Commonwealth Numbered Regulations - Explanatory Statements

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A NEW TAX SYSTEM (GOODS AND SERVICES TAX) AMENDMENT REGULATIONS 2001 (NO. 2) 2001 NO. 126

STATUTORY RULES 2001 No. 126

Issued by the authority of the Assistant Treasurer

A New Tax System (Goods and Services Tax) Act 1999

A New Tax System (Goods and Services Tax) Amendment Regulations 2001 (No. 2)

The Governor-General may make regulations under section 177-15 of the A New Tax System (Goods and Services Tax) Act 1999 (the Act) for the purposes of the Act.

The Regulations will amend the A New Tax System (Goods and Services Tax) Regulations 1999. Further authority for the Regulations is provided in paragraph 38-3(1)(e) of the Act, which provides for regulations to exclude specified food from the application of the GST-free provisions for food contained within section 38-2.

The purpose of the Regulations is to give effect to the Government's original intention that a supply of a potential food additive which may be produced to a 'food grade quality', but is not actually used as an ingredient or mixed with food for human consumption, be subject to the GST.

The Regulations will provide that a supply of certain food additives will be taxable, unless the food additive is an exempt food additive. Each of the following is an exempt food additive:

•       a food additive which, at the time of supply is packaged and marketed for retail sale;

•       a food additive which, at the time of supply:

(i)       has a measurable nutritional value.,

(ii)       is supplied for use solely or predominantly in the composition of food; and

(iii)       is essential to the composition of that food.

The Regulations will operate to ensure that a supply of substances which have only an incidental use in the composition of food but are generally manufactured for other commercial purposes will be taxable.

Details of the Regulations are provided in the Attachment.

The Regulations commence on 1 December 2001.

ATTACHMENT

A New Tax System (Goods and Services Tax) Act 1999

A New Tax System (Goods and Services Tax) Amendment Regulations 2001 (No. 2)

Food additives

Background

Paragraphs 38-4(b) and (e) of the Act refer to ingredients for food, or goods to be mixed with or added to food for human consumption. It is arguable that these provisions apply to goods such as chemicals that are of 'food grade quality' whether or not they are actually mixed with food or used as ingredients for food. If that argument were successful, the supply would be GST-free under section 38-2 of the Act. For example, hydrochloric acid and sulphuric acid are capable of being produced to 'food grade quality' and are listed in the Australian Food Standards Code. However, they are not manufactured for use exclusively in food for human consumption.

Application of the Regulation

Subregulation 38-3.02(1) provides that a supply of food additives will be taxable unless the food additive is an exempt food additive.

Subregulation 38-3.02(2) defines an 'exempt food additive' to be either one which is packaged and marketed for retail sale, or one which satisfies 3 additional tests. If a food additive is supplied in accord with these conditions then it is not specified for the purposes of the Regulations and therefore the GST treatment of a supply of such food additives will be dependent upon the existing provisions.

Paragraph 38-3.02(2)(a) provides the 'retail sale' exemption for food additives. The intention of this paragraph is to ensure that the supply of food additives such as small bottles of food colouring purchased from a supermarket will continue to be GST-free. The concept of 'retail sale' is taken to have its ordinary meaning, that is a retail sale involves the sale of small quantities of goods to householders.

Food additives which are sold on a wholesale basis may still fall under this exemption provided they are packaged and marketed for retail sale, even though there may be a wholesale sale or a number of wholesale sales of the goods in that form before their eventual retail sale. For example, a box of 300 50ml bottles of vanilla essence will still meet this exemption when sold by the manufacturer to a wholesaler as they are still a product that is packaged and marketed for later retail sale.

Paragraph 38-3.02(2)(b) provides that if a food additive is not supplied, packaged and marketed for retail sale then it must have a measurable nutritional value, be supplied for use solely or predominantly in the composition of food and it must be essential to the composition of that food. These 3 tests are intended to limit the application of the GST-free provisions to food additives which play an integral part in the make-up of food as defined in section 38-4 of the Act.