ATO Interpretative Decision
ATO ID 2004/536
Goods and Services Tax
GST and oriental pancakes with sweet fillingFOI status: may be released
This ATOID provides you with the following level of protection:
If you reasonably apply this decision in good faith to your own circumstances (which are not materially different from those described in the decision), and the decision is later found to be incorrect you will not be liable to pay any penalty or interest. However, you will be required to pay any underpaid tax (or repay any over-claimed credit, grant or benefit), provided the time limits under the law allow it. If you do intend to apply this decision to your own circumstances, you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed. You may wish to obtain further advice from the Tax Office or from a professional adviser.
Issue
Is the entity, a food supplier, making a GST-free supply under section 38-2 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), when it sells oriental pancakes with a sweet filling?
Decision
No, the entity is not making a GST-free supply under section 38-2 of the GST Act when it sells oriental pancakes with a sweet filling.
The entity is making a taxable supply under section 9-5 of the GST Act.
Facts
The entity is a food supplier. The entity sells oriental pancakes with a sweet filling such as red bean paste or lotus seed paste. While called 'oriental pancakes', these products are similar to tortillas and flat breads and do not resemble pancakes.
The ingredients of the oriental pancakes are wheat flour, margarine, sugar, salt, vegetable oil and red beans or lotus seed paste. Oriental pancakes do not contain egg or milk.
The entity is registered for goods and services tax (GST).
Reasons for Decision
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 food for human consumption (whether or not requiring processing or treatment) (paragraph 38-4(1)(a) of the GST Act). Oriental pancakes with a sweet filling are food for human consumption and 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 is not GST-free if it is food of a kind that is specified in the table in clause 1 of Schedule 1 to the GST Act (Schedule 1).
Item 20 of Schedule 1 (Item 20) lists various bakery items including pancakes and crepes. Therefore, it needs to be determined whether the oriental pancake is a kind of 'pancake' or 'crepe'.
The phrase 'of a kind' is not defined in the GST Act. Accordingly, it is appropriate to examine the ordinary meaning of that term. The Macquarie Dictionary (1997) 3rd edn, The Macquarie Library Pty Ltd, New South Wales does not define the entire phrase 'of a kind'. However, it defines the word 'kind' to mean:
1. A class or group of individuals of the same nature or character, especially a natural group of animals or plants. 2. Nature or character as determining likeness or difference between things: things differing in degree rather than in kind. 3. A person or thing as being of a particular character or class: he is a strange kind of hero. 4. ....
Accordingly, something will be 'of a kind' if it is of the same nature or character (possessing the same distinguishing qualities) as the thing or group in question.
The terms 'pancake' and 'crepe' are also not defined in the GST Act. The Macquarie Dictionary (1997) defines pancake as 'a thin flat cake made from a batter of eggs, flour, sugar and milk, cooked in a frying pan' and 'crepe' as 'a thin pancake'.
Although the products are labelled as pancakes, they are not made from a batter of egg, flour, sugar and milk. Therefore, the oriental pancakes are not a kind of pancake or crepe as listed in Item 20.
Item 27 of Schedule 1 (Item 27) lists 'bread (including buns) with a sweet filling or coating'. An oriental pancake is a flat bread that contains a sweet filling. Therefore, oriental pancakes are food of a kind specified at Item 27 and the supply of oriental pancakes is excluded by paragraph 38-3(1)(c) of the GST Act from being GST-free under section 38-2 of the GST Act.
The entity is registered for GST and the supply satisfies the other positive limbs of section 9-5 of the GST Act. Furthermore, the supply of oriental pancakes with sweet filling is neither GST-free under Division 38 of the GST Act nor input taxed under Division 40 of the GST Act. Therefore, the entity is making a taxable supply under section 9-5 of the GST Act when it sells oriental pancakes with sweet filling.
Date of decision: 13 June 2002
Legislative References:
A New Tax System (Goods and Services Tax) Act 1999
section 9-5
Division 38
section 38-2
section 38-3
paragraph 38-3(1)(c)
section 38-4
paragraph 38-4(1)(a)
Division 40
Schedule 1 clause 1
Schedule 1 clause 1 table item 20
Schedule 1 clause 1 table item 27
ATO ID 2002/908
Other References:
The Macquarie Dictionary, 1997, 3rd edn, The Macquarie Library Pty Ltd, New South Wales
Keywords
Goods and services tax
GST food
Bakery products
GST supplies & acquisitions
Taxable supply
ISSN: 1445-2782