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Edited version of your written advice
Authorisation Number: 1013121580037
Date of advice: 10 November 2016
Ruling
Subject: GST and Breakfast biscuits
Question
Is the supply of your Breakfast Biscuits (products) a GST-free supply?
Answer
No.
Relevant facts and circumstances
The products are sold in major retailers throughout Australia.
The biscuits are physically rectangular in shape, with a solid form and golden, baked appearance.
The ingredients of the products are primarily a mixture of flour and dried fruits.
The products are marketed as breakfast food.
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 paragraph 38-3(1)(c)
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 Schedule 1 clause 1 item 32
Reasons for decision
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)).
Subsection 38-3 of the GST Act lists food that is not GST-free.
The products are food for human consumption pursuant to paragraph 38-4(1)(a) of the GST Act and therefore meets the definition of food.
The products do 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.
Paragraphs 38-3(1)(c) of the GST Act provides:
(c) 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
In deciding if the products are similar to the products listed in Schedule 1, it is worth briefly referring to the Federal Court case Lansell House Pty Ltd and 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.
Schedule 1 of the GST Act specifies which food items are not GST-free when supplied. Specifically and relevant for this ruling request, the following food items are listed:
Item 11: Food known as muesli bars or health food bars, and similar foodstuffs
Item 32: Food that is, or consists principally of, biscuits, cookies, crackers, pretzels, cones or wafers.
Clause 5 of Schedule 1 of the GST Act (clause 5) goes on to clarify that certain goods are not biscuit goods for the purposes of the table at clause 1.
Specifically, clause 5 states:
None of the items in the table relating to the category of biscuit goods include:
(a) breakfast food consisting principally of compressed, rolled or flattened cereal; or
(b) rusks for infants or invalids, or goods consisting principally of those rusks.
Muesli or health food bars
The ATO view on what constitutes a muesli or health food bar is provided by the GST determination GSTD 2008/2.
Muesli bars
6. The term 'muesli bar' is not defined in the GST Act, so the ordinary meaning of the term applies. The dictionary definition of muesli bar is 'a commercially-prepared and packaged snack made from a muesli mixture, usually sweetened and set in a bar shape'. Muesli is defined as 'a breakfast cereal of various mixed products such as oats, wheat germ, chopped fruit and nuts, etc'.
7. 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 contain confectionery pieces such as chocolate chips or chocolate, yoghurt or other flavoured coatings.
Following GSTD 2008/2 and the principle provided by Lansell, your products are not 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 products are not similar to muesli or health food bars.
Biscuits
We agree with your statement that the products are biscuits and hence captured by Item 32 of Schedule 1.
However, the products do have a number of distinguishing features that would identify it as being a breakfast food, for example:
● the product is clearly marketed as a breakfast food through their labelling and packaging, and
● your customers would perceive the products as something that could be eaten for breakfast.
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 the products meet the requirements of clause 5 of Schedule 1 thus making their supply GST-free.
The ingredients of the products are primarily a mixture of flour and dried fruit.
Flour is commonly defined as:
'a powder obtained by grinding grain, typically wheat, and used to make bread, cakes, and pastry'.
Flour is not made from cereal that has been compressed, rolled or flattened but is obtained from unprocessed grain through a process of grinding. We consider that wheat flour is not wheat grain. Wheat flour is wheat grain milled/ground into flour. Similarly gluten free flour is not grain, the flour is milled from rice or soy into flour.
The ingredients of the products are primarily a mixture of flour and other ingredients, hence we do not consider that your products are made principally of compressed, rolled or flattened cereal.
Consequently, clause 5 of Schedule 1 does not apply to your supply of the products, and hence the supply of the products would be taxable given it is captured by Item 32 of Schedule 1. Paragraph 38-3(1)(c) of the GST Act excludes the supply of the products from being GST-free.
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