Decoding the Tax on Your Daily Brew
Have you ever wondered if there's tax on your daily coffee? Or if you run a cafe, have you ever been confused about which products you should be charging GST on? You're not alone. The rules around the Goods and Services Tax (GST) on food and drink in Australia can be complex, and coffee is a perfect example of this.
This expert roasted coffee bean supplier guide will demystify the topic completely. We'll break down the rules in simple terms, providing clear answers for both the person buying the coffee and the business selling it.
Part 1: A Guide for the Coffee Drinker (Understanding the Price)
Let's start with the basics from a customer's point of view.
A Quick Refresher: What is GST?
GST, or the Goods and Services Tax, is a 10% tax on most goods and services sold in Australia. It's regulated by the Australian Taxation Office (ATO). For many items, the price you see on the tag already includes the GST.
The Main Event: Why Your Takeaway Flat White Has GST
The most important rule to understand is the concept of food or drink that is "prepared for consumption." The ATO says that if a food or drink item is prepared for you so you can consume it immediately, it has GST.
When a barista makes your coffee, they are grinding beans, extracting espresso, steaming milk, and pouring it into a cup. That entire process is the definition of "preparing it for consumption." This rule applies to every single drink a barista makes for you, whether it's a hot flat white, a long black, or a cold iced latte.
The Exception: Why a Bag of Coffee Beans is GST-Free
So, why is a bag of beans different? Because the ATO considers roasted coffee beans (both whole and ground) to be a "basic food" item.
Think of it like buying flour, sugar, or a bag of pasta from the supermarket. These are ingredients that you take home to prepare yourself. Because you are doing the preparation, the sale of the ingredient itself is GST-free. A bag of coffee beans falls into this exact same category.
What About the Milk and Sugar?
Plain milk and sugar are also considered basic, GST-free foods. However, the moment a barista combines them into a finished drink (your latte), the entire final product becomes a "prepared beverage" and is therefore a taxable sale.
| Item You Buy at a Cafe | GST Status | Why? |
|---|---|---|
| Flat White (Dine-in or Takeaway) | Has GST | It is prepared for you to drink immediately. |
| Iced Latte | Has GST | It is prepared for you to drink immediately. |
| 250g Bag of Roasted Coffee Beans | GST-Free | Considered a basic food ingredient for home use. |
| Slice of Cake | Has GST | It is prepared for you to eat immediately. |
| Bottle of Plain Water | GST-Free | Unflavoured, still water is GST-free. |
| Can of Soft Drink | Has GST | Not considered a basic food beverage. |
Part 2: A Guide for the Coffee Business (Managing Your Obligations)
If you own or manage a cafe, getting GST right is crucial for staying compliant and managing your finances. This section is a deep dive for you.
Charging GST Correctly: A Breakdown of Your Sales
- Barista-Made Drinks: You must charge 10% GST on all hot and cold drinks prepared by your staff. This includes every coffee, tea, hot chocolate, and chai you sell.
- Retail Coffee Beans: When you sell a sealed bag of whole or ground coffee beans for a customer to take home, this is a GST-free sale. You do not add GST to the price.
- Food Items: The rules for food can be very complex. As a simple rule of thumb, any food sold hot has GST. Most food sold to be eaten on your premises also has GST. However, there are many exceptions, so it is always best to get professional advice from your accountant for your specific menu.
- Milk & Alternative Milks: If you sell a sealed 1-litre carton of plain milk or oat milk, that is a GST-free sale. If you sell a "glass of milk" for someone to drink, that is a prepared beverage and has GST.
The Power of GST Credits: Claiming Back Your Expenses
This is a huge advantage for any business registered for GST. You get to claim back the GST you pay on your business-related purchases. This is called an Input Tax Credit.
Think of it as a refund from the ATO for the GST you've spent. Here are some of the most common cafe expenses you can claim GST credits on:
- Green Coffee Beans: This is a key point. While roasted beans are GST-free to consumers, the green (unroasted) coffee beans you might buy from an importer or large supplier do have GST. You can claim this back.
- Coffee Equipment: You can claim the GST on your espresso machine, grinders, fridges, and other essential equipment.
- Consumables: The GST on your takeaway cups, lids, sleeves, and napkins is claimable.
- Other Ingredients: You can claim the GST on items like chocolate powder, syrups, and other specialty ingredients.
- Operational Costs: You can also claim the GST on your rent, electricity bills, marketing services, accounting fees, and much more.
| Business Purchase | Can You Claim a GST Credit? | Notes |
|---|---|---|
| Green Coffee Beans | Yes | Purchased from a supplier or importer. |
| Espresso Machine & Grinder | Yes | A key business asset. |
| Plain Milk from Supplier | No | Plain milk is generally GST-free. |
| Oat Milk / Alternative Milks | No | Generally GST-free. |
| Takeaway Cups & Lids | Yes | A standard, taxable business consumable. |
| Rent for Your Cafe Premises | Yes | Assuming your landlord is registered for GST. |
| Electricity & Water Bills | Yes | A standard operational expense with GST. |
Putting It All Together: Pricing, Invoices, and Your BAS
- Pricing: When setting your prices, remember to factor in GST. For example, if you want to receive $4.00 for a coffee, you need to add 10%, so you must charge the customer $4.40.
- Tax Invoices: When you make a sale over $82.50, or if a customer asks for one, you need to provide a tax invoice that shows your ABN and the amount of GST charged.
- Your BAS: Every quarter, you report your numbers to the ATO on your Business Activity Statement (BAS). You'll report the total GST you collected on sales and the total GST you paid on your expenses (your GST credits). You then pay the difference to the ATO.
Navigating GST on Coffee with Confidence
The rules around GST on coffee in Australia can seem tricky, but they are based on one simple idea: prepared food has GST, while basic ingredients do not. For consumers, this explains the price of your daily brew. For businesses, understanding these rules is essential for pricing your products correctly and managing your finances effectively.
Getting GST right is a key part of running a compliant and profitable coffee business.
Navigating GST is just one part of running a successful coffee business. Partner with a roaster who understands the whole picture. Contact us to discuss your wholesale coffee needs.
Frequently Asked questions About GST and Coffee
Are all coffee beans GST-free?
Roasted coffee beans, whether they are whole or pre-ground, are considered a "basic food" and are therefore GST-free when sold in a retail bag. However, green (unroasted) coffee beans are taxable.
Is instant coffee GST-free?
Yes. Just like roasted beans, instant coffee and coffee essences (like coffee syrup) are considered ingredients for home preparation and are GST-free.
What about coffee pods/capsules? Do they have GST?
This is a tricky one. The ATO has determined that coffee pods and capsules are a mix of a product (the beans) and a service (the packaging/system), and therefore, they do have GST.
If a cafe sells me a bag of beans, why don't I get a tax invoice?
Because a bag of roasted coffee beans is a GST-free sale, there is no tax to report. Therefore, a standard receipt is all that is required, not a tax invoice.
As a business, do I pay GST when I buy roasted beans from a wholesaler?
No. When a cafe buys roasted coffee beans from a wholesaler like us to use in their grinder, it is a business-to-business transaction of a GST-free food item. Therefore, there is no GST on the invoice.
Does GST apply to decaffeinated coffee?
Yes, the rules are exactly the same. A barista-made decaf coffee has GST. A bag of decaf coffee beans to take home is GST-free.
Is iced coffee GST-free?
A barista-made iced coffee or iced latte has GST because it is a "prepared beverage." A pre-packaged, flavoured iced coffee drink from a fridge (like an "Ice Break") also has GST.
