Edited version of private advice

Authorisation Number: 1051835800822

Date of advice: 4 June 2021

Ruling

Subject: GST and a supply of food products

Question

Is a supply of the Products by an Australian entity (you) a supply of GST-free food pursuant to section 38-2 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer

\No, your supply of the Products is not a supply of GST-free food. The supply is taxable pursuant to paragraph 38-3(1)(c) of the GST Act as the products are food that is a combination of one or more foods of kind specified in the third column of the table in clause 1 of Schedule 1.

Relevant facts and circumstances

You are an Australian entity which is registered for GST.

You supply Products with various inclusions.

The Products contain two food items packed in a single moulded plastic container with three separate compartments for;

•         the flavoured mix,

•         the dry food items such as confectionary, and

•         a spoon.

Flavoured Mix

The largest compartment contains a soft, creamy, custard like mix/blend made from milk, water, sugar, milk solids, thickeners, cream, cocoa powder, natural flavour and salt.

A custard making process is used to manufacture the mix. Once the flavoured milk blend has been treated at a high temperature (similar to an ultra-high temperature pasteurisation process) it is not further processed. The mix is not baked or cooked.

Inclusions

The smaller compartment contains various inclusions such as various type of confectionary. These are depending on the variety of the Product.

No further manufacturing processes are performed on the inclusions.

The inclusions are not added to the mix from the beginning as the inclusions would partially dissolve into the mix resulting in an overall product without the preferred crunch or texture.

Packaging and marketing

The separate compartments that are contained in the moulded plastic container are sealed with an aluminium foil peel back covering. The Products must be refrigerated at below specified degrees Celsius.

The Products are described as a 'XXXXX' on the product packaging. The words 'XXXXXXX' are also included on the packaging.

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 Paragraph 38-4(1)(b)

A New Tax System (Goods and Services Tax) Act 1999 Paragraph 38-4(1)(d)

Reasons for decision

Summary

The Products are excluded from being GST-free as the Products are a combination of food that contain a type of food specified in Schedule 1 of the GST Act: see paragraph 38-1(c) of the GST Act.

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) of the GST Act).

The Products are food for human consumption, and therefore, satisfy the definition of food in paragraph 38-4(1)(a) of the GST Act.

However, under paragraph 38-3(1)(c) of the GST Act, a supply of food is not GST-free if it is food of a kind specified in Schedule 1, or food that is a combination of one or more foods at least one of which is food of such a kind specified in Schedule 1.

The Products contain two food items packed in a single moulded plastic container with three compartments, one for the mix, another the inclusions and the third is for a spoon.

As the Products contain more than one type of food, we need to consider whether each food item in the Product is food of a kind specified in Schedule 1.

If one of the food items is of a kind specified in Schedule 1, then we need to determine whether the Product is a supply of a combination of foods to which paragraph 38-3(1)(c) of the GST Act applies or alternatively whether it is a mixed supply of GST-free and taxable food.

Flavoured Mix

We need to determine whether theflavouredmix is covered by one of the items in Schedule 1 to the GST Act.

The most relevant item to consider is item 20 in Schedule 1 (Item 20) which refers to cakes, slices, cheesecakes, pancakes, waffles, crepes, muffins and pudding.

We do not consider that the flavoured mix is a cake, slice, cheesecake, pancake, waffle, crepe or muffin.

In relation to the meaning of the term 'pudding', guidance can be found at Issue 13 of the Food Industry Register. It states:

Therefore, the word 'pudding' is defined to mean:

a cooked food that is a sweet or savoury dish made in many forms and of various ingredients, as flour (or rice, tapioca, or the like), milk and for eggs, with or without fruit, meat or other ingredients and is a cooked dish consisting of various sweet or savoury ingredients, especially as enclosed within a flour-based crust or mixed with flour, for eggs, etc., and boiled or steamed; a baked batter mixture.

In relation to this Issue, the Food Industry Register also states:

It should be noted that the following products are not considered to be a 'pudding' and will be GST-free:

•         Yoghurt

•         Dessert mousse (for example, chocolate)

•         Créme caramel

•         Dairy desserts

•         Custard

•         Jelly.

The detailed Food list also states the following in relation to custard:

We consider that the flavoured mix is not a pudding as you have advised that it is not cooked or baked. Accordingly, the flavoured mix is not food of a kind listed under item 20.

You have advised that the flavoured mix is produced using a process similar to the process used to make flavoured custard. As this is not a food of a kind listed in Schedule 1 of the GST Act, a supply of the chocolate mix is considered to be GST-free.

Confectionary

Item 8 in Schedule 1 (Item 8) of the GST Act states that 'confectionery, food marketed as confectionery, food marketed as ingredients for confectionery or food consisting principally of confectionery' will be subject to GST.

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.

As the inclusions are marketed as confectionery and they are food of a kind specified in Item 8. Therefore, they are not GST-free under Item 8.

Combination supply or mixed supply

As the Product contains food that is GST-free and food that is not GST-free we need to determine whether the supply of the Products is:

•         excluded from being GST-free by paragraph 38-3(1)(c) of the GST Act, being a combination of food that contains a type of food specified in Schedule 1, or

•         a mixed supply that has separately identifiable taxable and non-taxable parts.

The ATO view on combination/mixed supplies is outlined in Goods and Services Tax Ruling GSTR 2001/8 Goods and services tax: Apportioning the consideration for a supply that includes taxable and non-taxable parts and ATO Interpretative Decision ATO ID 2010/145 Goods and Services Tax GST and dip with biscuits. ATO ID 2010/145 states:

... a supply combining individual foods that are taxable (that is, listed in Schedule 1) and GST-free, but which are supplied in a single tray and are not separated by their individual packaging (for example a snack pack containing cheese and biscuits) is excluded from being GST-free by paragraph 38-3(1)(c) of the GST Act, because it is 'a combination of food that contains a type of food specified in Schedule 1'.

Mixed supply

The supply is not considered to be a mixed supply as the food items are not individually supplied. They are included in the one package in individual compartments and sealed with a foil lid cover.

The Products contain GST-free and taxable food items. The food items are put into different compartments of a single moulded plastic container with a peel back covering. Therefore, the mixed goods principle does not apply to the Products.

Combination food

Paragraph 38-3(1)(c) of the GST Act provides that the supply of food that is a of a kind specified in the third column of the table in clause 1 of Schedule 1, or food that is a combination of one or more foods at least one of which is food of such a kind is taxable.

The term combination is not defined in the GST Act. The ATO view on this term can be found in ATO ID 2003/857. The Commissioner considers a product that retains its separate identities as being a combination of one or more foods for the purposes of section 38-3(1)(c) of the GST Act.

It is our view the that the time for determining whether the items are separately identifiable is at the time of supply, rather than examining the intention at the time of consumption.

We consider that at the time the Products are supplied, the contents of each compartment retain their separate identities. 

As the flavoured mix and inclusions retain their separate identities when the Products are supplied, the Products are a supply of a combination of foods.

In accordance with paragraph 38-3(1)(c) of the GST Act, the Products are excluded from being GST-free as the product is a combination of one or more foods at least one of which is specified in Schedule 1 of the GST Act.

Composite supply

You consider that the Products are a composite supply and should be treated as a supply of a single thing. That is, the flavoured mix should be regarded as being the dominant part, with the relevant inclusions being integral, ancillary or incidental to that dominant part. The essential character of the Products is that of a flavoured dairy snack or dairy dessert where the inclusions are mixed in the flavoured mix and the product is treated as a single combined product which is consumed together.

The term composite supply does not appear in the GST Act. The term is used to describe a supply that contains a dominant part and includes something that is integral, ancillary or incidental to that part (GSTR 2001/8). The characterisation should be undertaken in a manner that is consistent with the object of the particular statutory provision in issue (paragraph 19 of GSTR 2001/8).

We do not consider that the Products are a composite supply. As outlined above, the Products retain their separate identities when they are supplied and are therefore a combination of foods.

In this situation, we consider paragraph 38-3(1)(c) of the GST Act requires the whole supply to be treated as a taxable supply. This is because the Product is a food that is a combination of one or more foods at least one of which is food of a kind listed in the third column of the table in Schedule 1.

Copyright notice

© Australian Taxation Office for the Commonwealth of Australia

You are free to copy, adapt, modify, transmit and distribute material on this website as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products).