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Ruling

Subject: GST and food

Question

Is your supply of your food product (Product) GST-free?

Answer

Yes.

Relevant facts and circumstances

You are registered for goods and services tax (GST).

You sell the Product.

Ingredients include flour and rolled wholegrain cereals.

The Product contains sugar and other ingredients.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999

Section 38-2

Section 38-3

Section 38-4

Reasons for decision

A supply of food is GST-free under section 38-2 of the GST Act if it satisfies the definition of food in section 38-4 of the GST Act and it is not excluded 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)) and ingredients for food for human consumption (paragraph 38-4(1)(d)).

In your case, you sell the Product. The Product satisfies the definition of food because it is sold as food for human consumption. The Product does not fall within any of the exclusions in section 38-3 of the GST Act except it may possibly be captured by paragraph 38-3(1)(c). Paragraph 38-3(1)(c) of the GST Act provides that a supply of food is not GST-free if it is food of a kind that is specified in Schedule 1.

Schedule 1 includes the following food items that may be of relevance when considering the GST treatment of your supply of the Product:

In deciding if the product is similar to the products listed in Schedule 1 it is worth briefly referring to the Federal Court case Lansell House Pty Ltd & Anor v FC of T 2010 ATC 20-173 (Lansell). In Lansell, it was necessary to determine if a product labelled as dried bread also had the characteristics to be considered a cracker. In making this determination, Lansell recognised that a food product may have characteristics to allow it to be placed into more than one food category. However, Lansell further provides that for GST purposes a food product can only have one classification and this classification should be based on the product's characteristics.

Muesli or health food bars

The term muesli bar is not defined in the GST Act and therefore, the ordinary meaning of the term applies. The Macquarie Dictionary (5th edition) defines a muesli bar as:

Muesli is further defined as a breakfast cereal of various mixed products such as oats, wheat germ, chopped fruit and nuts, etc.

The ATO view on what constitutes a muesli or health food bar is provided by the GST determination GSTD 2008/2.

Paragraph 7 of GSTD 2008/2 provides that a typical muesli bar contains ingredients similar to those found in muesli breakfast cereals plus additional sugars and other ingredients necessary to achieve a consistency suitable for presentation in bar form. Some muesli bars also contain confectionery pieces such as chocolate chips or yogurt pieces.

Given the guidance provided by paragraph 7 of GSTD 2008/2 and the principle provided by Lansell, your Product cannot be considered as being muesli bars as they do not have the ingredients, consistency or presentation typically found in these types of products.

Similar foodstuffs

Paragraphs 8 and 9 of GSTD 2008/2 provide that foods can be considered to be similar to muesli or health food bars if they can be compared to these products through their physical presentation and ingredients.

Again, it is considered that your Product is not similar to muesli or health food bars.

Biscuits

You agree that the Product is a biscuit and hence captured by Item 32 of Schedule 1. However, the product does have a number of distinguishing features that would identify it as being a breakfast food.

Clause 5 of Schedule 1 does exclude from Item 32 of Schedule 1 breakfast food consisting principally of compressed, rolled or flattened cereal. Therefore, in this case it is necessary to determine if your Product meets the requirements of clause 5 of Schedule 1 thus making its supply GST-free.

We consider the word 'principally' used in clause 5 of Schedule 1 implies that the product is made up of at least 50% cereals that have been compressed, rolled or flattened and do not consider that 'principally' implies that the compressed, rolled or flattened cereals need only be the largest component of all the components making up the product.

Hence, clause 5 of Schedule 1 provides that for a supply of biscuits to be GST-free as breakfast food, the biscuits must be made from at least 50% cereals that have been compressed, rolled or flattened.

The Product states on its packaging that it has a high percentage of cereals (exceeding 50% for all flavours) however this does include flours in the calculation. Flour is not cereal that has been compressed, rolled or flattened. Flour is a finely ground meal of wheat or other grain. Consequently, it is necessary to exclude for GST purposes the percentage of flours included in the percentage of serial stated on the packaging. In excluding the percentage of flours, no flavour of the Product is made from at least 50% cereals that have been compressed rolled or flattened.

Consequently, clause 5 of Schedule 1 cannot be applied to your supply of the Product and hence the supply of the Product would be taxable given it is captured by Item 32 of Schedule 1.

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