Edited version of private ruling

Authorisation Number: 1011831526790

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Ruling

Subject: GST classification of food items

Question 1

Is the supply of product 1 GST-free?

Answer: Yes

Question 2

Is the supply of product 2 GST-free?

Answer: Yes

Facts

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

You have developed two new bakery products for the purpose of sale, their consumption of which will be away from the premises from which they are supplied.

Product 1

This product is manufactured from 100% sourdough dough weighing 800 grams. It is hand moulded and then proved for 4 hours. The pre oven instruction is to dust it with while flour and then to be scored by making 4 diagonal cuts on either side of the proved loaf. It is then baked for 40 minutes. The result is a bread loaf weighing 738 grams. Its dimensions are 13cm in height by 11 cm in width and 16cm in length.

The product does not contain any filling or toppings.

Product 2

This product is manufactured a piece of sourdough dough weighing 300 grams which is then proved for 4 hours. The pre oven instruction is to dust it with while flour and then to be scored by making 2 cuts no more than 1cm deep on the top of the loaves to form a cross. It is then baked for 40 minutes. The result is a bread product in the shape of a round bun loaf weighing 255 grams. Its dimensions are 9cm in height by 13.5cm in width and 13.5cm in length.

The product does not contain any filling or toppings.

Summary

The supply of each product is GST-free under section 38-2 of A New Tax System (Goods and Services Tax) Act 1999 (GST Act). They are food for human consumption and are not excluded from being GST-free by section 38-3 of the GST Act.

Detailed reasoning

Subsection 7-1(1) of the GST Act provides that GST is payable on any taxable supplies.

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 bakery products to be input taxed other than section 40-130 which allows a non profit body to elect to treat its supplies of food made at certain school tuckshops and canteens as being input taxed. As this exception does not apply to you, then 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 two 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 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. Accordingly it is necessary to establish if either product is covered by Schedule 1.

Schedule 1 covers six broad categories for food namely, prepared food, confectionery, savoury snacks, bakery products, ice-cream food and biscuits goods. Given the nature of the two food items, the only category to consider is bakery products where item 27 in particular is of most relevance covering bread (including buns) that has a sweet filling or coating.

Neither product has a sweet filling or coating. As such they are not covered by item 27 (or any other items) of Schedule 1.

Furthermore 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. This paragraph includes sour dough bread. 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).

In addition, the two food items do not fall within any of the other exclusions in section 38-3 of the GST Act. Therefore, the supply of both products is GST-free under section 38-2 of the GST Act.