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Edited version of your written advice

Authorisation Number: 1051242089391

Date of advice: 23 August 2017

Ruling

Subject: GST and brioche burger buns

Question

Is your supply of the brioche burger buns (product) GST-free?

Answer

No, your supply of the product is not GST-free under section 38-2 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act). It is a taxable supply.

Relevant facts and circumstances

You are registered for Goods and Services Tax.

You sell the product. The label of the product states: XXXXXX.

The ingredients include milk solids, sugar, egg powder, butter, yeast and flour. The taste of the brioche buns is buttery and sweet. The product can be used as part of a meal (to hold the meat and other hamburger fillings). The product is not suitable for freezing.

You have provided the ingredients and manufacturing process of the product and of your hamburger buns in comparison.

Relevant legislative provisions

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 paragraph 38-3(1)(c)

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

A New Tax System (Goods and Services Tax) Act 1999 paragraph 38-4(1)(a)

A New Tax System (Goods and Services Tax) Act 1999 Schedule 1 clause 1 table

item 25 and item 27

Reasons for decision

Summary

The product has the characteristics of a brioche because the ingredients include milk solids, sugar, egg powder, butter, yeast and flour.

The supply of the product is a supply that is not GST-free under section 38-2 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) as the product is excluded from being GST-free by paragraph 38-3(1)(c) of the GST Act.

The product is of a kind of item 25 in the table in clause 1 of Schedule 1 of the GST Act (Item 25)

Hence the supply of the product is a taxable supply.

Detailed reasoning

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 product satisfies the definition of food because it is sold as food for human consumption. Therefore the next thing to consider is whether it falls within any of the exclusions in section 38-3 of the GST Act.

Of relevance to your product is paragraph 38-3(1)(c) of the GST Act, which provides a supply of food is not GST-free if it is food of a kind that is specified 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 (1997) 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 king of hero. 4 ...'

In sales tax cases and when determining the phrase 'of a kind’, the Courts have determined the ’essential character of the goods'. Essential character derives from the basic nature of the goods, from what they are, though composition, function and other factors necessarily play a part.

The GST case Lansell House Pty Ltd & Anor FC of T 2010 ATC 10851 (Lansell 2010) did not provide an essential character test, rather it provided an overall impression test. Sunberg J held that the words in item 32 are not used in a specialised or trade sense that differs from their ordinary usage, and that it is a matter of overall impression in deciding the proper classification of a product. Please note that this Federal Court decision has been upheld by the Full Federal Court, hence this quote from the Federal Court decision is still relevant.

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.

In addition, the case law Lansell House Pty Ltd & Anor v FC of T 2011 ATC 20-239 (Lansell 2011) at [30] relevantly provides:

    The use of the words "of a kind" in s 38-3(1)(c) of the GST Act adds further generality to the description of the items described in Schedule 1: Air International Pty Ltd v Chief Executive Officer of Customs (2002) 121 FCR 149 per Hill J. Thus, a new product that does not possess all of the same characteristics of known crackers may nevertheless be within the relevant item…

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 …….brioche

    Item 27……..bread (including buns) with a sweet filling or coating

The product has the word 'Brioche’ in the name 'Brioche Burger Buns’. However, despite being labelled and marketed as a 'brioche’ products it still has to be determined whether the product is in fact 'brioche’ or 'of a kind’ of brioche for the purposes of Schedule 1.

Item 25 of Schedule 1 of the GST Act (Item 25) - Brioche

We need to decide whether the product is a brioche or alternatively, something 'of a kind' of brioche, that is, if the product is of the same nature or character (possessing the same distinguishing qualities) as a brioche.

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

    'a kind of light, sweet bun or roll, raised with eggs and yeast’.

The label of the product states YYYY.

Recipes to make brioche appear to generally contain milk, sugar, butter, eggs, yeast and flour in the ingredients.

We have taken into account the ingredients and manufacturing process of the traditional brioche which you provided

From the taste and appearance of the product, it is a light, glazed sweet bun with buttery flavour. We consider that the product has the normally accepted ingredients of brioche, that is, milk, butter, sugar, eggs, yeast and flour. We note your contention that the ratio of butter to flour in your product is much lower than what is traditionally contained in brioche, therefore it is arguably not a traditional brioche. However, we consider that your brioche product is baked with the standard core brioche ingredients hence it is a kind of a brioche. We use the example of full cream milk and reduced fat milk. Although a reduced fat milk product may contain only 1% fat instead of the normal fat percentage of full cream milk, the reduced fat milk is still considered a milk product.

In addition, in Lansell 2011, the Court noted that the principal judge, Sundberg J, attached little significance to the fact that the water and yeast contents were outside the typical rage of ingredients for crackers. The Full Federal court in Lansell 2011:

    ● accepted the Commissioner’s submission that what is or what is not a cracker is not a ’bright line’ defined by percentage of its ingredients.

    ● Rejected the appellant’s submission that the differences in respect of water and yeast content posed threshold questions which needed to be evaluated before the primary judge. In particular, the Court concluded that the appellants had failed to establish that such threshold requirements exist.

We also note the product is sold alongside the taxable bakery goods.

You have supplied the manufacturing process of the product.

You have supplied the ingredients (no eggs and no butter) and manufacturing process of your Hamburger buns.

It is important to note that the legislative framework does not establish a legal test of 'of a kind’ to GST-free examples in the Further Memorandum to A New Tax System (Goods and Services Tax) Act 1999 (EM) such as hamburger buns. The purpose of providing this analysis is in regard to responding to the contentions raised by you.

We can distinguish the product from the hamburger buns in the ingredients- the hamburger buns do not contain any butter, egg, sugar or milk. In addition, hamburger buns do not have glaze.

The product is not suitable for freezing. This is another feature which can be distinguished from hamburger buns, which are suitable for freezing.

We consider that the GST status of the product does not depend on whether the product is consumed on its own or used as a burger bun. Hamburger Buns (0% Butter, 0% Egg) would be considered GST-free as 'hamburger buns’ as they are not listed in Schedule 1 of the GST Act. This position accords with the comments in paragraph 1.40 of the EM; and in the Detailed Food List on ato.gov.au.

Paragraph 1.40 of the EM provides examples of food that are not taxable under Item 27, and will be GST-free.

      1.39 Bread, bread rolls and buns that have a sweet filling or coating will be taxable [new item27 of Schedule 1A]

      1.40 Examples of food that are not taxable under this item and will be GST-free include:

        ● plain bread and rolls (white, wholemeal, multi-grain, etc); ·

        ● sesame seed or poppy seed rolls; ·

        ● cheesed topped bread; ·

        ● pumpkin bread; ·

        ● plain focaccia; ·

        hamburger buns; ·

        ● damper; ·

        ● sour dough bread; ·

        ● rye bread; ·

        ● tortillas; ·

        ● unleavened «bread», gluten free or yeast free bread; and ·

        ● pita, Lebanese and lavash bread.

As the product is 'of a kind’ of brioche, which is listed in Schedule 1 of the GST Act, we do not refer to the EM to determine if the product should be better characterised as a hamburger bun. The product’s use as a hamburger bun, rather than the traditional brioche bun, is not determinative of the product’s characterisation. We take the example of a croissant, which is taxable under item 24 of Schedule 1 of the GST Act, even if it can be sliced and served with cheese and ham.

After considering all of the above factors and your contentions, we consider that the product is 'of a kind’ of brioche (Item 25) for the purposes of Schedule 1 of the GST Act.

Item 27 of Schedule 1 of the GST Act (Item 27) - Bread (including buns) with a sweet filling or coating

The product is not classified under item 27 of Schedule 1 (Item 27) of the GST Act. The product has a sweet glaze (with dextrose/sugar) topping. However, glaze is not considered to be a sweet coating for the purposes of Item 27.

Conclusion:

The supply of the product is a supply that is not GST-free under section 38-2 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) as the product is excluded from being GST-free by paragraph 38-3(1)(c) of the GST Act.

The product is of a kind of Item 25. Hence the supply of the product is a taxable supply.