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You cannot rely on this record in your tax affairs. It is not binding and provides you with no protection (including from any underpaid tax, penalty or interest). In addition, this record is not an authority for the purposes of establishing a reasonably arguable position for you to apply to your own circumstances. For more information on the status of edited versions of private advice and reasons we publish them, see PS LA 2008/4.

Edited version of your written advice

Authorisation Number: 1051210942743

NOTICE

This private ruling was revised following issue. This edited version has therefore been replaced with the edited version of the private ruling with the authorisation number of 1051213875883

Date of advice: 6 April 2017

Ruling

Subject: GST and XYZ named products

Question

ls your supply of the XYZ named products, A, B, C, and D GST-free?

Decision

Yes, your supply of the XYZ named products is GST-free under section 38-2 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act).

Relevant facts and circumstances

You are registered for goods and services tax (GST).

You sell the following products:

Product A

The ingredients include flour, egg, milk and concentrated butter.

Product B

The ingredients include flour, egg, milk and butter.

Product C

The ingredients include flour, egg, milk and concentrated butter

Product D

The ingredients include flour, egg, milk but no butter

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 Section 9-5

A New Tax System (Goods and Services Tax) Act 1999 Section 38-2

A New Tax System (Goods and Services Tax) Act 1999 Section 38-3

A New Tax System (Goods and Services Tax) Act 1999 Section 38-4

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 (paragraph 38-4(1)(a)).

The products satisfy the definition of food because they are sold as food for human consumption. Therefore the products will be GST-free unless they fall within any of the exclusions in section 38-3 of the GST Act.

Of relevance to your circumstances is the exclusion under paragraph 38-3(1)(c) of the GST Act which provides that 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).

Schedule 1

Clause 1 of Schedule 1 of the GST Act specifies a range of foods that are not GST-free. In relation to bakery products, the following relevant item is included in Schedule 1: 

Item 25 XYZ

The products refer to 'XYZ’ however it still has to be determined whether they are in fact XYZ for the purposes of Schedule 1.

XYZ

The Macquarie Dictionary 6th Edition ('the dictionary') defines 'XYZ' as:

    “a kind of light, sweet bun or roll, raised with eggs and yeast”.

This definition does not assist as not all light, sweet buns or rolls raised with eggs and yeast are XYZ.

Recipes to make XYZ appear to generally contain milk, butter, eggs and flour in the ingredients with the butter to flour ratio usually ranging between X - X% in terms of weight. Higher proportions of butter is used in sweet rich buttery products and lower ratios for the lighter products used for more bread-like savoury products.

In the proportions of butter referred to in recipes, butter is referred to not concentrated butter which is generally an industrially-made clarified butter where water, lactose and casein protein are removed from the cream or butter. Concentrated butter can be extremely high in butterfat.

Whilst it could be accurate to say that traditionally, XYZ is eaten as a form of cake as Chef Joel Robuchon, editor. (2007). Le Grand Larousse Gastronomique stated on page 134:

'XYZ is eaten with dessert or tea’,

XYZ can have different forms with XYZ à tête or parisienne being the most classically recognized form with its round ball of topped with a smaller ball of dough to form the head, to loaves and other forms.

Furthermore, the entry test into Schedule 1 is made wider by virtue of paragraph 38-3(1)(c) of the GST Act which refers to food of a kind to those foods listed in Schedule 1.

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 does not define the entire phrase 'of a kind'. However, it defines the word 'kind' to mean:

      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…

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.

With regard to your products:

Product D

This cannot be what is widely considered to be XYZ as it contains no butter. Therefore it also cannot be 'of a kind' (the same nature or character) of XYZ. This product is not subject to GST as it is a bakery product which does not fall within item 25 or any of the other items in Schedule 1 to the GST Act.

Product B

This has a ratio of X% butter to just under X% flour. It has the normally accepted ingredients of XYZ ie milk, butter, eggs and flour however, the ratio of butter to flour is much lower than what is traditionally contained in XYZ. Therefore it is not XYZ. Furthermore, it cannot be of a kind of XYZ as it does not sufficiently have the same nature or character as XYZ.

This product is not subject to GST as it is a bakery product which does not fall within item 25 or any of the other items in Schedule 1 to the GST Act.

Product A

X% butter concentrate to X% flour.

Product C

X% butter concentrate to X% flour

The two products have the normally accepted ingredients of XYZ ie milk, butter, eggs and flour. Butter in these products is in the form of butter concentrate.

Cook’s Info Encyclopedia (website: http://www.cooksinfo.com/concentrated-butter) explains that concentrated butter is an industrially-made "clarified butter" containing a higher percentage of butterfat eg in France, it can be as high as 99.8% butterfat. Other sources state that commercial butter is made up of about 80% fat.

If the concentrated butter were reconstituted to normal/commercial standards, the ratios of butter concentrate to flour in the two products would only increase slightly. These amounts would be still far lower than what is traditionally regarded as the ratios of butter to flour in various types of XYZ therefore neither can be classified as XYZ. They also are not a kind of XYZ by not sufficiently having the same nature or character as XYZ.

Accordingly the two products are not subject to GST as they are bakery products which do not fall within item 25 or any of the other items in Schedule 1 to the GST Act.