Edited version of your private ruling

Authorisation Number: 1012496539645

Ruling

Subject: GST and the supply of food product

Question 1

Will the supply of the hamper style product (the hamper) you plan to produce be subject to GST?

Answer

Yes, but only to the extent of the taxable part of the supply. The supply needs to be apportioned between the taxable and GST-free parts and only the taxable part of the supply will be subject to GST.

Relevant facts and circumstances

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

· Although only a proposal at this stage you plan to produce and supply a hamper style product to a retailer.

· The proposed product will include taxable and GST-free items.

· The retailer will sell the proposed product to the end consumer.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 Section 9-5

A New Tax System (Goods and Services Tax) Act 1999 section 9-40

A New Tax System (Goods and Services Tax) Act 1999 section 9-80

A New Tax System (Goods and Services Tax) Act 1999 Section 38-2

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

A New Tax System (Goods and Services Tax) Act 1999 Subsection 38-4

A New Tax System (Goods and Services Tax) Act 1999 Schedule 1

Summary

The supply of the product that you plan to produce which includes taxable and GST-free items is a mixed supply hamper for GST purposes. Therefore, the supply needs to be apportioned between the taxable and GST-free items and the taxable part of the supply will be subject to GST.

Detailed reasoning

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.

Food is defined in paragraph 38-4(1)(a) of the GST Act to include food for human consumption. In your case, the products which you propose to produce for Company A is food for human consumption, therefore the definition of food as defined in the GST Act is satisfied.

However, a supply of food is not GST-free under paragraph 38-3(1)(c) of the GST Act where it is food of a kind specified in the table in 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.

Further guidance is provided in the public ruling, the Detailed Food List (available on the Australian Taxation Office (ATO) website at ato.gov.au)

In your case, you advise that you are making a supply of a product of individually packaged goods comprising of taxable and GST-free goods.

A supply of a combination of one or more individually packaged foods packed together may be considered to be a supply of a hamper or a gift box.

Hampers & Gift Boxes

The Food Industry Issues Register, (the ATO view) provides a definition of a hamper and issue 8 of the Food Industry Issues Register states:

Generally, where food is a combination of one or more foods packaged together, at least one of which is taxable, then that food product will be subject to GST (for example a snack pack containing cheese and crackers - refer Issue No. 7 - Snack Packs). This is provided for in paragraph 38-3(1)(c) of the GST Act.

However, paragraph 1.18 of the Further Supplementary Explanatory Memorandum to the GST Bill clarifies the intended scope of this provision by stating that it does not apply to a mix of packaged goods packed and sold together, such as a hamper.

Paragraph 1.18 states that where a mix of individually packaged goods is packed and sold together, these items are to be taxed individually. For example, where a hamper contains a packet of biscuits, a box of chocolates and a jar of coffee, the biscuits and chocolates are subject to GST and the coffee is GST-free. If there is a need to apportion the value of the hamper to each of the items to determine the GST payable, the rule in section 9-80 will be relevant.

A 'hamper' is defined in The Macquarie Concise Dictionary as 'a large basket or receptacle made from cane, wickerwork, etc., usually with a cover'. Based on this definition, it is the ATO view that for the purposes of the GST Act a 'hamper' can be a basket, decorative box or other similar container, containing any number of separately identifiable products. A hamper will be sold for a single consideration.

Like a snack pack, a hamper will include various food items. It may also include things other than food. However, unlike a snack pack, the different products in a hamper are not designed to be combined or blended for simultaneous consumption.

For example a hamper may be a large cane basket consisting of tea, biscuits, champagne, chocolates, jam, Christmas pudding and mince pies. Where a hamper includes goods which are subject to GST and other goods which are GST-free, the value of the taxable goods will be calculated according to section 9-80 of the GST Act.

Therefore, in your case when you make your supply of a mixture of individually packaged goods packed and sold together, you will be making a supply of a hamper.

Mixed supplies

A mixed supply is a single supply made up of separately identifiable parts, where one or more of the parts is taxable and one or more of the parts is non-taxable, and these parts are not integral, ancillary or incidental in relation to a dominant part of the supply.

Goods and Services Tax Ruling (GSTR 2001/8) provides an example of a mixed supply at paragraph 75. It states:

75. Harry sells assorted hampers. The 'Deluxe Picnic Hamper' includes food and beverage items (bread rolls, cheese, fruit, chocolate and fruit juice), and a silver handled knife which are packaged with a wooden bread board. The supply of the chocolate, knife and bread board is taxable. The other items are GST-free. Each of the parts of the supply are significant. The sale of the 'Deluxe Picnic Hamper' is a mixed supply and Harry needs to apportion the consideration for the hamper.

It is considered that the hamper you will be supplying is a mixed supply as it consists of parts that are taxable and other parts which are non-taxable and these parts are not integral, ancillary or incidental in relation to a dominant part of the supply.

Calculating the GST payable on the taxable part of a mixed supply

Section 9-40 of the GST Act provides that any entity is liable for GST on all taxable supplies it makes. However, where an entity is making a mixed supply that is a combination of separately identifiable taxable and non-taxable parts, the GST liability is only calculated on the taxable portion of the supply as determined in section 9-80 of the GST Act.

In respect to a mixed supply, the consideration received for the supply must be apportioned and GST levied only on the consideration relating to the taxable part of the supply.

In your case, you have advised that the hamper you propose to produce will consist of a number of individual items. As the individual items are easily identified you can readily identify those supplies that are taxable. Once the taxable proportion is determined, you can use the formula in section 9-80 of the GST Act to determine the value of the taxable part.

Subsection 9-80(2) of The GST Act sets out the formula to calculate the taxable value of a mixed supply. That formula is as follows:

 *Price of the actual supply × 10 
10 + Taxable proportion

Where: the taxable proportion is the proportion of the value of the actual supply that represents the value of the taxable supply (expressed as a number between 0 and 1). The taxable proportion is expressed as a decimal (eg 40% is 0.4). The Supplementary Explanatory Memorandum to the GST Act provides the following example:

Andrea makes a supply for $104. The taxable proportion represents 40% of the total value of the supply. The value of the total supply is worked out as:

The value of the taxable part is $100 × 0.4 = $40.

The Commissioner considers that any reasonable method may be used to apportion the consideration for a mixed supply but the method used must be supportable in the particular circumstances. Therefore, records must be kept that explain the method of apportionment used.

For further information please refer to Goods and Services Tax Ruling GSTR/2001/8 (in particular paragraphs 98 & 98A, Example 14) which explains how to apportion the consideration for a supply that includes taxable and non-taxable parts. A copy of GSTR 2001/8 is enclosed.

Preparing a tax invoice that includes a mixed supply

Where an entity makes a mixed supply, the tax invoice must satisfy the requirements of subsection 29-70(1) of the GST Act, including that it contain enough information to clearly ascertain:

· what is supplied including the quantity and price

· the extent to which the supply is a taxable supply, and

· the amount of GST payable.