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Ruling

Subject: Food classification

Question:

Is a supply of dips with dip sticks GST-free?

Decision:

No

Relevant facts:

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

You are selling a product which contains two food items (dips and dip sticks).

The product is packed in a tray. The dip and dipping sticks are not individually packed. They are packed in different compartments in the tray. The tray has a covering.

The dips are savoury.

The ingredients for the dipping sticks are wheat flour, oil, malt, salt, and yeast.

The dipping sticks are manufactured by baking.

The dipping sticks are small, hard and dried.

The dipping sticks have a long shelf life.

The supplier promotes the product as dips with the dipping sticks.

Reasons for decision

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 dip with the dipping sticks 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 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 specified in Schedule 1. In this case the product contains two food items - dip and dipping sticks. Therefore we need to consider whether each food item in the product is food of a kind specified in Schedule 1.

Food is of a kind specified in Schedule 1

For your information the GST status of food is outlined in the Australian Taxation Office (ATO) public ruling "Detailed Food List" (Food lists). We enclose a copy for your reference. Relevant items listed on the Food Lists are:

Dips

Dip is listed on the Food Lists as GST-free because it is not food of a kind specified in Schedule 1 and is therefore not excluded from being GST-free by section 38-3 of the GST Act. Therefore the dips in the product is not excluded from being GST-free by paragraph 38-3(1)(c) of the GST Act.

Dipping sticks

The ingredients for the dipping sticks consist of wheat flour, oil, malt, salt, and yeast which are also ingredients for bread and biscuits. The manufacturing process for the dipping sticks is similar to both bread and biscuits. The dipping sticks are small, hard and dried and have a long shelf life.

The supplier promotes the product as dips with dipping sticks.

Based on the above information, we consider the dipping sticks may be a kind of biscuit goods under item 32 of Schedule 1 (Item 32).

Item 32

The meaning of biscuit is described in the Macquarie Dictionary 2^nd Edition as

"1.a a stiff, sweet mixture of flour, liquid, shortening and other ingredients, shaped into small pieces before baking or sliced after baking, b a savoury, unleavened similar mixture, rolled, sliced and baked crisp".

Generally biscuits are either made from a sweet mixture of flour with other ingredients or are savoury and baked crisp. However, the third column of Schedule 1 described Item 32 products as "food that is or consists principally of biscuits, cookies, crackers, pretzels, cones or wafers". That is, biscuit goods described under item 32 includes food that consists principally of biscuits, crackers, crispbread, etc.

(For your information: Clause 5 of Schedule 1 provides that goods such as breakfast food consisting principally of compressed, rolled or flattened cereal or rusks for infants or invalids are not biscuit goods under Item 32. As your products do not fall into these categories, clause 5 will have no effect on your products)

Food List

The dipping stick is similar to dried bread, which may be GST-free (as per the Food List) as well as biscuit goods. The Food List does not provide detailed descriptions of what types of dried bread are GST-free, or what will be considered to be a GST-free grissini (which is listed as GST-free in the Food List). A product may have some of the characteristics of these types of food, and yet on the particular characteristics be more correctly characterised as being a taxable food (as it is a food of kind specified in Schedule 1).

Therefore the Food List provides limited assistance in these circumstances. To determine the actual nature of the food, and therefore its GST status, we need to look at the actual characteristics of the dipping sticks. In this case, we need to consider whether it is a biscuit product under Item 32.

Classification

In deciding whether a product is food or food of a kind listed in Schedule 1 it is necessary to consider the decision and reasoning in the Federal Court case Lansell House Pty Ltd & Anor v FC of T [2010] FCA 329 (Lansell) which was upheld in Lansell House Pty Ltd v Commissioner of Taxation [2011] FCAFC 6. In Lansell, the court recognised that a food product can be characterised in more than one way and therefore could be classified into more than one food category. However, Lansell further provides that for GST purposes a food product can only have one classification and this classification should be based solely on the product's characteristics.

While we acknowledge that similar products should normally be treated consistently, the relevant question at issue is the correct classification of the dipping sticks (whether it is bread or biscuit goods) for GST purposes. We will determine the GST status of the dipping sticks by reviewing the product's characteristics and compare them to the foods listed in Schedule 1.

The dipping sticks are small, hard and dried. The dipping sticks are not savoury. The supplier promotes the product as dips with dipping sticks. Therefore, we can conclude that the dipping sticks are only for consumption with the dips. The consumer uses the sticks to dip into the cheese dips so as to consume the dips. The consumer is not expected to consume the sticks without the dips. That is, the supplier intends the dipping sticks to be food of a kind of biscuit product similar to biscuits, crackers or crisp bread (which are also commonly used with dips or spreads). In addition the long shelf life of the dipping sticks indicates that they are more like a cracker or biscuit than a bread product. Therefore we consider that the dipping sticks may also be a biscuit goods listed under item 32.

Following the factors and reasoning in Lansell we consider that while the dipping stick may consist of dried bread it can also be considered to be a biscuit product under Item 32. For GST purposes we can only use one classification. Therefore, in view of the product characteristics, the supplier's intention and the common use of the biscuits goods such as crackers as dipping sticks, we consider that the dipping sticks in CCD are food product of a kind specified under Item 32 and are therefore excluded from being GST-free under paragraph 38-3(1)(c) of the GST Act..

Combination/Mixed supplies

The product contains two food items packed in a tray with two compartments, one for the dip and the other for the dipping sticks. Therefore, we have to determine whether the supply of the dip with the dipping sticks is a supply of 'food that is a combination of one or more foods at least one of which is a food of such a kind' specified in Schedule 1 or the product is a mixed supply of taxable dipping stick and GST-free dips. The ATO view on combination/mixed supplies is outlined in Goods and Services Tax Ruling (GSTR) 2001/8 and an ATOID 2010/145. The relevant paragraphs in ATOID 2010/145 state:

Therefore, 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'.

This can be contrasted with a supply of individual foods that are taxable (that is, listed in Schedule 1) and GST-free, but which are packaged individually and then wrapped and sold together (for example a hamper). This type of supply is not 'a combination of food that contains a type of food specified in Schedule 1' because, as each food is individually packaged, they are not 'combined'. This is a mixed supply, with the GST status of each item being assessed independently. .

Based on the above, we consider the product is a combination of food containing GST-free dips and taxable dipping sticks. The food items are not packed individually. They are put into different compartments of the tray. A supply combining of 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 with at least on of the food item specified in Schedule 1. We consider the product to be a snack pack that is excluded from being GST-free under paragraph 38-3(1)(c) of the GST Act.