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Ruling

Subject: GST and two food products

Question

Will your supply of the two food products be GST-free under section 38-2 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer

No. Your supply of the two food products will not be GST-free under the GST Act. Your supply of both the food products will be taxable.

Relevant facts and circumstances

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

You are to import and sell the two food products,

You have provided samples of both products you intend to sell.

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 Section 38-4

Reasons for decision

A supply of food is GST-free under section 38-2 of the A New Tax System (Goods and Services Tax) Act 1999 (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.

The definition of food in section 38-4 of the GST Act includes food for human consumption, whether or not requiring processing or treatment. The products will be sold in your retail outlets as food for human consumption and consequently can be treated as food for human consumption.

The products do not fall within any of the exclusions in section 38-3 of the GST Act, except potentially paragraph 38-3(1)(c). Paragraph 38-3(1)(c) of the GST Act provides that a supply of food is not GST-free if it is food of a kind that is specified in the table in clause 1 of Schedule 1 to the GST Act (Schedule 1) or is a food that is a combination of one or more foods at least one of which is food of such a kind.

Schedule 1 includes the following food categories that may be of relevance when considering the GST treatment of your supply of the products:

· Savoury snacks, and

· Biscuit goods.

Savoury snacks

Item 15 of Schedule 1 (Item 15) covers products such as potato crisps, sticks or straws, corn crisps or chips, bacon or pork crackling or prawn chips as savoury snacks. Item 18 of Schedule 1 (Item 18) also covers food similar to Item 15 whether or not it consists wholly or partly of any vegetable, herb, fruit, meat, seafood or dairy product or extract and whether or not it is artificially flavoured.

Product 1 - Savoury snack

We acknowledge that product 1 consists of dried bread, which may be GST-free as per the Detailed Food List (food list) (a public ruling for the purposes of the GST Act and available from the ATO website www.ato.gov.au). However, we also note that other relevant entries on the food list are taxable (eg crostini).

Therefore the food list provides limited assistance in these circumstances. To determine the actual nature of the food, and therefore whether it is GST-free or taxable, we need to look at the actual characteristics of your product. This may reveal that it is more appropriately characterised as a food of a kind listed in the Schedule and therefore not GST-free.

Based on the types of products listed in item 15, we do not consider that the product is best characterised as a food of a kind of the products that are listed in Item 15 of Schedule 1.

However, to be a food that is not GST-free under Item 18 of Schedule 1, a food needs only to be similar to food that is covered by Item 15, regardless of what it consists of or how it has been processed. Under the legislation it does not matter whether the product has been fried, baked or roasted.

In deciding whether the product is similar to the products listed in Item 15 it is relevant to consider the reasoning and analysis provided in the full Federal Court case Lansell House Pty Ltd & Anor v FC of T [2011] FCAFC 6 (Lansell).

In Lansell, it was necessary to determine if a product labelled as dried bread also had the characteristics of a cracker biscuit and therefore could be classified as such. In reaching this decision, Lansell recognised that a food product may have characteristics to allow it to be classified into more than one food category (in our case either savoury snacks or dried breads). However, Lansell further provides that for GST purposes a food product can only have one classification and this classification should be based on the product's characteristics.

In coming to its decision, Lansell also considered (amongst other things) the product's:

· use

· in store display

· marketing

· tax treatment in the country of manufacture, and

· appearance

The ATO considers the principal characteristics of the products listed in Item 15 are that they are highly flavoured small bite size pieces of food generally consumed on their own. The flavouring is often obtained by seasoning (such as in the case of salt and vinegar potato chips) and also through the cooking process (the products being fried or baked). The products are also intended to be 'more-ish'.

The product has strong flavours resulting from its ingredients and its flavoured salts. They are small crispy bite size pieces capable of being consumed by themselves. The manufacturer also markets the product under the Aperitif section of their website as a snack.

This case also supports the decision, and reasoning, in the case Lansell House Pty Ltd & Anor v FC of T 2010 ATC 20-173.

Given all of these relevant factors, and following the guidance provided by Lansell, we consider that the product has more the character of a savoury snack than that of dried bread. Hence, the product is covered by Item 18 and therefore, its supply is taxable under paragraph 38-3(1)(c) of the GST Act.

Having reached this conclusion it is not necessary to also consider whether the product is a biscuit food.

Product 2 - Savoury snack

Similar reasoning can be applied to classifying the second product.

For the reasons given above, we do not consider that product 2 is best characterised as food of a kind of the foods listed in Item 15.

Like product 1, this product may likened to other products listed as GST-free as per the Detailed Food List. However, these entries on the food list do not give further information as to their intended scope and so are of limited assistance.

Therefore, we need to look at the actual characteristics of this product to determine the appropriate classification.

Following the classification factors and guidance provided by Lansell (as per product 1), product 2 is lightly salted and has a distinct flavour brought about by the salt and its other ingredients. Because of the product's distinct flavourings, they could just as easily be consumed by themselves as a snack without any other foods. The manufacturer also markets the product under the Bread section of their website but as a snack.

Given this we consider this product has more the character of a savoury snack than that of a dried bread stick. Hence the product is captured by Item 18 and therefore, its supply would be taxable under paragraph 38-3(1)(c) of the GST Act.

Having reached this conclusion it is not necessary to also consider whether the product is a biscuit food.

Non taxable importation

Section 13-10 of the GST Act provides that an importation is a non-taxable importation if:

· it is a non-taxable importation under Part 3-2 of the GST Act, or

· it would have been a supply that was GST-free or input taxed if it had been a supply (for example, it would be a GST-free supply had the supply been made in Australia).

In your case your supply in Australia, of the two products, will be taxable under the GST Act. Therefore a supply in Australia would not be GST-free, and it would not be a non-taxable importation under the GST legislation.

However, we note that Australian Customs and Border Protection Service administer importations of products into Australia.