Edited version of private ruling

Authorisation Number: 1011853022408

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Ruling

Subject: GST classification of a food item

Question 1

Is my business product, GST-free supply under section 38-2 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer

No

Relevant facts and circumstances

You are not registered for GST but do have an Australian Business Number.

You carry on an enterprise of providing foods.

You have requested a GST private ruling on whether the supply of a food item (the product) made of crushed ice with syrup added as flavouring is GST-free.

A variety of flavourings for the product is available. Their ingredients include sugar, water, preservatives and flavours. Sodium benzoate, vegetable gums and colours are also common ingredients found in most of the flavourings.

The product is consumed with a spoon straw and is sold in a plain foam cup.

You make and sell the product for human consumption at sport events/sporting venues which come in four sizes. It is consumed either at the sporting venue or taken away to be consumed elsewhere.

The product is made to order and is not manufactured and ready to eat like other frozen food. A cup of plain crushed ice can be purchased separately should a customer choose to.

You contend that the item is not a beverage as it is not in a liquid form nor is it a food listed in Schedule 1 of the GST Act. You consider that unlike ice, the product is still considered to be a food as it has nourishment, calories and plenty of energy.

You are of the view that the supply of the snow cones does not fall under any of the other exclusions in section 38-3 of the GST Act.

You contend that the foam cup is also GST-free in line with the products classification as it is considered normal and necessary packaging for food.

You consider that since the spoon straw used to eat the snow is provided free of charge and is disposable, it is not subject to GST.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 Section 38-3.

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 product 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 satisfy the requirements in paragraphs 9-5(a) to 9-5(c) of the GST Act as follows:

· the supply of the product is for consideration

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

· the supply is connected with Australia as your product is delivered in Australia.

As you are not registered for GST, paragraph 9-5(d) of the GST Act is not satisfied and as such any supplies that you make will not be subject to GST. We consider however that your question is more general in nature. Accordingly we will answer if the supply of the product would be subject to GST if it was supplied by a registered entity.

The supply of the product by a registered entity will be taxable to the extent that it is not input taxed or GST-free.

There is no provision for the supply of food to be input taxed other than section 40-130 of the GST Act 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 product is GST-free.

You have described the product as being crushed ice with syrup flavouring that is served in a plain foam cup and is consumed using a disposable spoon.

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)'. Snow cones by their very nature 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. As such, the issue in this case is whether it is 'food of a kind' specified in Schedule 1.

The phrase 'food of a kind' is not defined in the GST Act. However, the words 'of a kind' and their meanings were considered in Hygienic Lily Ltd v. Deputy Commissioner of Taxation (NSW) (1987) 13 FCR 399. Accordingly, it is considered that food will be 'food of a kind' listed in Schedule 1 if it is food belonging to the same class or genus as food listed in Schedule 1. The items from Schedule 1 of the GST Act that are of most relevance to this case are items 28 to 31 which come under the broad category of ice-cream food.

Item 28

This item covers ice-cream, ice-cream cakes, ice-creams and ice-cream substitutes.

The term "ice-cream" is not defined in the GST Act and accordingly takes its ordinary meaning. The Macquarie Dictionary (Second Edition) defines 'ice cream' as "frozen food made of cream or milk, sweetened and flavoured."

The ingredients of the product are crushed ice covered by a syrup flavouring (made of sugar, water, preservatives and other ingredients). Accordingly Item 28 of Schedule 1 does not cover the product as it is not frozen food made of cream or milk.

Item 29
This item covers frozen confectionery, frozen yoghurt and frozen fruit products (but not frozen whole fruit).

The product does not consist of yoghurt or fruit in a frozen state, so the issue is whether it is frozen confectionery.

Confectionery is not defined in the GST Act. The Macquarie dictionary defines it to be "a sweet preparation (liquid or dry) of fruit or the like, as a preserve or sweetmeat".

There are a number of court cases that assist in determining whether a product is confectionery. 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.

Candy Maid decided whether a toffee apple was confectionery. It was held in this case that toffee apples were not articles of confectionery similar to chocolates or sweets.

Based on the above consideration, we find that the product is not confectionery and thus item 29 does not cover the product.

Item 30
This item covers flavoured iceblocks (whether or not marketed in a frozen state).

The term "flavoured iceblock" is not defined in the GST Act. The Macquarie Dictionary defines "flavour" as:

1. taste, esp. a characteristic taste of something of a noticeable element in the taste, of
a thing.
2. a flavouring substance or extract.
3. typical quality of thing.

The Macquarie Dictionary defines "iceblock" as:

1. an ice cube.
2. a frozen flavoured confection, originally water based, sometimes on a stick."

We consider that the syrups are a flavouring substance. This is acknowledged in your ruling application under section 8 where you describe "the product is promoted as make to order where customers will if they want flavours, how many flavours….".

While the product is not in the traditional form of an iceblock it is noted that item 30 is given some latitude by the legislators in that the product need not be marketed in a frozen state.

The product is a crushed ice product that comes with a variety of flavourings made to order. While it is not sold as a solid block of ice, it is similar to a flavoured ice block

Item 31
This item operates to tax any food similar to food listed in items 28 to 30.

As we have already discussed that the product is similar to an iceblock then we find that the product is taxable under item 31 of Schedule 1 of the GST Act.

Other matters

In addition, the supply of the product is also excluded to be GST-free under paragraph 38-3(1)(a) of the GST Act where it is supplied for consumption on the premises from which it is supplied.

Goods and Services Tax Determination GSTD 2000/4 explains the ATO view on what is meant by the word 'premises' in the expression, 'a supply of food for consumption on the premises from which it is supplied.

Paragraph 1 of GSTD 2000/4 states:

The ordinary meaning of the word 'premises' is widened by the definition in section 38-5 of the A New Tax System (Goods and Services Tax) Act 1999. Premises falling within the section 38-5 definition include:

·   the place where the supply takes place - for example, supermarkets, restaurants,
cafes, snack bars, hotels, motels, bed and breakfasts, clubs, reception lounges, aircraft, boats, trains, venues for catered functions, or food courts where tables are supplied for customers of food retailers;

·   the grounds surrounding restaurants, cafes, snack bars, hotels, clubs, reception lounges and venues for catered functions; and

·   any venues, associated with leisure, sport or entertainment, with clear boundaries or limits.

Paragraph 3 of GSTD 2000/4 provides amongst others, the following examples of venues associated with leisure, sport or entertainment -football grounds, exhibition halls, other sports grounds, theme parks, golf courses, racecourses, entertainment centres, gyms etc.

Accordingly, as you supply the product at sporting venues, the product is also excluded from being GST free where it is for consumption on those premises.

Note that you are required to be registered for GST if your GST turnover is at or above the registration turnover threshold, currently set at $75,000 (GST exclusive).

Please refer to the link below for the Guide to GST. The Guide explains how the GST system works and also assists you to understand 'how to work out your GST turnover and 'how to register for GST'.

http://www.ato.gov.au/businesses/content.aspx?doc=/content/00221985.htm&page=3&H3