Edited version of your private ruling

Authorisation Number: 1012480134138

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Ruling

Subject: GST and Food Decorating Kit

Question

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

Answer

No. The supply of the product is a mixed supply with the GST status of each individual food item being assessed independently.

The taxable portion of a mixed supply is calculated in accordance with the formula contained in section 9-80 of the GST Act.

Relevant facts and circumstances

This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.

· You are a food supplier registered for goods and services tax (GST).

· The dominant part of your business is the supply of flavouring essences, food colours, and cake decorations.

· Included as cake decorations is writing icing tubes which you currently supply both singularly and in multicolour packs and which are used for decorating cakes and deserts.

· You have previously received a Private Binding Ruling (PBR) from the ATO in relation to the writing icing tubes which found that these items were GST-free.

· You are intending to launch a new product.

· The Kit will contain food items in a plastic wrap together with writing icing tubes supplied in a carton.

· You have previously supplied a pack of writing icing tubes for $x.

· The product will be priced at approximately $x.

· The food item will only be available as part of the product and not available to be purchased separately

· You contend that the primary product of the Kit is the writing icing, and the inclusion of any food item is a 'bonus'.

· You envisage the product as only a certain item and only available at a specific time of year as the food item is common to that particular time for food and activities.

· The product will be marketed with specific colours of and writing icings.

· You contend that the product would primarily be bought for the activity of decorating, not just for eating.

Relevant legislative provisions

All references are to the A New Tax System (Goods and Services Tax) Act 1999:

Section 9-40

Section 9-80

Section 38-2

Section 38-3

Section 38-4

Schedule 1

Reasons for decision

Issue 1

Question 1

Summary

The supply of your product is a mixed supply of taxable and GST-free goods.

Detailed reasoning

Under section 38-2 of the GST Act, a supply of food is GST-free. However, paragraph 38-3(1)(c) of the GST Act provides a supply of food is not GST-free if it is either:

· food of a kind specified in Schedule 1 to the GST Act (Schedule 1), or

· food that is a combination of one or more foods at least one of which is food of a kind that is specified in Schedule 1.

In your case, on the information provided, the products that you supply are a mixture of food items one of which is of a kind specified in Schedule 1 and the other which is not.

The item you supply which is not specified in Schedule 1 (and hence is GST-free) is the writing icing tubes. The other item which forms part of the product you supply is specified in Schedule 1 of the GST Act.

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 specified in Schedule 1, or food that is a combination of one or more foods at least one of which is food of a kind that is specified in Schedule 1.

In your case, the writing icing tubes you supply in the product is not food of a kind specified in Schedule 1 and therefore, is GST-free. However, the other item that you supply is specified in Schedule 1 of the GST Act and as such, is not GST-free.

Therefore, it is necessary to determine whether the supply of the GST-free food items together with food items that is taxable in your product is a supply of food that is a combination of one or more foods at least one of which is a food of a kind that is specified in Schedule 1.

Paragraph 1.18 of the Further Supplementary Explanatory Memorandum to the A New Tax System (Goods and Services Tax) Bill 1998 (EM) clarifies the intended scope of paragraph 38-3(1)(c) of the GST Act by providing that this provision does not apply to a mix of packaged goods that is packed and sold together, such as in the case of a hamper.

The EM further provides that where a mix of individually packaged goods is packed and sold together, these items are to be taxed individually. For example, where a hamper contains a packet of biscuits, a box of chocolates and a jar of coffee, the biscuits and chocolates are subject to GST and the coffee is GST-free.

In your case, the products are a mix of individually packaged goods packed and sold together in a carton and is akin to hampers and other similar supplies.

Therefore, the supplies of the products are not a combination of one or more foods at least one of which is food of a kind that is specified in Schedule 1. Rather, the supplies of the products are a mixed supply with the GST status of each individual food item being assessed independently.

The taxable portion of a mixed supply is calculated in accordance with the formula contained in section 9-80 of the GST Act.

Apportionment

Section 9-40 of the GST Act provides that an entity is liable for GST on all taxable supplies that it makes. However, where an entity is making a supply that is a combination of separately identifiable taxable and non-taxable parts (that is, a mixed supply), the GST liability is only calculated on the taxable portion of the supply.

In respect to a mixed supply, the consideration received for the supply must be apportioned, and GST levied only on the consideration relating to the taxable part of the supply.

You have indicated that the writing icing tubes have previously been supplied in a pack for $x and you intend to supply the product containing the food item and the writing icing tubes for $x which places a value of the taxable food item at $x. As the goods items can be identified you can readily calculate the value of those supplies that are taxable.

The basis for apportionment needs to be calculated on a reasonable basis and records must be kept that explain the method of apportionment used.

For further information on apportionment of mixed supplies and composite supplies please refer Goods and Services Tax Ruling GSTR 2001/8, which explains how to apportion the consideration for a supply that includes taxable and non-taxable parts and also when apportionment is not required.

A copy of GSTR 2001/8 is available on our website ato.gov.au.

Additional Information

Where an entity makes a mixed supply, the tax invoice need only show the value of the taxable items and the GST-free items and not an itemised list of all items.

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