Edited version of private ruling

Authorisation Number: 1011541885373

Ruling

Subject: GST classification of dairy dessert

Question 1:

Is the supply of a dairy dessert a GST-free supply of food under section 38-2 of the A New Tax System (Goods and Services Tax) Act 1999 ('GST Act)?

Answer:

Yes, the supply of a dairy dessert is a GST-free supply of food under section 38-2 of the GST Act.

Question 2:

Is the supply of a dairy dessert a GST-free supply of food under section 38-2 of the GST Act?

Answer 2:

Yes, the supply of a dairy dessert is a GST-free supply of food under section 38-2 of the GST Act.

Relevant facts and circumstances:

Both dairy desserts are packaged in individual serve plastic pots sealed with a plastic lid which are sold from the chiller. They are ready to eat and can be eaten directly from the plastic pots in which they are packed and sold. The dairy desserts sit alongside and compete against other dairy desserts and yoghurt products.

You submitted that the dairy dessert was not taxable pursuant to paragraph 38-3(1)(c) and Items 20 to 27 in Schedule 1 to the GST Act as it was not 'cake' as it was mousse-like, cold set and not baked, and the sponge was only a minor ingredient. Nor was the dairy dessert a combination of taxable and GST-free food as the small amount of sponge is combined to such a degree that it does not retain its separate identity.

In relation to the dairy dessert you noted that the ATO's GST food classification tool classified a generic profiterole as taxable but submitted that the ingredients in the dairy dessert and the image on the packaging indicated that the dairy dessert was a mousse-like product rather than conventional. In addition the dairy dessert was cold set, not baked and although the dairy dessert contains choux buns which are baked, they are merely an ingredient of the dairy dessert which is cold-set.

Although paragraph 38-3(1)(c) of the GST Act provides that food is not GST-free if it is a combination of one or more foods at least one of which is food of a kind specified in Schedule 1 and the dairy dessert contains a small amount of cake or buns, the taxpayer submitted that the are incorporated into the dairy dessert to such a degree that they no longer retain their separate identity and that the dairy dessert does not combine GST-free and taxable food as distinct items.

Reasons for decision

Isssue 1 - Question 1

Summary:

The dairy dessert is not food of a kind specified in Schedule 1 to the GST Act. Nor is it food that is a combination of one or more foods at least one of which is food of a kind specified in Schedule 1 to the GST Act.

Detailed reasoning:

Section 38-2 of the GST Act provides that a supply of food 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).

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.

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.

The Detailed Food List is a public ruling for the purposes of section 105-60 of the Taxation Administration Act 1953 and includes the following:

The third column in Item 20 in Schedule 1 refers to:

Cakes, slices, cheesecakes, pancakes, waffles, crepes, muffins and puddings

which are not defined in the GST Act and are therefore afforded their ordinary meaning.

Cakes:

The Macquarie Dictionary defines 'cake' as:

A sweet baked food in loaf or layer form, made with or without shortening, usually with flour, eggs, sugar, flavouring, usually with baking powder or soda, and a liquid.

The dairy dessert is cold set like a mousse or custard and not baked. Consequently it is not a 'cake' for the purposes of Item 20.

From the description ('coffee soaked sponge cake topped with mascarpone and marsala wine mousse') and the list of ingredients (7.7% sponge) and image on the packaging, it appears that the base of the dairy dessert comprises sponge with a coffee soak added to it. Thus part of the product is a sponge (which falls within the dictionary definition of 'cake' - a sweet baked food in loaf or layer form) but is soaked in coffee before being topped with 'mousse topping'. This raises the issue of whether the dairy dessert is not GST-free as being food that is a combination of one or more foods at least one of which is food of a kind specified in Schedule 1 (see below)

Slices:

The Macquarie Dictionary defines 'slice' as:

Any of several cakes or biscuits cooked or formed as a thin slab and cut into rectangular pieces.

Unlike 'cake', a slice does not have to be baked, a slice can be 'cooked or formed'. The image and the listed ingredients of the 'mousse topping' which appear on the packaging for the dairy dessert suggest that the dairy dessert has the appearance and consistency of a dairy dessert. Consequently we do not consider that the dairy dessert is a 'slice' for the purposes of Schedule 1.

Cheesecakes:

The Macquarie Dictionary defines 'cheesecake' as:

A kind of cake or open pie filled with a custard-like preparation containing cheese.

The dairy dessert has the nature and qualities of a cheesecake as it is cold set and has a cold set filling over a base (albeit that the dairy dessert's base is not made of biscuits but a sponge with 'coffee soak' added).

The dairy dessert does contain cheese - the ingredients in the 'mousse topping' which makes up most of the dairy dessert include 'mascarpone full fat soft cheese'. Thus the 'mousse topping' is 'a custard-like preparation containing cheese' in terms of the Macquarie Dictionary definition of 'cheesecake'.

We note that, despite being described as ' ', the dairy dessert does not follow the traditional recipe which involves savoiardi (lady finger biscuits) dipped in espresso (sometimes with marsala) being layered several times between a whipped mixture of egg yolks, mascarpone cheese, and sugar, and topped with cocoa. Instead the dairy dessert has a single layer of sponge (with a 'coffee soak' added to it) and a single much thicker layer of 'mousse topping' dusted with cocoa powder on top of it. By adopting this construction and including mascarpone cheese as an ingredient in the 'mascarpone cream', the dairy dessert prima facie falls within the term 'cheesecake' in Item 20 in Schedule 1 to the GST Act.

We note, however, that just over 1% of the dairy dessert comprises mascarpone cheese. We have examined the ingredients listed on the packaging of other cheesecakes and found that they comprise between 15.5% and 23% Neufchatel cheese. Consequently we consider that the minimal amount of mascarpone cheese included in the dairy dessert does not result in the dairy dessert acquiring the nature and quality of a cheesecake.

Pancakes, waffles, crepes, muffins:

We do not consider that the dairy dessert falls within the meaning of these terms as used in Item 20 in Schedule 1.

Puddings:

'Pudding' is not defined in the GST Act. The Macquarie Dictionary defines 'pudding' as:

A sweet or savoury dish made in many forms and of various ingredients, as flour (or rice, tapioca, or the like), milk, eggs, with fruit, meat or other ingredients.

Issue 13 in the Food Industry Partnership Register states that the ATO is of the view that 'puddings' in Item 20 in Schedule 1 only includes a cooked food and that rice pudding, tapioca pudding, self saucing puddings, steamed puddings and Christmas pudding are taxable whereas dessert mousse, creme caramel, dairy desserts and custard are not 'puddings' and are GST-free. Issue 13 is not stated to be a public ruling, but the Detailed Food List (which is a public ruling) reflects the distinction made in Issue 13 as Christmas pudding, plum pudding, rice pudding, self-saucing pudding, steamed pudding, stick date pudding, and tapioca pudding are ruled taxable and dairy desserts (including dairy rice), dessert preparations (including dairy dessert), and mousse and instant desserts are ruled GST-free. These classifications make a clear distinction between products that are cooked and products which are not cooked, such as cold set products. The dairy dessert, apart from the sponge which is soaked in coffee, falls into the latter classification and is not a 'pudding' as that term is used in Item 20 of Schedule 1.

Paragraph 38-3(1)(c) of the GST Act:

As stated above, as the dairy dessert contains sponge (which is a cake), the issue arises as to whether it is food that is a combination of one or more foods at least one of which is food of a kind specified in the third column of Schedule 1.

In our view the sponge used as the base of the dairy dessert loses its individual identity when combined with the other ingredients to form the dairy dessert. Consequently the diary dessert is not a combination of one or more foods of a kind specified in Schedule 1 of the GST Act and paragraph 38-3(1)(c) of the GST Act does not apply.

Issue 2 - Question 1

Summary:

The dairy dessert is not food of a kind specified in Schedule 1 to the GST Act. Nor is it food that is a combination of one or more foods at least one of which is food of a kind specified in Schedule 1 to the GST Act.

Detailed reasoning:

Section 38-2 of the GST Act provides that a supply of food 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).

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.

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.

The Detailed Food List is a public ruling for the purposes of section 105-60 of the Taxation Administration Act 1953 and includes the following:

The third column in Item 23 in Schedule 1 refers to:

Cakes, slices, cheesecakes, pancakes, waffles, crepes, muffins and puddings

are not defined in the GST Act and are therefore afforded their ordinary meaning.

Cakes:

The Macquarie Dictionary defines 'cake' as:

A sweet baked food in loaf or layer form, made with or without shortening, usually with flour, eggs, sugar, flavouring, usually with baking powder or soda, and a liquid.

The dairy dessert is cold set like a mousse or custard and not baked. Consequently it is not a 'cake' for the purposes of Item 20.

Slices:

The Macquarie Dictionary defines 'slice' as:

Any of several cakes or biscuits cooked or formed as a thin slab and cut into rectangular pieces.

Unlike 'cake', a slice does not have to be baked, a slice can be 'cooked or formed'. The image which appears on the packaging for the dairy dessert suggests that the dairy dessert is not formed as a thin slab. Consequently we do not consider that the dairy dessert is a 'slice' for the purposes of Schedule 1.

Cheesecakes:

The Macquarie Dictionary defines 'cheesecake' as:

A kind of cake or open pie filled with a custard-like preparation containing cheese.

As the dairy dessert does not contain cheese it does not have the nature and quality of acheesecake.

Pancakes, waffles, crepes, muffins:

We do not consider that the dairy dessert falls within the meaning of these terms as used in Item 20 in Schedule 1.

Puddings:

'Pudding' is not defined in the GST Act. The Macquarie Dictionary defines 'pudding' as:

A sweet or savoury dish made in many forms and of various ingredients, as flour (or rice, tapioca, or the like), milk, eggs, with fruit, meat or other ingredients.

Issue 13 in the Food Industry Partnership Register states that the ATO is of the view that 'puddings' in Item 20 in Schedule 1 only includes a cooked food and that rice pudding, tapioca pudding, self saucing puddings, steamed puddings and Christmas pudding are taxable whereas dessert mousse, creme caramel, dairy desserts and custard are not 'puddings' and are GST-free. Issue 13 is not stated to be a public ruling, but the Detailed Food List (which is a public ruling) reflects the distinction made in Issue 13 as Christmas pudding, plum pudding, rice pudding, self-saucing pudding, steamed pudding, stick date pudding, and tapioca pudding are ruled taxable and dairy desserts (including dairy rice), dessert preparations (including dairy dessert), and mousse and instant desserts are ruled GST-free. These classifications make a clear distinction between products that are cooked and products which are not cooked, such as cold set products. The dairy dessert, falls into the latter classification and is not a 'pudding' as that term is used in Item 20 of Schedule 1.

Paragraph 38-3(1)(c) of the GST Act:

Item 23 in Schedule 1 refers to 'tarts and pastries' and the Detailed Food List includes the following:

As the dairy dessert contains 23% (which fall within 'tarts and pastries' in Item 23 of Schedule 1 and are taxable), the issue arises as to whether the dairy dessert is food that is a combination of one or more foods at least one of which is food of a kind specified in the third column of Schedule 1.

In the relation to the dairy dessert we took the view that the sponge used to form the base lost its individual identity when combined together to form the dessert. In the case of the dairy dessert the comprise a greater part of the dessert (23%) as compared to the sponge and the serving suggestion image on the packaging suggests that they are not combined with other ingredients to form the dessert. The photographs supplied with the ruling request, however, indicate that the ingredients are combined with the cocoa cream in a manner which results in the ingredients losing their individual identity. Consequently we do not consider that the dairy dessert is food that is a combination of one or more foods at least one of which is food of a kind specified in Schedule 1.

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