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Edited version of your written advice

Authorisation Number: 1051270635174

Date of advice: 22 August 2017

Ruling

Subject: GST and supply of food

Question

Is the sale of the specified product (the product) a GST-free supply?

Answer

No. The sale of the product is a taxable supply.

Relevant facts and circumstances

You are registered for GST.

The product comprises dip and dip sticks.

The dip and dip sticks are supplied in a single container with two compartments, one for the dip and the other for the dip sticks. The container has a covering.

You provided a sample of the product.

The dip sticks are dry, light, crunchy, have a hard crispy texture and taste slightly salty. They are have a smooth hard surface. They snap or crack.

The ingredients for the dip sticks include: flour, oil, salt, malt and yeast.

The product has a long self life.

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 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 paragraph 38-3(1)(c).

Reasons for decision

Summary

The dip is not food of a kind specified in the table in clause 1 of Schedule 1 to the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) and is therefore not excluded from being GST-free by section 38-3 of the GST Act.

The dip sticks are food of a kind that is, or consist principally, of crackers or biscuits under item 32 in the table in clause 1 of Schedule 1 to the GST Act (Schedule 1).

The product is excluded from being GST-free by paragraph 38-3(1)(c) of the GST Act, as it is a combination of food that contains a type of food specified in Schedule 1. The sale of the product therefore is a taxable supply pursuant to section 9-5 of the GST Act.

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) of the GST Act).

The dip and dip sticks are food for human consumption, and therefore, satisfy the definition of food 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 specified in Schedule 1, or food that is a combination of one or more foods at least one of which is food of such a kind specified in Schedule 1.

As the product contains more than one type of food, we have to consider whether each food item in the product is food of a kind specified in Schedule 1.

If one of the food items is of a kind specified in Schedule 1, then we need to determine whether the product is a supply of a combination of foods to which paragraph 38-3(1)(c) of the GST Act applies or a mixed supply of GST-free and taxable food.

Dip

The dip is not food of a kind specified in Schedule 1 and is therefore not excluded from being GST-free by section 38-3 of the GST Act. Therefore, the dip is a GST-free food under section 38-2 of the GST Act.

Dip sticks

In deciding whether a product is food of a kind listed in Schedule 1 it is necessary to consider the decision and reasoning in Lansell House Pty Ltd & Anor v. FC of T [2010] FCA 329 (Lansell House 2010), which was upheld in Lansell House Pty Ltd v. Commissioner of Taxation [2011] FCAFC 6 (Lansell House 2011). In Lansell House, the issue to be decided was whether 'mini Ciabatte’, is 'food that is, or consists principally of, biscuits, cookies, crackers, pretzels, cones or wafers’ and therefore subject to GST.

In deciding whether a product is food of a kind listed in Schedule 1 it is necessary to consider the decision and reasoning in Lansell House. In Lansell House, the issue to be decided was whether 'mini Ciabatte’, is 'food that is, or consists principally of, biscuits, cookies, crackers, pretzels, cones or wafers’ and therefore subject to GST.

The Court found that Mini Ciabatte is subject to GST on the basis that the product is food that is, or consists principally of crackers. The Court acknowledged that although a product can be characterised in more than one way, for the purposes of the GST Act a product can only have one classification (Lansell House 2010 at para 12). The Court took the view that the question to be answered was whether the product falls within item 32 - that is, food that is, or consists principally of, crackers - and that evidence that the product fits within the definition of bread would not be sufficient to establish that it is not a food of a kind listed in item 32 (Lansell House 2010 at para 7). The Court held that the appellants failed to establish that the product is not food that falls within item 32 (Lansell House 2010 at para 110).

The Court quoted Jacob LJ in Commissioners for Her Majesty's Revenue and Customs v. Procter & Gamble UK [2009] STC 1990, that the question of classification 'is not one calling for or justifying over-elaborate, almost mind-numbing, legal analysis. It is a short practical question calling for a short practical answer' (Lansell House 2011 at para 24). It said that classification decisions for GST tax purposes are often prescribed as questions of fact and degree, a matter of impression and a combination of fact-finding and evaluative judgment (Lansell House 2010 at para 108). The Court concluded that the words of item 32 'are ordinary English words in common usage’ (Lansell House 2010 at para 46).

The Court also said that 'the use of the words 'of a kind'... adds further generality to the description of the items in Schedule 1... Thus, a new product that does not possess all of the same characteristics of known crackers may nevertheless be within the relevant item ... The question is whether the resulting product comes within the genus, class or description of a cracker' (Lansell House 2011 at para 30)

The Court attached little significance to the fact that water and yeast were outside the range of those ingredients in crackers and was satisfied that, even accepting that the product is not laminated and contains yeast, it is 'of a kind' of the cracker genus (Lansell House 2010 at para 73 and Lansell House 2011 at para 33).

Further, the Court held that a supplier cannot, by a label (in that case, by describing the product on its packaging as 'Italian flat bread'), govern the classification of a product for the purposes of the GST Act (Lansell House 2010 at para 109).

Accordingly, to determine the classification of the dip sticks we need to consider the characteristics of the dip sticks.

The dip sticks are dry, crunchy, crisp sticks with a smooth hard surface. They taste slightly salty and snap or crack like a cracker or biscuit. The product packaging indicates that the product is a snack pack. The dip sticks are intended to be used as dipping sticks to consume the dip in the snack pack. The dip sticks have similar ingredients, texture, function or use to a biscuit or cracker (which are commonly used with dips or spreads). Further, they have a long shelf life similar to biscuits and crackers.

Following the reasoning in Lansell House and given the characteristics of the dip sticks we consider that the dip sticks are food of a kind that is, or consist principally, of crackers or biscuits under item 32. Therefore, they are excluded from being GST-free under paragraph 38-3(1)(c) of the GST Act. The supply of the dip sticks therefore is a taxable supply.

Combination/Mixed supplies

The product contains two food items packed in a single container with two compartments, one for the dip and the other for the dip sticks. The container has a covering. The supply of the dip is GST-free and the supply of the dip sticks is a taxable supply. Therefore, we have to determine whether the supply of the product is:

    ● excluded from being GST-free by paragraph 38-3(1)(c) of the GST Act, being a combination of food that contains a type of food specified in Schedule 1, or

    ● a mixed supply that has separately identifiable taxable and non-taxable parts.

The ATO view on combination/mixed supplies is outlined in Goods and Services Tax Ruling GSTR 2001/8 Goods and services tax: Apportioning the consideration for a supply that includes taxable and non-taxable parts and ATO Interpretative Decision ATO ID 2010/145 Goods and Services Tax GST and dip with biscuits. ATO ID 2010/145 states:

      … a supply combining individual foods that are taxable (that is, listed in Schedule 1) and GST-free, but which are supplied in a single tray and are not separated by their individual packaging (for example a snack pack containing cheese and biscuits) is excluded from being GST-free by paragraph 38-3(1)(c) of the GST Act, because it is 'a combination of food that contains a type of food specified in Schedule 1'.

The product contains GST-free and taxable food items. The food items are put into different compartments of a single container with a covering. Accordingly, the product is excluded from being GST-free by paragraph 38-3(1)(c) of the GST Act, as it is a combination of food that contains a type of food specified in Schedule 1.

The sale of the product therefore is a taxable supply pursuant to section 9-5 of the GST Act.