Edited version of your written advice

Authorisation Number: 1051259300356

Date of advice: 16 August 2017

Ruling

Subject: GST and bread bars

Question

Is your supply of bread bars (“product”) GST-free under Division 38 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer

Yes, your supply of the product is GST-free.

Relevant facts and circumstances

You are a company registered for GST. You supply the product to major supermarkets.

The product is a yeast leavened food product, sold in individually wrapped servings, located in the bread section of most leading supermarkets. Samples have been given. The samples of the product have the texture of soft bread.

Ingredients include wholegrain flours, rolled oats, dried fruits, sugar, juice, yeast.

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 11, 20 and 32

Reasons for decision

Summary

Your supply of the product is GST-free as it is not captured by the table in clause 1 of Schedule 1 to the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) (Schedule 1).

Paragraph 38-3(1)(c) of the GST Act does not exclude the supply of the products from being GST-free.

Detailed reasoning

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 product is food for human consumption pursuant to paragraph 38-4(1)(a) of the GST Act and therefore meets the definition of food.

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.

Of importance are item 11 of Schedule 1 (Item 11), item 20 of Schedule 1 (Item 20) and item 32 of Schedule 1 (Item 32). The other items listed in Schedule 1 are not relevant for this particular food product.

Item 11

Item 11 lists food known as muesli bars or health food bars, and similar food stuffs.

'known as’

Paragraph 5 in GST Determination GSTD 2008/2 provides guidance on the term “known as”:

5. The use of the words "known as" in Item 11 does not indicate a specific marketing test. That is, foodstuffs do not have to be actually labelled "muesli bars" or "health food bars", to be food known as muesli bars or health food bars. Rather, the terms "muesli bars" and "health food bars" are broad terms which are commonly used by sellers and consumers, indicating classes of products. Therefore, the Commissioner considers that the ordinary usage of these terms is appropriate in determining whether food known as breakfast bars fall within Item 11.

Muesli bar

Paragraphs 6 and 7 of GSTD 2008/2 provides guidance on muesli bar:

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

The product does not satisfy the above requirements to be treated as a muesli bar. Although it contains dried fruits and some rolled oats and sugar, it consists primarily of flour.

Health food bar

The term health food bar is not defined in the GST Act. Furthermore, the term is not defined in the Dictionary and there is no generally accepted description of what constitutes a health food bar. Accordingly, the meaning of this term is ambiguous.

Where the meaning of a term is ambiguous, subparagraph 15AB(1)(b)(i) and paragraph 15AB(2)(e) of the Acts Interpretation Act 1901, make it permissible to refer to the explanatory memorandum to the relevant Act in determining the meaning of the provision.

Paragraph 1.3 of the Further Supplementary Explanatory Memorandum to A New Tax System (Goods and Services Tax) Bill 1998 states:

The amendments will ensure that basic food for human consumption is GST-free. In addition, they will ensure that the current WST [wholesale sales tax] exemptions for food are, in general, maintained.

Under the WST system, the following guidelines were developed to indicate the characteristics of muesli bars and health food bars. These characteristics are:

● Muesli bars and health food bars have less than 55% real fruit content.

● Muesli bars and health food bars contain significantly more than 10 per cent added sugars in any form.

● Muesli bars and health food bars have greater than 2% added fat.

● Muesli bars and health food bars are multi component products combining products such as fruits, nuts, cereals, sugars, milk etc.

Health food bars are also often characterised and distinguished in the market place by their (real or perceived) health giving properties.

Terms that are used to describe health food bars include sweetened with honey, rice syrup or raw sugar; no added artificial colours, flavours or preservatives; high in fibre, low in salt, cholesterol free; a natural product, organic; made with only the best ingredients; a healthy snack; gluten free; dairy free; fat free; and caffeine free.

Health food bars also often contain fruit, nuts and seeds. They are normally located with other health food products or with snack food products in the supermarket. Health food bars may be packaged using the words 'health food bars' and may also be marketed as a between meal snack.

Your product contains dried fruits and some sugars. However, your product does not satisfy the majority of the characteristics listed above to be treated as a health food bar.

Similar foodstuffs

The GST Act does not define 'similar foodstuffs’. However, paragraphs 8 to 13 of GSTD 2008/2 states the following:

Similar foodstuffs

8. Item 11 specifies "foods known as muesli bars or health food bars, and similar foodstuffs". The ordinary meaning of "similar" is "having likeness or resemblance, especially in a general way". Therefore, foods that resemble muesli bars in a general way, having regard to their essential character, are considered to be similar foodstuffs and therefore within the class of foods specified in Item 11.

9. The characteristics of muesli bars that form a basis for comparison with other products may be categorised as:

● physical presentation; and

● ingredients

Physical presentation

10. Muesli bars are shaped in the form of a bar for ease of eating. The size of muesli bars is appropriate for a single serving.

11. The texture of muesli bars varies from chewy to crunchy. Muesli bars are usually individually wrapped when sold, either individually or packaged in boxes.

12. To be similar to a muesli bar, a product would need to have a similar physical presentation.

Ingredients

13. To be similar to muesli bars, it would be expected that the foodstuff would contain some or all of the ingredients common to muesli bars as described above

Therefore in order to be similar to a muesli or health food bar, the product would need to have a likeness to or resemble of these bars and take the same shape. Other similar foodstuffs may include products such as fruit bars and energy bars.

Your product is similar to muesli bars and health food bars in its shape and size. We also discuss breakfast bar as follows:

Breakfast bar

The GST-free status of 'breakfast bars is considered in paragraphs 14 to 17 of GSTD 2008/2, as follows:

14. Some products available on the market are known as 'breakfast bars'. The term 'breakfast bar' is not used in the GST Act.

15. Products known as breakfast bars may include the words 'breakfast bars' on their packaging and usually:

● consist predominantly of cereals and sugars and may contain other ingredients such as fruits and/or nuts; and

● are of a similar size and shape to muesli bars.

16. It is the Commissioner's view that breakfast bars resemble muesli bars in the manner of their physical presentation as they are of similar shape and size, and contain similar ingredients.

17. As breakfast bars are similar in character to muesli bars, they satisfy the description of 'similar foodstuffs'. Therefore, breakfast bars are food of a kind specified at Item 11. As paragraph 8-3(1)(c) of the GST Act provides that food of a kind specified in Schedule 1 to the GST Act is not GST-free, supplies of breakfast bars are taxable supplies if all the requirements of section 9-5 of the GST Act are met

Your product is marketed as bread bars and are similar to muesli bars and health food bars in its shape and size, however, it has the texture of soft bread. The ingredients do not consist predominantly of cereals and sugars. The main ingredient is flour, with cereals being a minor ingredient.

Your product cannot be considered as being similar to either muesli or health food bars because the product’s ingredients are not consistent with muesli bars, health food bars, or similar foodstuff. Hence Item 11 does not apply to the product.

Item 20:

Item 20 lists the following bakery products: cakes, slices, cheesecakes, pancakes, waffles, crepes, muffins and puddings.

The word "cake" as described in Schedule 1 is not defined in the GST Act and therefore it takes on the ordinary meaning. The meanings of 'cake’ is defined in The Macquarie Concise Dictionary (3^nd Edition) as follows:

Cake

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

3. to form into a cake or compact mass

4. to be formed into a cake or compact mass…

The word "muffin" as described in Schedule 1 is not defined in the GST Act and therefore it takes on the ordinary meaning.

https://en.oxforddictionaries.com/definition/muffin

muffin;

1. a small domed spongy cake made with eggs and baking powder.

"blueberry muffins"

2. a flat circular spongy bread roll made from yeast dough and eaten split, toasted, and buttered

The Detailed Food List on ato.gov.au states:

https://www.ato.gov.au/Calculators-and-tools/Host/?anchor=GSTFBSearch#GSTFBSearch/questions

muffins (cake type, supplied hot or cold or requires cooking, heating, thawing or chilling prior to consumption): Taxable. Schedule 1, item 20 and clause 2 of the GST Act apply.

breakfast muffins (English, bread type)- GST-free- Food for human consumption that is not of a kind specified in Schedule 1 of the GST Act.

We do not consider this product to be similar to a breakfast muffin, so must consider if it is “of a kind” of cake or muffin. As outlined above, a cake will include the key ingredients of flour, sugar and eggs. A basic muffin recipe will also include flour, sugar, eggs, milk and butter.

http://www.taste.com.au/recipes/basic-muffin-mix/32aff51f-8012-4df3-af99-83e94803cf7d

The ingredients of the product do not contain any milk, egg, or butter. Hence Item 20 does not apply to the product.

Item 32

Item 32 is about food that consists principally of biscuits, cookies, crackers, pretzels, cones or wafers. The terms "biscuits, cookies, crackers, pretzels, cones or wafers" are not defined in the GST Act and will bear their ordinary meanings. The word "Biscuit" is defined in the Macquarie Concise Dictionary as:

"1. a stiff, sweet mixture of flour, liquid, shortening and other ingredients, shaped into small pieces before baking or sliced after baking. b. a savoury, unleavened similar mixture, rolled, sliced and baked crisp."

The product does not satisfy the above meaning of biscuits. Although it is made from flour and oats, it is not in the shape of a biscuit, it is in the shape of a bar. Nor does it have a crisp texture. Hence Item 32 does not apply to the product.

CONCLUSION

As the product is not listed in Schedule 1, the product is not excluded from being GST-free by paragraph 38-3(1)(c) of the GST Act.

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