Homegrown skincare brand Hey Bud is campaigning against GST on ‘multi-use’ sunscreen, after the Australian Taxation Office (ATO) proposed new guidelines for the growing category of ‘2-in-1’ SPF products.
Sunscreen is a household staple in Australia, protecting wearers from harmful UV rays and minimising the risk of skin cancer.
But in recent years, local brands have given sunscreen new commercial appeal by combining those SPF properties with moisturisers, tints, and primers.
Those brands include Ultra Violette, which last year booked $15 million in equity funding to expand its range of ‘skinscreens’ abroad.
Elsewhere, Naked Sundays offers products like SPF50 peptide foundation tints, packaged individually and in “SPF meets makeup” bundles.
Hey Bud offers its own SPF50 lotion, which it says was formulated with makeup compatibility in mind.
But the question of where sunscreen ends and SPF skincare begins is now a matter for the ATO, which has proposed a tax crackdown on products that aren’t principally sunscreen for GST purposes.
In recognition of its health benefits, a ministerial determination states sunscreen is exempt from GST if it is:
But the fourth point is a source of contention.
In a draft GST determination, published on August 14 last year, the ATO outlined factors that might indicate a product is not “principally” marketed as sunscreen.
Terms like ‘water and sweat resistant’ and ‘reef friendly’ are consistent with marketing as sunscreen, the ATO said, while ‘dry-touch’ and ‘fragrance’ are neutral terms.
But terms like ‘moisturising’, ‘hydrating’, ‘tinting’, and ‘primer’, among others, indicate a “potential marketed use other than as sunscreen,” the ATO said.
Labels like ‘3-in-1’, ‘multi-use’, and ‘foundation’ all “strongly indicate” the product is not marketed principally as a sunscreen.
The draft determination appears to target brands seeking ‘back door’ GST exemptions by cynically adding SPF ingredients to otherwise ordinary cosmetics and skincare products.
There are some exemptions to the proposed GST treatment of SPF products.
The ‘overall impression’ is relevant, the ATO said, listing examples where tinted sunscreen, and sunscreen marketed with anti-aging factors, could count as GST-exempt.
Other factors — like if a product shares shelf space with other sunscreens, instead of cosmetics — should be taken into account, the ATO added.
Nevertheless, the draft GST determination has shaken the new wave of sun protective brands, which argue the way Australians shield themselves from the sun is changing.
Alex Roslaniec, co-founder of Hey Bud, says Australian consumers have welcomed multi-use products with SPF qualities.
Those products are “essentially improving what the current offering was, where previously it was just a protection-based sunscreen of SPF50 with water resistance,” he told SmartCompany.
Now, a question mark hangs over its SPF product line, and whether it should attract GST.
Hey Bud’s SPF50 lotion is marketed with terms like “3-in-1”, “hydrates” and “primes”, all descriptors the ATO says could indicate a product is not principally marketed as sunscreen.
Roslaniec says if GST were applied, Hey Bud would need to absorb the costs or pass them on to consumers.
Neither option is appealing, he said.
“We don’t want to pass the cost onto the consumers, but at the same time, we are also a small business, and so absorbing that extra additional 10% cost… It just puts us in a bit of a difficult position”, he said.
The ATO welcomed public comment on the draft determination between August and September last year.
But the draft determination came as a surprise to some brands active in the sector.
Roslaniec said Hey Bud only learned of the ATO’s position a few months ago during a review of its TGA product listings.
He doesn’t think Hey Bud was the only brand caught off guard.
“I know a few people in the industry, people who are in the sunscreen or SPF space, and they weren’t actually aware of it either,” he said.
With the public consultation period long over, Hey Bud has launched an online petition calling on the ATO to keep ‘multi-use’ sunscreens exempt from GST.
“We’re urging the Australian government to keep multi-purpose sunscreens GST-free to make staying safe in the sun accessible for everyone,” it states.
“If you’re adding specific elements to the product that make it better and give more value to the consumer, to me, it doesn’t make sense why that necessarily would be taxed,” Roslaniec said.
The co-founder said cynically adding SPF properties to makeup is “malicious” and should be avoided.
“However, if the brand or the business is coming from a perspective of a sunscreen — it is primarily a sunscreen, with the intention to protect consumer skin from skin cancer — then, yeah, I think that’s a bit of a different story,” he added.
A final GST determination is expected in the months ahead.
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Senior Business Journalist
Focused on the small business sector, David’s work covers the political, regulatory, and economic issues facing Australian entrepreneurs. Prior to joining SmartCompany, he was a reporter for Business Insider Australia. You can follow him on LinkedIn.
