Edited version of your written advice

Authorisation Number: 1051491122276

Date of advice: 7 March 2019

Ruling

Subject: GST and fruit gel

Question

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

Answer

Yes.

Relevant facts

You manufacture nutritional gels to be used by a specified group of people.

These gels are predominantly made up of Australian fruit juice, other fruits and fruit products along with water.

You directed us to your website which shows that the Product is a supplementary food that tastes great like real food.

There are a number of varieties.

The ingredients list shows that a very small amount of sweetener is added.

You provided copies of factsheets for the Product which provides the following information:

● The Product contains at least 50% fruit juice content.

● The Product offers the perfect sugar blend for energy with a balance of other mineral mixes.

● The Product can be taken during or after physical activity.

● You recommend the user to hydrate well after consumption to avoid any negative effects.

You provided samples of the Product and the packaging shows the sugar content.

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 table item 8

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 subsection 38-4(1) of the GST Act and includes:

● food for human consumption (whether or not requiring processing or treatment) (paragraph 38-4(1)(a) of the GST Act) and

● beverages for human consumption (paragraph 38-4(1)(c) of the GST Act).

Although ‘food’ as referred to in subsection 38-4(1) is not further defined in the GST Act, it will be taken to have its ordinary meaning.

The Macquarie Dictionary Third Edition (the Macquarie Dictionary) defines ‘food’ as

noun 1. what is eaten, or taken into the body, for nourishment…

You describe the Product as a supplementary food that tastes great like real food. The Product offers the perfect sugar blend for energy with a balance of other mineral mixes.

The Product can be taken during or after physical activity. You recommend the user to hydrate well after consumption to avoid any negative effects.

The sample you provided show that the Product is not solid and does not flow like liquid. It is a gel. We consider that the Product has the character of food for human consumption as defined in paragraph 38-4(1)(a) of the GST Act.

However, 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 the table in clause 1 of Schedule 1 to the GST Act (Schedule 1). The Product is not specifically listed in Schedule 1. As such, the issue is whether the Product is 'food of a kind' specified in Schedule 1.

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 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 ...'

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.

In addition, Lansell House Pty Ltd & Anor FC of T (2011) ATC 20-239 at [30] relevantly provides:

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…

Of relevance when considering the GST treatment of the Product is item 8 of Schedule 1 (Item 8).

Item 8 provides that ‘confectionery, food marketed as confectionery, food marketed as ingredients for confectionery or food consisting principally of confectionery’ is not GST-free.

Issue 12 of the Food Industry Partnership – issues register (Issue 12) outlines what we mean by the term ‘confectionery’.

Paragraph 1.44 of the Further Supplementary Explanatory Memorandum to the GST Bill ("the EM") provides that Schedule 1 lists certain products that will be taxed as confectionery. This list is essentially the same as the definition of confectionery used in the wholesale sales tax (WST) legislation.

Paragraph 1.45 of the EM goes on to say:

"Confectionery includes food that is marketed as confectionery, such as chocolate, boiled sweets, lollipops, sherbet, marshmallow and fruit lollies, as well as the specific types of goods included in Schedule 1."

Issue 12 also lists several court cases that assist in determining whether a product is confectionery. For example, the reasoning in Zeroz Pty Ltd v DFC of T 97 ATC 4277 and the decisions in Allied Mills Industries v FC of T 87 ATC 4387 and Candy Maid Confections v Customs & Excise Commissioners (1969) 1 Ch. 6111 lead to the conclusion that the word 'confectionery' must be given its ordinary meaning.

The Macquarie Dictionary defines ‘confectionery’ as follows:

noun (plural confectioneries)

1. confections or sweets collectively.

‘Confection’ is in turn defined as:

…

2. a sweet preparation (liquid or dry) of fruit or the like, as a preserve or sweetmeat.

3. a sweet or bonbon.

Therefore, the ordinary meaning of confectionery suggests something which is sweet. Court decisions also cast some light on the meaning of confectionery.

Aickin J in the High Court decision Landau and Anor. v Goldwater and Anor. 13 ALR 192 gave a general description of confectionery:

"one of common usage which embraces a wide variety of articles, many readily recognisable as examples of confectionery. 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. There is, however, no doubt that in the ordinary parlance the term would now include blocks of chocolate, however small or however large."

Further to the above, in determining whether food is marketed as a "confectionery" or "ingredients for confectionery" the activities of the seller are relevant. Consideration is given to the following:

● the name of the goods;

● the price of the goods;

● the labelling on any containers for the goods;

● literature or instructions packed with the goods;

● how the goods are packaged;

● how the goods are promoted or advertised; and

● how the goods are distributed.

In determining whether food is marketed as confectionery or as an ingredient for confectionery, it is relevant to look at the uses to which the product is put.

The Product contains at least 50% fruit juice content. The Product contains sugar. The ingredients list shows that a very small amount of sweetener is added. The Product can be taken during or after physical activity.

We do not consider that the Product is confectionery, food marketed as confectionery, food marketed as ingredients for confectionery or food consisting principally of confectionery. Hence, the Product is not food of a kind covered by Item 8.

The Product is not food of a kind specified in Schedule 1. Furthermore, the supply of the Product does not fall within any of the other exclusions in section 38-3 of the GST Act. Therefore, the supply of the Product is a GST-free supply under section 38-2 of the GST Act.

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