before any payment is made, to avoid the application of the PAYG withholding provisions.
If a related entity is involved, the result may be similar to scenario 1 above.
3. Sharefarming
It is understood that some CPA holders enter into formal or informal sharefarming agreements with other entities. These entities can be either related or unrelated. Some agreements may provide that the business entity supplies cane to the CPA holder, who in turn makes a supply of cane to the mill. Other agreements may provide the right to the CPA to the other entity and it is that entity which makes the supply to the mill.
Regardless of the complexity of the arrangement, the basic rule is that only the entity that is entitled to supply the cane to the mill for the purposes of the GST Act will be liable to pay any GST and claim input tax credits in relation to the supply. Because of the diversity of sharefarming arrangements, each case will need to be decided on its own particular facts.
Again, all entities involved should examine their existing agreements to determine who is supplying cane to the mill. It is this entity which should quote its ABN to the mills before any payment is made, in order to avoid the application of the PAYG withholding provisions.
4. Lease
Where a CPA holder has entered into a lease with another entity, the parties should examine the lease documentation to determine who is entitled to supply the cane to the mill. It is that entity which makes the supply of cane to the mill and it will be liable for any GST payable. That entity will require an ABN and should quote it to the mill before any payment is made in order to avoid the application of the PAYG withholding provisions.
Conclusion
It is not possible to provide one answer that will cover all factual situations within the sugar industry. The scenarios discussed above are indicative only and if growers have any questions about their particular situation they should apply for a private ruling.
Cane growers must consider all of their arrangements and determine which entity is making the taxable supply of cane to the mill. This entity should apply for an ABN and register for GST if necessary.
Other issues to consider
Other related issues that require consideration include:
- •
- The definition of enterprise as it relates to the CPA holder
- •
- ABN issues
- •
- Division 72 of the GST Act, and
- •
- GST grouping.
(a) Definition of enterprise as it relates to the CPA holder
Regardless of the arrangements that the CPA holders have with other entities, they may still be considered to be carrying on an enterprise for the purposes of the GST Act. Section 9-20 of the GST Act provides the definition of enterprise. Subsection 9-20(1) of the GST Act states:
An enterprise is an activity or series of activities done:
- •
- in the form of a business
- •
- in the form of an adventure or concern in the nature of trade
- •
- on a regular or continuous basis, in the form of a lease, licence or other grant of an interest in property.
Further guidelines about whether or not activities constitute the carrying on of an enterprise can be found in which deals with the meaning of carrying on an enterprise for the purposes of entitlement to an ABN.
Paragraph 150 of MT 2006/1 lists a number of activities or series of activities that would be considered to be an enterprise for the purpose of section 38 of the A New Tax System (Australian Business Number) Act 1999 (ABN Act).
The CPA holder may be considered to be carrying on a business, depending on other activities they may undertake. Whether or not activities are considered to be carrying on a business has to be determined against the indicators of a business as established by case law. Taxation Ruling TR 97/11 provides guidance on the business indicators as they relate to primary production.
CPA holders should also consider whether they are carrying on activities in the form of a lease, licence or other grant of interest in property as both land, the CPA and right to use either are considered to be property. Paragraph 306 of MT 2006/1 says that an activity is 'regular' if it is repeated at reasonably proximate intervals and 'continuous' if there is no significant cessation or interruption to the activity. Whether an activity is repeated over time on a regular basis is a question of fact and degree.
If CPA holders consider that they are carrying on an enterprise then they will need to apply for an ABN and, if required, register for GST.
(b) ABN issues
As stated above, the mills are generally not responsible for ensuring that a supplier's quoted ABN is correct.
However, if there is reason to suspect that it might not be genuine or that it does not belong to the supplier who quoted it, they should make further enquiries. Circumstances that may alert them to the need to make further enquiries are:
- •
- Wrong configuration: An ABN has 11 digits. An entity may quote a 14-digit number. This would be their ABN plus a GST branch registration number. An ABN does not have any letters.
- •
- Sequential numbers, repeating numbers or unusual number patterns. You can check the mathematical validity of the number by referring to the fact sheet:
- •
- The invoice details do not match the person you believed was supplying you or the type of supplies you are receiving.
If the ABN quoted on the invoice is not valid or the details do not match the supplier, the mill should withhold 46.5 per cent of any payment that it makes.
(c) Division 72 of the GST Act - associates
Where the supplier of the right to use the CPA is registered or required to be registered and provides the CPA to a related entity which is registered or required to be registered, the normal GST rules will need to be considered.
However, where the supplier of the right to use the CPA is registered or required to be registered and there is an agreement under which there is no consideration payable or where the consideration is not based on commercial rates, it will be necessary to consider the application of Division 72 of the GST Act where the supplier and recipient are associates. Associate is a defined term in section 195-1 of the GST Act. It has the meaning given by section 318 of the Income Tax Assessment Act 1936.
It is important to note that division 72 of the GST Act will only apply if the recipient of the supply is not entitled to a full input tax credit. The recipient will not be entitled to a full input tax credit where they are not registered, or required to be registered, or if the acquisition was not solely for a creditable purpose.
(d) Grouping provisions
Regulations are now in place to broaden the range of entities that can group under division 48 of the GST Act to include partnerships, trusts and individuals.
If cane growers' business structures are such that they meet the eligibility criteria, they will be able to form a GST group.
The regulations are intended to enable a broad range of entities to utilise the grouping provisions for partnerships and trusts. The changes will help many businesses reduce compliance costs by removing the need to charge GST and claim input tax credits, as well as create tax invoices for supplies between related entities.
The regulations are contained in division 48 of the A New Tax System (Goods and Services Tax) Regulations 2019 (regulations).
Who can group?
The following entities may group:
- •
- companies
- •
- trusts
- •
- partnerships
- •
- non-profit organisations
- •
- individuals.
Effect of GST grouping
The effect of grouping is:
- •
- It allows certain entities to be treated as a single entity.
- •
- One nominated member will be responsible for most GST liabilities - the nominated representative.
- •
- One GST return is lodged for the group.
- •
- Intra-group transactions are excluded from the GST system.
What are the membership requirements?
Section 48-10 of the GST Act sets out the membership requirements for a GST group. Each entity must:
- •
- either be a company, partnership, trust or individual and fulfil the requirements specified in the regulations
- •
- if the entity is a company, be a company of the same 90 per cent owned group as all the other members of the GST group are also all companies
- •
- be registered
- •
- have the same tax periods
- •
- account for GST on the same basis
- •
- not be a member of another GST group, and
- •
- not have any branch registered under division 54 of the GST Act.
Are there any additional requirements?
Apart from the above, there are additional requirements for partnerships and trusts. They are as follows:
A. Specific criteria for partnership eligibility to GST group
Partnerships can also be part of a GST group. Partnerships cannot group with partnerships.
There are four types of rules determining whether a partnership can be a member of a GST group. If the partnership meets any of the rules it can group with the specific entity.
- •
- The Partnership Owner Rule allows a partnership to GST group with a company who is a member of the GST group or proposed GST group if the partnership has a 90 per cent or more beneficial ownership in the company.
- •
- The Partner Single Shareholder Rule allows a partnership to GST group with a single shareholder company where a partner in the partnership or a family member of the partner is the shareholder of the company.
- •
- The Partners Multiple Shareholder Rule allows a partnership to GST group with a company with more than one shareholder where all of the shareholders are represented, either personally or by family members, by at least two partners of the partnership.
- •
- The Trusts with Partners as Beneficiaries Rule allows a partnership to GST group with a trust that is a member of the GST group or proposed GST group if at least two partners are represented as beneficiaries either personally or by a family members. The beneficiary may be a direct beneficiary of the trust or a beneficiary through one or more interposed trusts.
B. Specific criteria for trust eligibility to GST group
Trusts can also be part of a GST group. Trusts cannot GST group with trusts.
There are two rules determining whether a trust can be a member of a GST group. If the trust meets any of the rules it can group with the entity involved.
- •
- The Trust Owner Rule allows a trust to GST group with a company who is a member of a GST group or a proposed GST group if the trust has at least a 90 per cent stake in a company.
- •
- The second class of rules involves the status of beneficiaries. This class of rule allows the trustee of the trust to only distribute income or capital of the trust to a beneficiary that is a permitted beneficiary for the period that the trust wishes to GST group.
Who is a permitted beneficiary?
A permitted beneficiary may be a direct beneficiary or an indirect beneficiary through one or more interposed trusts. The different permitted beneficiaries are:
- •
- a company that is a member of the GST group or proposed GST group (Beneficiary Owner Rule)
- •
- the shareholder or a family member of that shareholder of a single shareholder company, that is a member of the GST group or proposed GST group (Beneficiary Single Shareholder Rule)
- •
- at least two shareholders, or family of at least two shareholders, of a multiple shareholder company - that is a member of the GST group or proposed GST group (Beneficiary Multiple Shareholder Rule)
- •
- at least two partners, or family members of at least two partners, of the partnership that is a member of the GST group or proposed GST group (Partnerships with Beneficiaries as Partners Rule)
- •
- a charitable institution, a trustee of a charitable fund or a gift-deductible entity (Charities Rule), and
- •
- an individual who is a member of the GST group (Individuals Rule).
Where a trust has only permitted beneficiaries receiving income or capital from the trust, it may group with another entity providing that entity meets its own grouping requirements. This means that non-permitted beneficiaries may still be beneficiaries of GST grouped trusts as long as they don't receive income or capital during the period the trust is GST grouped.
C. Specific criteria for individual eligibility to GST group
Individuals can also be part of a GST group. Individuals cannot GST group with individuals.
There are four rules determining whether an individual can be a member of a GST group. If the individual meets any of the rules it can group with the entity involved.
- •
- The Individual Owner Rule allows an individual to GST group with a company who is a member of the GST group or proposed GST group if the individual has a 90 per cent or more beneficial ownership of the company.
- •
- The Individual Multiple Membership Rule allows an individual to GST group with a company where one or more of the members of the company consist of either or both of the individual or family members of the individual.
- •
- The Partnership Member Rule allows an individual to GST group with a partnership where either or both of the individual and family members of the individual comprise the partners in the partnership that is a member of a GST group.
- •
- The Individual as a Beneficiary Rule allows an individual to GST group with a trust that is a member of a GST group or proposed GST group if either or both of the individual and family members of the individual are directly or indirectly beneficiaries of the trust, and the trustee of the trust distributes income or capital of the trust only to permitted beneficiaries.
What is 'family'?
'Family' of a partner, beneficiary or shareholder will be any parent, grandparent, brother, sister, nephew, niece, child or child of a child of either the individual or the individual's spouse. Family also includes the partner's spouse and the spouses of any person mentioned in the previous sentence.
2.7.1 - Green tea - GST-free status
Question
At what point does green tea become GST-free?
For the source of the ATO view, refer to the Detailed food list.
Answer
Green tea is GST-free as an ingredient for a beverage for human consumption once it has gone through the following processes as discussed below and is in a form that is ready for consumption. Beverages marketed in a ready to drink form such as iced tea and takeaway tea are taxable.
Explanation
A supply of food is GST-free pursuant to section 38-2 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act). of the GST Act defines 'food' to include:
- '(c)
- beverages for human consumption;
- (d)
- ingredients for beverages for human consumption; ...'
Paragraph 38-3(1)(d) of the GST Act states that, food is not GST-free under if it is a supply of a beverage (or an ingredient for a beverage), other than a beverage (or ingredient) of a kind specified in the third column of the table in Clause 1 of Schedule 2.
Item 5 of Schedule 2 of the GST Act states:
'tea (including herbal tea, fruit tea, ginseng tea and other similar beverage preparations), coffee and coffee essence ...'
Item 7 of Schedule 2 of the GST Act states:
'preparations for drinking purposes that are marketed principally as tea preparations...'
How is green tea processed?
Information from industry is that green tea goes through the following processes after it is picked. Processing for green tea is different from processing for black tea. To make black tea, the fresh leaf is withered by exposure to air and is broken and left to ferment after picking.
For green tea, the leaf is not fermented at all. Instead, it is steamed and heated immediately after harvesting to stop the fermentation process. This softens the leaves for rolling and keeps the juices from oxidising. The steamed leaves are then rolled and dried, loosening the fibres, which brings out the flavour in the whole leaf. In the process of rolling the tea leaves become twisted. At first, the tea leaves are rolled coarsely and then are rolled more finely to give it a uniform twist. The water content is reduced to protect it from changes in quality.
Finally, the tea is sorted and the stems and dust are removed and the leaf shape and size are arranged before it is finished as tea that is in its final form as a preparation for a beverage. At this point, the green tea is GST-free as an ingredient for a beverage for human consumption.
However, this does not include beverages marketed in a ready-to-drink form (for example, iced tea and takeaway tea) as these types of beverages are specifically excluded by Clause 2 of Schedule 2 of the GST Act.
For further details please refer to Issue 25 of the Food Industry Partnership - issues register.
2.7.2 - Coffee beans - GST-free status
Question
Are coffee beans and green tea subject to GST?
For the source of the ATO view, refer to the Detailed food list.
Answer
A supply of food for human consumption is generally GST-free under section 38-2 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act).
Explanation
Section 38-4 of the GST Act defines food to include:
- (c)
- 'beverages for human consumption;
- (d)
- ingredients for beverages for human consumption...'
Paragraph 38-3(1)(d) of the GST Act states that, food is not GST-free under section 38-2 of the GST Act if it is a supply of a beverage (or an ingredient for a beverage), other than a beverage (or ingredient) of a kind specified in the third column of the table in clause 1 of Schedule 2 of the GST Act.
Schedule 2 of the GST Act specifically lists the following ingredients for beverages as being GST-free:
Item 5:
'tea (including herbal tea, fruit tea, ginseng tea and other similar beverage preparations), coffee and coffee essence...'
Item 7:
'preparations for drinking purposes that are marketed principally as tea, coffee preparations...'
The ATO is of the view that both roasted and green coffee beans that are an ingredient for a beverage for human consumption will be GST-free in accordance with item 5 of Schedule 2 of the GST Act.
Green tea will be regarded as GST-free when it is in its final form as a preparation for a beverage. However, this does not include beverages marketed in a ready-to-drink form (for example, iced tea and takeaway tea).
For more details on coffee beans please refer to Issue 16 of the Food Industry Partnership - issues register.
For more details on green tea please refer to Issue 25 of the Food Industry Partnership - issues register.
2.8.1 - Wheat sales - transitional
Question
Whether supplies of wheat made by growers prior to 1 July 2000 (and for which consideration is received on or after 1 July 2000) is subject to GST?
Non-interpretative - straight application of the law
Answer
No
Explanation
GST is payable on a supply to the extent that it is made on or after 1 July 2000 (subsection 7(1) of the A New Tax System (Goods and Services Tax Transition) Act 1999 (Transition Act). By virtue of subsection 5(2) the term supply has the same meaning as contained in section 9-10 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act).
Under paragraph 9-10(2)(a) of the GST Act, a supply includes a supply of goods (in this instance, grain).
Section 6 of the Transition Act contains specific timing rules for determining when a supply is made for the purposes of the transitional arrangements. In particular, subsection 6(2) of the Transition Act covers the supply of goods. A supply occurs where grain is made available by grain growers for the Australian Wheat Board's use, (in most instances, this will occur where grain is delivered by grain growers to silos/depots of AWB (or their agent) and delivery of the grain is accepted by AWB).
Where supplies occur prior to 1 July 2000, no proportion of the grain is subject to GST by virtue of section 7 of the Transition Act.
2.9.1 - Ownership of crops before harvest
| The content for this issue is a public ruling for the purposes of the Taxation Administration Act 1953 and can be found here. |
2.9.2 - Farm ownership and crops
| The content for this issue is a public ruling for the purposes of the Taxation Administration Act 1953 and can be found here. |
For more information in relation to this please refer to issue 2.9.1.
2.9.5 - Sale of farm land and sale of crops
Question
When a farm is sold, are crops owned by the business operator sold by the land owner as agent for the business operator?
Non-interpretative - other references (see - Goods and services tax: agency relationships and the application of the law)
Answer
This will depend on the facts in each case.
Explanation
Where crops owned by a business operating entity are sold at the same time as a land owning entity sells the land on which the crops are growing, the business operator may be considered to be making a supply.
This supply could be between:
- •
- the business operator and the purchaser direct,
- •
- the business operator and the purchaser via the agency of the land owner, or
- •
- the business operator and the land owner, with the land owner on-selling the crop to the purchaser.
The facts of each case will need to be examined in order to determine the parties to the transaction and their relationship to each other. Once this has been determined, normal GST rules can be applied to the transaction.
For more information on Agency see GSTR 2000/37 - Agency relationships and the application of the law.
2.10.1 - Loan agreements between grain growers and marketing boards
Question
Will a loan provided by a subsidiary of a grain marketing organisation to grain suppliers (growers) upon delivery of grain to a grain marketing organisation, constitute 'consideration' in regard to the supply of grain for the purposes of the GST legislation?
Non-interpretative - straight application of the law
Answer
No
Explanation
A 'financial supply' is input taxed under section 40-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act). The A New Tax System (Goods and Services Tax) Regulations 2019 (Regulations) stipulate what supplies are financial supplies.
Where an agreement is entered into, which by the terms and conditions of the contract, has the character and substance of a commercial loan, then the agreement will be accepted as constituting a loan and not as 'consideration' for the purposes of the GST Act.
2.10.2 - Loan agreements between grain growers and marketing boards
Question
Will a loan provided by a subsidiary of a grain marketing organisation to grain suppliers (growers) upon delivery of grain to the grain marketing organisation, constitute a 'financial supply' for the purposes of the GST legislation?
Non-interpretative - straight application of the law
Answer
Yes
Explanation
A 'financial supply' is 'input taxed' under section 40-5 of the of A New Tax System (Goods and Services Tax) Act 1999 (GST Act). A loan which satisfies the requirements of Division 40 in A New Tax System (Goods and Services Tax) Regulations 2019 ('GST Regulations'), is considered to be a financial supply.
Where a loan agreement is considered to be a 'financial supply' by virtue of Division 40 in the GST Regulations, then it is a financial supply for the purposes of the GST Act.
Question
What is the GST treatment in relation to the packaging of food in the following circumstances; a farmer grow apples, and has them bagged by a third party. The farmer pays for this service then sells the bagged apples at the market?
For the source of the ATO view, refer to GSTD 2000/6 - Goods and Services Tax: when is the supply of food packaging GST-free in terms of section 38-6 of the A New Tax System (Goods and Services Tax) Act 1999?
Answer
The bagging service is a taxable supply as per section 9-5 and paragraph 9-10 (2)(b) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act).
In relation to the sale of the bagged apples, the apples will be GST-free as per section 38-2 of the GST Act. In addition it is considered that in most cases the packaging of the apples will be GST-free as per section 38-6 of the GST Act as the packaging will usually be necessary and normal. Paragraph 1 and 2 of Goods and Services Tax Determination GSTD 2000/6 discusses this.
Explanation
Section 38-6 of the GST Act states:
Packaging of food
- •
- A supply of packaging in which food is supplied is GST-free if the supply of the food is GST-free. (2) However, the supply of the packaging is GST-free under this section only to the extent that the packaging:
- o
- is necessary for the supply of the food;
- o
- and (b) is packaging of a kind in which food of that kind is normally supplied.'
It is considered, in most cases, that the packaging component of bagged apples will be intended to contain, promote or protect the apples. Consequently such packaging will be GST-free.
The issue of packaging for food is considered in GSTD 2000/6 - Goods and Services Tax: when is the supply of food packaging GST-free in terms of section 38-6 of the A New Tax System (Goods and Services Tax) Act 1999?
Question
Are raw/unprocessed olives GST-free as food for human consumption?
Non-interpretative - straight application of the law
Answer
Yes, raw/unprocessed olives are GST-free as food for human consumption pursuant to section 38-2 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act).
Explanation
A supply of food will be GST-free under section 38-2 of the GST Act. The term 'food' is defined in subsection 38-4(1) to include 'food for human consumption (whether or not requiring processing or treatment)'.
Raw/unprocessed olives satisfy the definition of food contained in paragraph 38-4(1)(a) of the GST Act.
However, under paragraph 38-3(1)(c) of the GST Act, a supply of food will not be GST-free if it is food of a kind that is specified in the table in clause 1 of Schedule 1 of the GST Act (Schedule 1).
Raw/unprocessed olives are not specified in Schedule 1.
In addition, the supply of raw/unprocessed olives does not fall within any of the other exclusions in section 38-3 of the GST Act.
Accordingly, the supply of raw/unprocessed olives is a GST-free supply, even though raw/unprocessed olives are unpalatable.
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