Edited version of your written advice

Authorisation Number: 1051326764262

Date of advice: 12 January 2018

Ruling

Subject: GST classification of various food products

Question

Is the supply of the below listed food products GST-free pursuant to section 38-2 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer

Relevant facts and circumstances

You are an Australian company which is registered for GST.

You have developed the various food products which will be sold in supermarkets within Australia.

Product A

Ingredients:

Various Fruit Puree, Food Acids [330, 296, 300]), Water, Acai, Food Acid [330]), Coconut Water, fruit Juice Sweetener (Xylitol), Soluble Corn Fibre, Organic Date Paste, Red Beet Concentrate (Red Beet Concentrate, Food Acid [330]), Emulsifier (471), Vegetable Gums (410, 412), Stabiliser (466).

Product B

Ingredients:

Various Fruit Puree, Food Acids [330, 300, 296), Coconut Water, Sweetener (Xylitol), Soluble Corn Fibre, Organic Date Paste, Green Tea Powder (1%), Emulsifier (471), Vegetable Gums (410, 412), Stabiliser (466).

Product C

Ingredients:

Frozen fruit, various fruit Puree Food Acids [330, 296, 330]), Coconut Water, Pink Dragon Fruit (12%), Sweetener (Xylitol), Soluble Corn Fibre, Organic Date Paste, Emulsifier (471), Vegetable Gums (410, 412), Stabiliser (466).

The above listed food products are predominantly made from a frozen fruit puree. The other ingredients are used in order to soften the product so that they are not hard as rock and therefore consumable.

The above listed food products will be sold in the freezer aisles of the supermarket, taken home or work and are to be consumed before thawing. The above listed food products are consumed as healthy meal/ snack where the consumer can add their favourite fruit, granola or other toppings.

The above listed food products come in a 180gm tub with a lid. It is recommended that they are kept in the freezer.

You have not produced any brochures or marketing material for the above listed food products as you are still finalising the artwork.

The above listed food products will be manufactured by another Australian entity using some of your equipment in order to make it retail ready.

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

Reasons for decision

The supply of the above listed food products is a taxable supply if the requirements of section 9-5 of the GST Act are satisfied.

Section 9-5 of the GST Act states:

You make a taxable supply if:

(a) you make the supply for *consideration; and

(b) the supply is made in the course or furtherance of an *enterprise that you *carry on; and

(c) the supply is *connected with the indirect tax zone; and

(d) you are *registered, or *required to be registered for GST.

However, the supply is not a *taxable supply to the extent that it is *GST-free or *input taxed.

(* denotes a term defined in section 195-1 of the GST Act.)

Based on the information provided, the supply of the above listed food products by you satisfy the requirements of paragraphs 9-5(a), 9-5(b), 9-5(c) and 9-5(d) of the GST Act because:

● you supply the food products for consideration.

● the supply of the food products is made in the course of your enterprise.

● the supply of the food products is connected with Australia and

● you are registered for GST.

● The supply of the above listed food products is not input taxed under any provisions of the GST Act or any other legislation.

The next step is to determine whether the supply of the above listed food products is GST-free.

GST-free

A supply of food is GST-free under section 38-2 of the GST Act if the products satisfy the definition of food in section 38-4 of the GST Act and the supply is not excluded by section 38-3 of the GST Act.

The term 'food' is defined in paragraph 38-4 (1) of the GST Act as including:

(a) food for human consumption (whether or not requiring processing or treatment);

(b) ingredients for food for human consumption;

(c) beverages for human consumption;

(d) ingredients for beverages for human consumption;

Based on the information provided, the above listed food products satisfy the definition of food under section 38-4 of the GST Act. Therefore next thing to consider is whether the above listed food products fall within any of the exclusions in section 38-3 of the GST Act.

Subsection 38-3 (1) of the GST Act excludes certain foods from GST-free status. These include:

● food for consumption on the premises from which it is supplied; or

● hot food for consumption away from those premises; or

● food of a kind specified in the third column of the table in clause 1 of Schedule 1; or the combination of one or more foods at least one of which is food such a kind; or

● Beverages (or an ingredient for a beverages), other than a beverage (or ingredient) of a kind specified in the third column of the table in clause 1 of Schedule 2;

● The above listed food products are food for human consumption as they will be made from ingredients that are food for human consumption. Therefore, the above listed food products considered to be food for the purposes of the GST Act.

Paragraph 38-3(1)(c) of the GST Act provides that food of a kind specified in the table in clause 1 of Schedule 1 to the GST Act (Schedule 1) is not GST-free.

The following items which are listed in Schedule 1 are of most relevance to your products:

Item 29 frozen confectionery, frozen yoghurt and frozen fruit products (but not frozen whole fruit)

Item 31 any *food similar to food listed in items 28 to 30

Item 29

Frozen fruit products (but not frozen whole fruit)

Frozen fruit products will be taxable, except where they are frozen whole fruit. Whole fruit’ does not have to be a single uncut piece of fruit but can be fruit pieces or pureed fruit (provided it is purely fruit without additives such as fruit syrup, sugar, water etc.).

This position is supported by the comments made by Gzell J in P& N Beverages Australia Pty Ltd v Federal Commissioner of Taxation (2007) ATC 4481, which related to the application of item 11 of Schedule 2 – non-alcoholic carbonated beverages, if they consist wholly of juices of fruits or vegetables:

36. That means, in my view, that item 11 must be construed according to its ordinary meaning. As a Full Court of the Federal Court observed in Zeroz Pty Ltd v Deputy Commissioner of Taxation 97 ATC 4277 at 4284, if there is no trade usage then, a fortiori, the expression must be used in its ordinary English sense. The ordinary meaning of "wholly of juices of fruits" is 100% fruit juice.

37. The concession by P & N that the word "wholly" meant 100% was a proper one. Items 10 and 12 in the table to cl 1 in Sch 2 of A New Tax System (Goods and Services Tax) Act 1999 (Cth) are, respectively, concentrates for making non-alcoholic beverages if the concentrates consist of at least 90% by volume of juices of fruits, and non-alcoholic non-carbonated beverages if they consist of at least 90% by volume of juices of fruits or vegetables. In that context, "wholly" must, in my view, mean 100%.

Based on the information provided, the above listed food products are predominantly made from fruits. However, the above listed food products have other addictive including citric acid and water. Furthermore, the above listed food products will go through a manufacturing process, where at the end of the process there will be three new products not just fruits. Therefore the above listed food products are not considered to be ‘frozen whole fruit’, and will be taxable as “frozen fruit products”.

Frozen confectionery

Additionally, frozen confectionery will be taxable under item 29 of Schedule 1 of the GST Act.

The definition of ‘confectionery’ is drawn from relevant case law, which provides that the word must be given its ordinary meaning. Specifically, Aickin J gave a general description of confectionery in the High Court decision Landau and Another v Goldwater and Another 13 ALR 192:

“They are primarily small articles of a sweet character containing substantial amounts of sugar and regarded as being in the nature of a delicacy in whatever quantity they may be consumed.”

Each of the products includes sweetener, and can be consumed as a meal or a snack where the consumer can add their favourite fruit, granola or other toppings. Further the above listed food products will be sold in the freezer aisles of the supermarket, taken home or work and are to be consumed before thawing. As the above listed food products will be supplied in a frozen state and intended to be eaten in their frozen form, we consider that they will be frozen confectionery, and will be taxable under item 29 of Schedule 1 of the GST Act.

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