Edited version of your written advice

Authorisation Number: 1051417967286

Date of advice: 15 October 2018

Ruling

Subject: GST classification of food.

Question

Is the supply of the Product a GST-free supply for the purposes of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer

No.

Relevant facts and circumstances

You are registered for GST. You sell the Product throughout Australia at supermarkets.

The Product is marketed on your website together with other baby food products in the infant food category. The Product is placed in the Baby food category of supermarkets. The Product is mineral fortified. This supports the fact that the Product is designed for babies.

Description of the Product and Product information

The sample of the Products is shaped in a rectangular form, the size is approximately 7cm X 2.5cm. The Product is slightly sweet, crispy and crunchy to the bite and has a dry texture, similar to a dry biscuit. It has a mild fruit flavour. It is slow baked.

Relevant legislative provisions

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

Section 38-2

Section 38-3

Section 38-4

Schedule 1

Reasons for decision

Summary

The Product is of a kind of Item 32 (biscuit goods) in the table in clause 1 of Schedule 1 of the GST Act (item 32). Further, the Product is not covered under the exemption ‘rusk for infants or invalid’ listed in clause 5 of Schedule 1 of the GST Act.

The supply of the Product is a supply that is not GST-free under section 38-2 of the GST Act as the product is excluded from being GST-free by paragraph 38-3(1)(c) of the GST Act.

Hence the supply of the Product is a taxable supply where all the other requirements of section 9-5 of the GST Act are met.

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).

The Product satisfies the definition of food because it is sold as food for human consumption. Of relevance to your product is paragraph 38-3(1)(c) of the GST Act, which provides a supply of food is not GST-free if it is food of a kind that is specified in Schedule 1.

‘of a kind’ in paragraph 38-3(1)(c)of the GST Act

The phrase 'of a kind' is not defined in the GST Act. Accordingly, it is appropriate to examine the ordinary meaning of that term. The Macquarie Dictionary (1997) does not define the entire phrase 'of a kind' however, it defines the word 'kind' to mean:

'1. A class or group of individuals of the same nature or character, especially a natural group of animals or plants. 2. Nature or character as determining likeness or difference between things: things differing in degree rather than in kind. 3. A person or thing as being of a particular character or class: he is a strange kind of hero. 4 ...'

In sales tax cases and when determining the phrase ‘of a kind’, the Courts have determined the ’essential character of the goods‘. Essential character derives from the basic nature of the goods, from what they are, though composition, function and other factors necessarily play a part.

The GST case Lansell House Pty Ltd & Anor FC of T 2010 ATC 10851 (Lansell House 2010) did not provide an essential character test, rather it provided an overall impression test. This case considered whether a product known as ‘mini ciabatte’ was taxable. The product was imported and described on its packaging as ‘Italian flat bread’. Sundberg J held at paragraphs 108 to 109 that the words in item 32 are not used in a specialised or trade sense that differs from their ordinary usage, and that it is a matter of overall impression in deciding the proper classification of a product. Please note that this Federal Court decision has been upheld by the Full Federal Court, hence this quote from the Federal Court decision is still relevant.

Further, the use of the words ‘of a kind’ in paragraph 38-3(1)(c) has also been considered by the Courts and held that it adds further generality to the description of food specified in Schedule 1 therefore this description should not be construed narrowly. See Lansell House Pty Ltd & Anor v. FCT 2011 ATC 20-239 (Lansell House 2011) at paragraph 30 where the Full Federal Court said:

30. …The word "kind" is appropriately used to denote a genus, class or description (Commonwealth of Australia v Spaul (1987) 74 ALR 513 at 516 per Davies, Lockhart and Neaves JJ). The use of the words "of a kind" in s 38-3(1)(c) of the GST Act adds further generality to the description of the items described in Schedule 1: Air International Pty Ltd v Chief Executive Officer of Customs (2002) 121 FCR 149 per Hill J. Thus, a new product that does not possess all of the same characteristics of known crackers may nevertheless be within the relevant item. For example, in the present case, included within item 32 are products that do and do not contain yeast and products that might be produced by different manufacturing processes. The question is whether the resulting product comes within the genus, class or description of a cracker.

In both cases, the Courts attached little significance to the fact that water and yeast were outside the range of those ingredients in crackers and were satisfied that, even accepting that the product is not laminated and contains yeast, it is 'of a kind' of the cracker genus (Lansell House 2010 at para 73 and Lansell House 2011 at para 33).

Accordingly, something will be 'of a kind' if it is of the same nature or character (possessing the same distinguishing qualities) as the thing or group in question. A new product that does not possess all of the same characteristics of a known product may nevertheless be within the relevant item.

Schedule 1

Clause 1 of Schedule 1 of the GST Act specifies a range of foods that are not GST-free. In relation to the Product, the following relevant item is included in Schedule 1:

Issue 26 of the Food Industry Partnership Issues Register (Issue 26) discusses biscuit goods as follows:

https://www.ato.gov.au/Business/GST/In-detail/GST-issues-registers/Food-Industry-Partnership---issues-register/?page=25

Clause 1, Item 32 of Schedule 1 of the A New Tax System (Goods and Services Tax) Act 1999 operates to subject the following products to GST:

"food that is, or consists principally of, biscuits, cookies, crackers, pretzels, cones or wafers"

The further explanatory memorandum to the A New Tax System (Goods and Services Tax) Bill 1998 at paragraph 1.52 states "...The category of biscuit goods follows the WST definition except that the exclusion for crispbread has been removed. This category would tax amongst other things, dry biscuits, savoury biscuits and chocolate biscuits."

The word 'crispbread' is defined in the Macquarie Dictionary 3rd Edition as "a kind of crisp biscuit, frequently made to be low in kilojoules".

'Biscuit' is defined as

"1a 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".

…

Dried bread products (such as oven baked toasts, mini toasts, rusks etc) are not considered to be crispbreads. Items 20 to 27 of clause 1 of Schedule 1 lists the bakery products which are not GST-free. Specifically, item 27 relates to bread (including buns) with a sweet filling or coating. Dried bread products do not fall within the bakery products listed in items 20 to 27 nor are they considered to be biscuit goods under item 32. Therefore these products will be GST-free.

Issue 26 characterises rusks as a type of dried bread product, in the same category as oven baked toasts, mini toasts, etc), that does not fall within items 20-27 or 32. This is consistent with the exemptions for rusk, listed in clause 5 of Schedule 1 of the GST Act.

We have found the definitions of the products in Item 32 from the Macquarie Dictionary:

Biscuits – 1. a stiff, sweet mixture of flour, liquid, shortening and other ingredients, shaped

into small pieces before baking or sliced after baking;

2 a savoury , unleavened similar mixture, rolled, sliced and baked crisp.

Cookies - Chiefly US. a biscuit

Crackers – a think crisp biscuit

Pretzels – a crisp, dry biscuit usually in the form of a knot or stick, salted on the outside

Wafers – 1 a thin, crisp cake or biscuit, variously made, and often sweetened and

flavoured, usually eaten with ice-cream.

2 a thin disc of unleavened bread, used in the Eucharist, as in the Roman

Catholic Church

Based on these definitions cookies, crackers, pretzels and wafers are a kind of biscuits.

In relation to your Product:

To determine the classification of the Product we need to consider the characteristics of the Product.

The Product is labelled and marketed as a biscuit. The Product is shaped in small rectangular form. It is slightly sweet, crispy and crunchy to the bite and have a dry texture, similar to a dry biscuit. The consistency when eaten is like that of a biscuit. The Product has a mild fruit flavour. From the taste and appearance of the Product, it looks and tastes like a biscuit.

Further, the ingredients the Product’s ingredients are common ingredients of certain biscuits and crackers.

After considering all of the above factors we consider that the Product possesses similar distinguishing qualities to other crackers/ biscuits. It is of the same nature or character as other crackers/ biscuits. We consider that the Product comes within the class/genus of items described in item 32.

Is the Product a rusk for infants or invalids?

The next step is to decide if the Product fits into the exceptions listed in clause 5 of Schedule 1 of the GST Act as follows:

Goods that are not biscuit goods.

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

The Product does not fit into subclause 5(a) of the GST Act.

Under item 5 of Schedule 1, the GST Act provides the exemption that rusks for infants or invalids are not considered to be biscuits goods..

What is a Rusk

Rusk is not defined in the GST Act.

Sundberg J in Cascade Brewery Company Pty Ltd & Anor v Federal Commissioner of Taxation [2006] FCA 821 at [27] and [40] considered the meaning of “infant” or “invalids” in their ordinary meaning.

Accordingly, it is appropriate to examine the ordinary meaning of ‘rusk’.

Dictionary definitions of ‘rusk’:

The following dictionary definitions assist in determining the ordinary meaning of the word ‘rusk’:

The Macquarie Dictionary 2nd Edition

https://www.macquariedictionary.com.au/features/word/search/?word=rusk&search_word_type=Dictionary

1. A type of sweetened tea biscuit. 2. A piece of bread or cake crisped in the oven.3. a similar commercially made product, given especially to babies when teething, and invalids

The Merriam-Webster Dictionary

https://www.merriam-webster.com/dictionary/rusk

Definition of rusk

(Entry 1 of 2)

1 : hard crisp bread originally used as ship's stores

2 : a sweet or plain bread baked, sliced, and baked again until dry and crisp

The Oxford Dictionary:

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

Rusk

1 : a light, dry biscuit or piece of twice-baked bread, especially one prepared for use as baby food.

2 : twice-baked bread used in foods such as sausages, and formerly as rations at sea.

The meaning in the Australian Oxford Dictionary aligns with the meanings from Merriam Webster (twice-baked bread). It shares some similarities with the Macquarie Dictionary, particularly the references to bread or cake crisped in the oven.

All these meanings need to be considered in the context of item 32 and clause 5(b) of schedule 1, which refers to ‘rusks for infants or invalids’. Common elements of the above definitions are that a rusk is a type of bread that is baked (perhaps rebaked) until crisp, especially for babies.

The Product is an iron enriched, slow baked biscuit for infants. We consider that the Product recommends its use to infants but it does not have any specific feature to exclude consumers older than infants. Thus the Product can be used by the general population. We also consider that there is no exemption from GST for any food on the grounds that it is mineral fortified.

The Macquarie Dictionary provides the following definition for bread:

A food made of flour or meal, milk or water, etc., made into a dough or batter, with or without yeast or the like, and baked

The Product is neither bread nor a cake. The Product is a slow baked biscuit, not baked twice.

You contention about the Product can be used as a soft rusk (rather than a biscuit), is not determinative of the product’s characterisation. While the Product can be used as a soft rusk for infants, the overall impression is that it is a biscuit, not a rusk for infants or invalids.

Ultimately it is a matter of overall impression in deciding the proper classification of the Product, weighing up various factors including the ingredients, manufacturing process and the marketing of the Product (Lansell House 2010 and 2011)

In summary, the Product is of a kind of food items listed under item 32 (biscuit goods). Further, the Product is not covered under the exemption ‘rusk for infants or invalid’ listed in clause 5 of Schedule 1 of the GST Act. The supply of the Product is a supply that is not GST-free under section 38-2 of the GST Act as the product is excluded from being GST-free by paragraph 38-3(1)(c) of the GST Act. The supply of the Products is a taxable supply where all the other requirements of section 9-5 of the GST Act are met.

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