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Ruling

Subject: GST and bakery products

Question:

Are your supplies of the bakery products A and B GST-free for the purposes of section 38-2 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Advice/Answers

(1) No. The supply of A is not GST-free under section 38-2 of the GST Act.

(2) Yes. The supply of B is GST-free under section 38-2 of the GST Act.

Relevant facts

· You are registered for goods and services tax (GST).

· You bake and sell two particular bakery products A and B.

· A has a flat dough base and topped with ingredients.

· B has an ingredient added and mixed with the dough prior to be baked.

Reasons for decisions

Section 9-40 of the GST Act provides that you must pay the GST payable on any taxable supply that you make.

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 Australia; and

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

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

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

For the supply of your baking products to be a taxable supply, all of the requirements listed in section 9-5 of the GST Act must be satisfied.

Based on the information provided, you have satisfied the requirements in paragraphs 9-5(a) to 9-5(d) of the GST Act as follows:

· the supply of the bakery products is for consideration

· the supply of the bakery products is made in the course of the business that you carry on

· the supply is connected with Australia as your business is located in Australia, and

· you are registered for GST.

Therefore, the supply of the bakery products will be taxable to the extent that they are not input taxed or GST-free.

There is no provision in the GST Act for the supply of the bakery products to be input taxed. What remains to be considered is whether the supply of the bakery products is GST-free.

A supply of food is GST-free in accordance with section 38-2 of the GST Act, if it satisfies the definition of food in section 38-4 of the GST Act and it does not come within any of the exclusions in section 38-3 of the GST Act.

'Food' is defined in paragraph 38-4(1)(a) of the GST Act to include 'food for human consumption (whether or not requiring processing or treatment)'. The products A and B 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 will not be GST-free if it is food of a kind that is specified in the third column of the table in clause 1 of Schedule 1 to the GST Act (Schedule 1), or food that is a combination of one or more foods at least one of which is food of such a kind.

1. Product A

Item 3 of Schedule 1 (item 3) is of relevance to product A.

The third column in Item 3 specifies pizzas, pizza subs, pizza pockets and similar food which are under the category of prepared food. We need to determine whether product A is similar food to the products mentioned in item 3 of schedule 1 and is therefore subject to GST.

The phrase 'similar food' is not defined in the GST Act. Where a term is not defined in the relevant Act, it takes on its ordinary meaning.

The word 'similar' is defined in Australian Oxford Dictionary (the dictionary) to mean 'like, alike; of the same kind, nature, or amount; have a resemblance'…

The dictionary also defines 'pizza' as 'a flat round base of dough with a topping of tomatoes, cheese, onions etc.'

In consultation with relevant industry bodies we have considered the issue and have identified three common characteristics of pizzas, pizza subs, and pizza pockets:.

· they cannot be cut and filled, do not need filling or topping added and are ready to eat

· they are made with dough (sometimes called 'pizza dough') with more oil and less yeast than traditional bread dough

· they have a topping or filling that is more than 30% of the product's depth.

Based on the information provided, product A is not capable of being cut and filled, does not need fillings or topping added. It is made from a dough base and topped with the ingredients described in the dictionary for pizza. As such, it is considered as 'pizza' in item 3.

Accordingly, product A is covered by Item 3 and is not GST-free under paragraph 38-3(1)(c) of the GST Act.

2. Product B

Product B is similar to a bread stick or long bread roll. Items 20 to 27 of Schedule 1 under the category 'Bakery products' cover certain bakery products which are not GST-free. Item 27 is of most relevance for consideration for this product.

The third column in Item 27 specifies bread (including buns) with a sweet filling or coating. However, paragraph 1.40 of the Further Memorandum to A New Tax System (Goods and Services Tax) Act 1999 (EM) provides examples of food that are not taxable under this item. It states:

1.40 Examples of food that are not taxable under this item and will be GST-free include: ·

· plain bread and rolls (white, wholemeal, multi-grain, etc); ·

· sesame seed or poppy seed rolls; ·

· cheesed topped bread; ·

· pumpkin bread; ·

· plain focaccia; ·

· hamburger buns; ·

· damper; ·

· sour dough bread; ·

· rye bread; ·

· tortillas; ·

· unleavened «bread», gluten free or yeast free bread; and ·

· pita, Lebanese and lavash bread.

Further, paragraph 1.41 of the EM states:

1.41 Bread that has ingredients mixed with the dough before baking will be GST-free. This includes fruit loaves without a coating or filling (a glaze is not considered to be a coating).

You advised that an ingredient is mixed with the dough before baking and the product can be cut and filled if required. Accordingly, product B is not covered by Item 27 or food of a kind specified in the third column of the table in clause 1 of Schedule 1 to the GST Act.

In addition, product B does not fall within any of the other exclusions in section 38-3 of the GST Act. Therefore, the supply of product B is GST-free under section 38-2 of the GST Act.