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Ruling
Subject: GST and food products
Question
Is your supply of the food product (Product) GST-free under section 38-2 of A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?
Answer
No.
Relevant facts and circumstances
You are registered for goods and services tax (GST).
You sell the Product.
The Product is cut into small rectangular pieces which are thin, dry and crisp.
The Product is made from ingredients similar to ingredients used to make crackers.
The product is marketed on your website as a type of cracker.
The Product's packaging is similar to packaging used to store and sell biscuits.
Generally, the Product or similarly named products can be made as a soft flatbread or can be dry and crisp.
Relevant legislative provisions
All references are to the GST Act:
Section 38-2
Section 38-3
Section 38-4.
Reasons for decision
Your supply of the Product can only be GST-free as a supply of food.
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.
The definition of food in section 38-4 of the GST Act includes food for human consumption, whether or not requiring processing or treatment. Your Product is sold as food for human consumption and consequently can be treated as food for human consumption.
The Product does not fall within any of the exclusions in section 38-3 of the GST Act except possibly paragraph 38-3(1)(c). However, 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 category at Item 32 that may be of relevance when considering the GST treatment of your supply of the Product:
Biscuit goods (which covers products such as biscuits, cookies, crackers, pretzels, cones or wafers).
Note that there are no other food products in Schedule 1 that are relevant when considering the GST classification of the Product.
Also of relevance when considering the GST treatment of your supply of the Product is the Detailed Food List (a public ruling for GST purposes).
Classification of the Product
The Product is not a product that is specifically listed in Item 32 but may be a product that is food of a kind of those listed (and hence taxable under paragraph 38-3(1)(c)). Of all the products listed in Item 32, crackers are the relevant type of biscuit that needs to be taken into account when determining whether the Product is a food of a kind of those specifically listed.
Situations arise where a food may have the characteristics that allow it to be placed into more than one category of food. In deciding whether a product is food of a kind that is 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. In coming to its decision, Lansell also considered (amongst other things) the product's:
§ use
§ in store display
§ marketing, and
§ appearance.
In your case, the Product has been cut so as to give the size and appearance of crackers. They are thin, dry and crisp like crackers and are marketed as crackers on your website. The packaging is also similar to packaging used for storing and selling biscuit. It would also be expected to find the Product located alongside biscuits and crackers in a supermarket or similar retail outlet.
Given this and looking at all of the Product's characteristics, the correct classification for GST purposes is that the Product is a food, or food of a kind, that consists principally of biscuits or crackers.
Detailed Food List
We note that the Detailed Food List classifies flatbread as GST-free. Even if your Product may have some of the characteristics of flatbread, the Product's characteristics as outlined above would classify the product more as a cracker than a flatbread.
Consequently, as the Product is captured by Item 32, a supply of the Product will be taxable under section 9-5 of the GST Act.