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Authorisation Number: 1051263864383
This is an edited version of a revised private ruling. It replaces the edited version of the private ruling with the authorisation number 1051210942743.
Date of advice: 11 August 2017
Subject: GST and XYZ named products
Is your supply of the XYZ named products (products) GST-free?
No, your supply of the products 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 (GST).
You supply the products; some of them are sold sliced through the middle for use as bread type products. One of the products is similar to a typical loaf of sliced bread.
The products have a soft and buttery texture and yellow appearance.
The ingredients include milk, sugar, eggs, butter, yeast and flour, except for one of the products, which does not contain butter.
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 iervices 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
The products have the characteristics of a XYZ because they include standard core XYZ ingredients such as milk, sugar, eggs, butter, yeast and flour.
The supply of the products 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 products are excluded from being GST-free by paragraph 38-3(1)(c) of the GST Act.
The products are 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 products is a taxable supply.
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 next thing to consider is whether they fall within any of the exclusions in section 38-3 of the GST Act.
Of relevance to your products 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 kind 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. Sundberg 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  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…
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
Item 27……..bread (including buns) with a sweet filling or coating
Application to your XYZ products:
All the products have the word 'XYZ’ in their names. However, despite being labelled and marketed as 'XYZ’ products, the products still have to be determined whether the products are in fact 'XYZ’ or 'of a kind’ of XYZ for the purposes of Schedule 1.
Item 25 of Schedule 1 of the GST Act (Item 25) - XYZ
We need to decide whether the products are a XYZ or alternatively, something 'of a kind' of XYZ, that is, if the products are of the same nature or character (possessing the same distinguishing qualities) as a XYZ.
The Macquarie Dictionary 6th Edition ('the dictionary') defines 'XYZ' as:
'a kind of light, sweet bun or roll, raised with eggs and yeast’.
Recipes to make XYZ appear to generally contain milk, sugar, butter, eggs, yeast and flour in the ingredients.
With regard to your products, we consider that the products have the standard core XYZ ingredients such as milk, sugar, eggs, butter, yeast and flour. Although one of the products does not have any butter in the ingredients, we still consider this is a kind of XYZ since it is a baked product with all the other basic ingredients of XYZ.
We note your contentions that the products are not XYZ because the ratio of butter to flour in your products is much lower than what is traditionally contained in XYZ.
In addressing the argument that the products are not a traditional XYZ, we take into consideration the following features of your XYZ products:
● They have the word 'XYZ’ in their names;
● They have a light, soft and buttery texture and yellow appearance due to the enrichments; and
● They are baked with the standard core XYZ ingredients.
Hence they are a kind of a XYZ, despite having a lower butter content than a traditional XYZ. 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.
In relation to the location of display of the products in supermarkets, this is only one of the factors to be taken into account for the overall impressions of the classification of the products.
In relation to your contention that the products are burger buns, hot dog rolls or sliced loaf of bread, 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, plain bread and rolls.
However, we will provide the following analysis is in regard to responding to the above contentions raised by you.
The products have enough texture and structure to be used as burger buns or hot dog rolls or for sliced loaf. However, we can distinguish the products from the burger buns, hot dog rolls and a sliced loaf in the ingredients- the hamburger buns, hot dog rolls and a sliced loaf do not contain butter, egg, sugar or milk. In addition, burger buns, hot dog rolls and a sliced loaf do not have egg wash or glaze.
We consider that the GST status of your XYZ products does not depend on whether the products are consumed on their own or used as burger buns or hot dog rolls. 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 XYZ products are 'of a kind’ of XYZ (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
We accept that the XYZ products are not classified under item 27 of Schedule 1 (Item 27) of the GST Act. They are not bread (including buns) and they have no filling, nor do they have a sweet coating for the purposes of Item 27.
The supply of the products is a supply that is not GST-free under section 38-2 of the GST Act as the products are excluded from being GST-free by paragraph 38-3(1)(c) of the GST Act.
The products are 'of a kind’ of Item 25. Hence the supply of the products is a taxable supply.