Edited version of private ruling

Authorisation Number: 1011537750263

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Ruling

Subject: GST classification of Fruit Roll

Question:

Is a supply of a flavoured fruit roll a GST-free supply of food to which section 38-2 of the A New Tax System (Goods and Services Tax) Act 1999 ('GST Act') applies?

Answer:

Yes, the supply of a flavoured fruit roll is a GST-free supply of food to which section 38-2 of the GST Act applies and paragraph 38-3(1)(c) and Schedule 1 to the GST Act do not apply to such a supply

Relevant facts and circumstances:

You are a GST-registered food manufacturer which proposes to sell flavoured fruit rolls to a major food retailer. The food retailer will sell the flavoured fruit rolls under the food retailer's private label.

The ingredients used to make the flavoured fruit rolls comprise fruit paste (fruit juice concentrate and fruit puree concentrate) maltodextrin, polydextrose, modified corn starch, vegetable fibre, canola oil, emulsifier, colours, food acids, flavour, vegetable gums, citrus extract, humectant, and antioxidant.

The flavoured fruit rolls are prepared by blending these ingredients in an extruder, pouring the mixture onto a backing paper, splitting the mixture into strips, and pressing the strips through a roller.

The flavoured fruit rolls are individually-wrapped and will be sold in boxes. Each flavoured fruit roll is consumed by removing the wrapper, peeling off the backing paper, and pulling the flavoured fruit roll apart before eating it. You provided images of the boxes which described the product as 'flavoured fruit rolls' which were 'made from real fruit' and contained 'no artificial colours'. The boxes indicate that there are 'numerous possible patterns' which become apparent when a flavoured fruit roll is pulled apart before eating it.

You provided details of the nutritional content of the flavoured fruit rolls.

You submitted that the flavoured fruit rolls, as a fruit snack, do not fall within Schedule 1 to the GST Act or within any of the exclusions in section 38-3 of the GST Act. You also referred to the Detailed Food List which classifies 'fruit snack (processed fruit strip/bar with a sugar content less than 40%)' as being food for human consumption that is not of a kind specified in Schedule 1 to the GST Act and therefore GST-free. You submitted:

The flavoured fruit rolls are fruit snacks in the form of a strip and have a sugar content of approximately 22.7%. As stated above, the flavoured fruit rolls are food for human consumption and do not fall under Schedule 1 of the GST Act.

Reasons for decision:

Summary:

A supply of the flavoured fruit rolls is GST-free under section 38-2 of the GST Act and paragraph 38-3(1)(c) and Schedule 1 to the GST Act does not apply to make that supply taxable.

Detailed reasoning:

Section 38-2 of the GST Act provides that a supply of food as defined is GST-free. 'Food' is defined in paragraph 38-4(1)(a) of the GST Act to include food for human consumption (whether or not requiring processing or treatment).

The Detailed Food List is a public ruling for the purposes of section 105-60 the Taxation Administration Act 1953 and provides details of the GST status of major food and beverage product lines.

The Detailed Food List includes the following:

Based on the nutritional information provided by the applicant, the flavoured fruit rolls meet the requirements of being a processed fruit strip with a sugar content of less than 40% because they comprise mainly fruit paste, contain 22.9%g of sugars per 100g, and the images supplied indicate that they are shaped like a strip or a bar.

Paragraph 38-3(1)(c) and Schedule 1:

Paragraph 38-3(1)(c) of the GST Act provides that a supply is not GST-free under section 38-2 if it is, inter alia, food of a kind specified in the third column of the table in clause 1 of Schedule 1 or food that is a combination of one or more foods at least one of which is food of such a kind. The third column in Item 8 in Schedule 1 refers to:

Confectionery, food marketed as confectionery, food marketed as ingredients for confectionery or food consisting principally of confectionery

…

Food known as muesli bars or health food bars and similar foodstuffs

Crystallised fruit, glace fruit and drained fruit

…

In Hygienic Lily Ltd v Deputy Commissioner of Taxation (NSW) (1987) 13 FCR 399 where Gummow J. held that cups made from wax-coated paper were goods 'of a kind ordinarily used for household purposes':

Further, the setting in which the phrase 'goods of a kind' appears suggests that it is directed not to the use for which the particular goods in question were designed or manufactured, nor to the purpose to which it is intended those particular goods shall be put, but rather to the nature, quality and adaptation of the goods in the class or genus in question. Thus goods are 'of a kind ordinarily used for household purposes' if they are to be recognised as members of a class or genus which commonly or regularly (albeit not necessarily exclusively or principally) is used for household purposes.

Confectionery:

Decided cases suggest that 'confectionery' as used in Schedule 1 should take its ordinary meaning. In Zeroz Pty Ltd v DFC of T 97 ATC 4277, 4284 the Federal Court held that the ordinary meaning of 'frozen yoghurt' should be used when deciding its classification for sales tax purposes and set aside the AAT's decision which had been based on a trade or special meaning of 'frozen yoghurt' (i.e. a product with a ph of 4.5 or less to ensure acidity).

In Landau and Another v Goldwater and Another (1967) 13 ALR 192 Aicken J. described the term 'confectionery' as:

…one of common usage which embraces a wide variety of articles, many readily recognisable as examples of confectionery. They are primarily small articles of a sweet character containing substantial amounts of sugar and regarded as being in the nature of a delicacy in whatever quantity they may be consumed. There is, however, no doubt that in ordinary parlance the term would now include blocks of chocolate, however small or however large.

The images on the boxes containing the flavoured fruit rolls describe them as 'flavoured fruit rolls' with a fruit flavour, which suggests that they would have a 'sweet character', but we doubt that they contain 'substantial amounts of sugar' given that they contain 22.9%g of sugars per 100g. Given that the Detailed Food List classifies a fruit snack with a sugar content of less than 40% as GST-free, we consider that 22.9%g of sugars per 100g is not a 'substantial amount' of sugar and that the flavoured fruit rolls do not have the nature or quality of confectionery.

Food marketed as confectionery:

The Further Supplementary Explanatory Memorandum to the GST Act states:

Confectionery, savoury snacks, ice-cream food and biscuit goods

1.43 Most goods that are currently subject to WST will also be subject to GST.

Confectionery

1.45 Confectionery includes food that is marketed as confectionery, such as chocolate, boiled sweets, lollipops, sherbet, marshmallow and fruit lollies, as well as the specific types of goods included in new Schedule 1A .

1.46 However, candied peel is not confectionery. [Clause 4 to new Schedule 1A]

In order to determine whether goods are marketed as confectionery it is necessary to examine the name of the goods, the price of the goods, the labelling on any container for the goods, literature or instructions packed with the goods, how the goods are packaged, how the goods are promoted or advertised, and how the goods are distributed.

In the present case the name given to the flavoured fruit rolls appears to reflect the manner or the numerous possible patterns in which the strips can be pulled apart. The box refers to the flavoured fruit rolls as 'flavoured fruit rolls', as 'good source of fibre, made from real fruit, no artificial flavours', and with 'all the fibre of a fruit in every roll'. In our view the flavoured fruit rolls are not being promoted or advertised as confectionery (i.e. small items containing substantial amounts of sugar and regarded as being in the nature of a delicacy) but as a nutritional snack made from fruit and which contains fibre.

Food marketed as ingredients for confectionery or consisting principally of confectionery:

For the reasons set out above in relation to 'food marketed as confectionery', we do not consider that the flavoured fruit rolls are food marketed as ingredients for confectionery, i.e. the flavoured fruit rolls are marketed as a nutritional snack. Given that they do not contain 'substantial amounts of sugar', we do not consider that the flavoured fruit rolls consist principally of confectionery.

Food known as muesli bars or health food bars and similar foodstuffs:

The Macquarie Dictionary defines 'muesli bar' as:

…a commercially prepared and packaged snack made from a muesli mixture, usually sweetened and set in a bar shape

The flavoured fruit rolls are not made from a muesli mixture and therefore are not muesli bars. 'Health food bar' is not defined in the GST Act or the Macquarie Dictionary but the Further Supplementary Explanatory Memorandum to the GST Act stated that most goods subject to Wholesale Sales Tax ('WST') would be subject to GST. WST guidelines described muesli and health food bars as products which combined fruits, nuts, cereals, sugars and milk. The flavoured fruit rolls do not contain nuts, cereals or milk, are not in the shape of a bar and therefore are not considered to be health food bars.

Crystallised fruit, glace fruit and drained fruit:

The Macquarie Dictionary defines 'crystallise' as:

(Cookery) to coat (fruit or flower petals) with sugar to give an attractive, edible finish

It is clear from the description of the preparation of the flavoured fruit rolls in the ruling request that the ingredients (mainly fruit paste) are blended in an extruder in a process that does not involve sugar coating. Consequently we do not consider that the flavoured fruit rolls are crystallised fruit or glace fruit. A WST Ruling (ST 2112) described the process for creating drained fruit (cherries) as involving placing the fruit in brine for preservation and bleaching, cleaning the fruit, soaking the fruit in syrup until the fruit is impregnated and then placing the fruit on racks to drain. Manufacture of the flavoured fruit rolls does not involve such a process.

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