Edited version of private advice

Authorisation Number: 1051557805721

Date of advice: 6 August 2019

Ruling

Subject: Soft brioche rolls

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 Goods and Services Tax. You primarily sell the Product to supermarkets.

There is product information on your website. The Product contains soft round flat buns, sold already sliced in half. The taste is slightly sweet. The texture is light and fluffy. The colour is yellow. The smell is the distinctive aroma of butter.

You stated in your Private Binding Ruling application that the Product has natural colouring added to give the Product a yellowish look in order to mimic a brioche item, as well as having natural flavouring added to provide a butter flavour but it does not contain any butter.

The Product has enough texture and structure to be used as burger bun

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 25 and item 27

Reasons for decision

Summary

We take all the factors of appearance, taste, ingredients, process of manufacture, marketing and packaging together in deciding the proper classificationof a food product. Taking all the above factors into account, we consider that the Product possesses the characteristics of a brioche, which is listed in item 25 in the table in clause 1 of Schedule 1 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act). The Product is soft and round flat buns. The taste is slightly sweet. The texture is light and fluffy. The colour is yellow. The smell is the smell of butter. The overall impression of the Product is of a kind of brioche.

The product is of a kind of item 25 (brioche) in the table in clause 1 of Schedule 1 of the GST Act (Item 25). Hence 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 Product is a taxable supply provided all the other conditions of section 9-5 of the GST Act are satisfied.

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. Therefore the next thing to consider is whether it falls within any of the exclusions in section 38-3 of the GST Act.

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.

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 Federal Court in Lansell House Pty Ltd & Anor v FCT 2010 ATC 20-173 (Lansell House 2010), which considered whether a product known as 'mini ciabatte' was taxable, did not provide an essential character test, rather it provided an overall impression test. The product in this case was imported and described on its packaging as 'Italian flat bread'. Sunberg J stated at paragraphs 108 to 109:

108. Classification decisions for sales tax, GST and VAT purposes are often described as questions of fact and degree (Ferrero at 884), value judgments (Procter & Gamble at [13]), a matter of impression (Procter & Gamble at [19]) and a combination of fact finding and evaluative judgment (Procter & Gamble at [47]). In Procter & Gamble the VAT and Duties Tribunal did not "grade" the relevant factors in coming to its decision. It stood back and took all the factors of appearance, taste, ingredients, process of manufacture, marketing and packaging together in deciding the proper classification of "Regular Pringles". The Court of Appeal approved that approach. Lord Justice Jacob said at [19]:

"It was not incumbent on the Tribunal in making its multifactorial assessment not only to identify each and every aspect of similarity and dissimilarity (as this Tribunal so meticulously did) but to go on and spell out item by item how each was weighed as if it were using a real scientist's balance. In the end it was a matter of overall impression."

Sundberg J held 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.

Application to the Product:

Schedule 1

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

Item 25 .......brioche

Item 27........bread (including buns) with a sweet filling or coating

The Product has the word 'Brioche' in the name. However, despite being labelled and marketed as a 'brioche' product, it still has to be determined whether the Product is in fact 'brioche' or 'of a kind' of brioche for the purposes of Schedule 1.

Item 25 of Schedule 1 of the GST Act (Item 25) - Brioche

We need to discuss whether the Product is of the same nature or character (possessing the same distinguishing qualities) as a brioche.

The Macquarie Dictionary 6th Edition ('the dictionary') defines 'brioche' as:

'a kind of light, sweet bun or roll, raised with eggs and yeast'.

Recipes to make brioche appear to generally contain milk, sugar, butter, eggs, yeast and flour in the ingredients.

With regard to your product, the ingredients include .....

The sample of the Product contains soft round flat buns, sold already sliced in half. The taste is slightly sweet due to presence of caster sugar. The texture is light and fluffy. The yellow colour is due to the presence of natural colour; and the aroma of butter is due to a butter flavour.

We consider that the Product has some of the normally accepted ingredients of brioche, that is, sugar, eggs, yeast and flour, and the Product also has the yellow colour as well as the buttery flavour of a brioche. It is arguably not a traditional brioche.

We take all the factors of appearance, taste, ingredients, process of manufacture, marketing and packaging together in deciding the proper classificationof a food product. Taking all the above factors into account, we consider that the Product possesses the characteristics of a brioche, (Item 25).

We understand you market the Product as a burger bun, and the Product has enough texture and structure to be used as burger buns. However, the overall impression of the Product is of a kind of brioche.

It is also important to note that when classifying food as taxable, the legal test established under the legislative framework does not require the product to be 'of a kind' of product listed as GST-free in the Detailed Food List (such as burger buns). The legal test is whether the food is 'of a kind' listed in Schedule 1.

The purpose of providing this analysis is in regard to responding to the contentions raised by you that the Product is a bread bun used as burger.

In Lansell House 2010, the issue to be decided was whether 'mini Ciabatte', is 'food that is, or consists principally of, biscuits, cookies, crackers, pretzels, cones or wafers' (item 32 of Schedule 1)and therefore subject to GST.

At [12], the Court acknowledged that although a product can be characterised in more than one way, for the purposes of the GST Act, a product can only have one classification. At [7], the Court took the view that the question to be answered was whether the product falls within item 32 - that is, food that is, or consists principally of, crackers - and that evidence that the product fits within the definition of bread would not be sufficient to establish that it is not a food of a kind listed in item 32. The Court held at [110] that the appellants failed to establish that the product is not food that falls within item 32.

Applying that principle, we consider that as the Product is food of a kind specified in Item 25 (brioche) of Schedule 1 of the GST Act, we do not have to determine if the Product should be better characterised as a burger bun. The Product's use as a burger bun, rather than the traditional brioche bun, is not determinative of the product's characterisation. We take the example of a croissant, which is taxable under item 24 of Schedule 1 of the GST Act, even if it can be sliced and served with cheese and ham.

You state that the Product does not contain milk solids or butter and hence not a brioche product. We consider that the Court in Lansell House 2010 at [108] quoted Jacob LJ in Commissioners for Her Majesty's Revenue and Customs v. Procter & Gamble UK [2009] STC 1990, that classification decisions for GST tax purposes are often prescribed as questions of fact and degree, a matter of impression and a combination of fact-finding and evaluative judgment.

We have interpreted this in our rulings to mean that the absence of one ingredient may not be determinative - we still look at the overall product character. The Product does not contain butter but it has butter flavouring. The Product also has natural colouring added to give the Product a yellow colour.

You state that the amount of egg in the Product ingredients is not sufficient to impact the texture of the Product. Hence you believe the Product is brioche style roll and not a typical brioche bread recipe made from an enriched dough containing a high proportion of egg, butter and milk. Our opinion is there is no threshold on the percentage of ingredients. We use the example of full cream milk and reduced fat milk. Although a reduced fat milk product may contain only 1% fat instead of the normal fat percentage of full cream milk, the reduced fat milk is still considered a milk product.

In addition, in Lansell House 2011, the Court noted that the principal judge, Sundberg J, attached little significance to the fact that the water and yeast contents were outside the typical rage of ingredients for crackers. The Full Federal court in Lansell House 2011:

-   accepted the Commissioner's submission that what is or what is not a cracker is not a 'bright line' defined by percentage of its ingredients.

-   rejected the appellant's submission that the differences in respect of water and yeast content posed threshold questions which needed to be evaluated before the primary judge. In particular, the Court concluded that the appellants had failed to establish that such threshold requirements exist.

After considering all of the above factors and your contentions, we consider that the Product is 'of a kind' of brioche (Item 25) for the purposes of Schedule 1 of the GST Act.

Item 27 of Schedule 1 of the GST Act (Item 27) - Bread (including buns) with a sweet filling or coating

The Product is not classified under item 27 of Schedule 1 (Item 27) of the GST Act. The Product neither has a sweet filling nor coating.

Conclusion

The Product is 'of a kind' of Item 25 (brioche). 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 provided all other requirements of section 9-5 of the GST Act are satisfied.

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