Edited version of your private ruling

Authorisation Number: 1012506029370

Ruling

Subject: GST and food classification

Question 1

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

Answer

No

Question 2

Is the supply of the food product (Product B) a GST-free supply of food under Section 38-2 of the GST Act?

Answer

No

Relevant facts and circumstances

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

· You, through your stores, will soon be selling new food products.

· The new products you will be supplying are:

o Product A

o Product B.

· You have provided photos of the actual products, packaging and the ingredient list for the products which are the subject of your ruling requests.

Product A

· Product A is a cold set ready to eat dessert that is primarily dairy based.

· Product A is principally made up of the following constituents:

o Cocoa mousse

o Chocolate sauce

o Cocoa sponge cake

o Cocoa dusting

· Product A will be merchandised through your stores’ dairy chillers. The product will sit alongside and will compete against other similar branded products. The product must be kept refrigerated at X°C.

· Product A is packaged in a sealed plastic tub. It is ready to eat and can be consumed directly from the plastic tub in which it is packed and sold.

Product B

· Product A is principally made up of the following constituents:

o Vanilla mascarpone mousse

o Sponge cake

o Specific crumbles

· Product A will be merchandised through your stores’ dairy chillers. The product will sit alongside and will compete against other similar branded products. The product must be kept refrigerated at X°C.

· Product A is packaged in a sealed plastic tub. It is ready to eat and can be consumed directly from the plastic tub in which it is packed and sold.

Your contentions

You contend that:

· The Products are not considered to be food of a kind specified in Schedule 1 of the GST Act.

· The Products are also not food products that combine a taxable food and a GST-free food as a distinct item.

· The supplies of the Products are not excluded from being GST-free by any provision contained in section 38- 3 of the GST Act.

· The Products are akin to dairy desserts which are GST-Free as listed in the Detailed Food list.

Relevant legislative provisions

All references are to the A New Tax System (Goods and Services Tax) Act 1999:

Section 38-2

Section 38-3

Section 38-4

Schedule 1 clause 1

Schedule 1 clause 2

Schedule 1 item 20

Schedule 1 Item 28

Schedule 1 Item 32

Note 2 to the schedule

Reasons for decision

Issue 1

Summary

The products subject to the PBR are a supply of food that is not GST-free pursuant to Division 38.

The products are either listed specifically in Schedule 1 of the GST Act or are a cake, cheesecake or a kind of a cake or cheesecake (within the same genus, class or description) so that they are included within the exception of being GST-free provided by section 38-3 and Item 20 of Schedule 1.

Further or alternatively, they are considered to be a combination of foods at least one of which is specified as food of a kind listed in the third column of Schedule 1 so that they are included within the exception of being GST-free provided by section 38-3.

General

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 section 38-4 of the GST Act to include food for human consumption (whether or not requiring processing or treatment) (paragraph 38-4(1)(a) of the GST Act). As the products subject to the PBR are a dessert food for human consumption, they satisfy the definition of food in paragraph 38-4(1)(a) of the GST Act.

Once it has been determined that an item is food according to the definition, further consideration needs to be given to section 38-3 of the Act, which applies to make certain foods subject to GST. A supply of food will be subject to GST if it is a supply of, amongst other things:

· food for consumption on the premises from which it is supplied, or

· hot food for consumption away from those premises, or

· food of a kind specified in Schedule 1 of the GST Act, or

· food that is a combination of one or more foods at least one of which is food of such a kind

The products that are the subject of the PBR are not sold as hot food and are not for consumption on the suppliers' premises.

It is accepted that unless the food products fall within one of the exceptions within section 38-3 they will be GST-free. Paragraph 38-3(1)(c) is a relevant exception, which provides:

food of a kind specified in the third column of the table in clause 1 of Schedule 1, or food that is a combination of one or more foods at least one of which is food of such a kind.

Therefore the ‘relevant legislative test’ at issue, is whether the products are:

· food of a kind specified in the third column of the table in clause 1 of Schedule 1; or

· food that is a combination of one or more foods at least one of which is food of such a kind.

Food of a kind

The term ‘of a kind’ is not defined in the GST Act. The phrase was considered in Lansell House Pty Ltd & Anor v. FCT 2011 ATC 20-239 (Lansell House) where the court confirmed that there was no ‘bright line’ test for what is or is not a food in Schedule 1. The phrase ‘of a kind’ was given its ordinary meaning and on the facts in Lansell House, the question was ‘whether the product at issue came within the genus, class or description of a cracker’?

Whilst a product can be characterised in more than one way, this is irrelevant for the purposes of the GST Act, as a product can only have one ‘classification’. In Customs and Excise Commissioners v. Ferrero UK Ltd Lord Wolf MR concluded that where a product has the characteristics of two categories, it is placed in a category in which it has sufficient characteristics to qualify.

The court held, quoting Jacob LJ in Commissioners for Her Majesty’s Revenue and Customs v. Procter & Gamble UK that the question of classification ‘is not one calling for or justifying over elaborate, almost mind-numbing, legal analysis. It is a short practical question calling for a short practical answer.’

When classifying a food for the purposes of paragraph 38-3(1)(c), the term ‘food of a kind specified’ is a question of whether the resulting product comes within the genus, class or description of the item listed.

The category of bakery products extracted from Clause 1 of Schedule 1 is reproduced below:

Item 20 of clause 1 of the schedule of food that is not GST-free lists 'cakes, slices, cheesecakes, pancakes, waffles, crepes, muffins and puddings'.

Please note:

1. When considering food under Item 20 we have to consider the condition outlined in clause 2 of Schedule 1 of the GST Act (Clause 2) which provides it does not matter whether the food is sold hot, cold or frozen or require cooking, heating, thawing or chilling prior to consumption.

2. Section 182-15 of the GST Act provides that the second columns of the tables in Schedule 1, 2 and 3 of the GST Act are not operative when interpreting the items in those tables. For example when considering food of a kind listed under item 20, it is not an issue whether the food is a bakery product or not.

It is our view that the label that is ascribed to the food product by the manufacturer or supplier is not determinative. It follows therefore, that each product must be considered separately and understood before applying the legislative test.

Question 1

Summary

Product A is a supply of food that is not GST-free pursuant to Division 38 and Schedule 1, Item 20 of the GST Act.

Further or alternatively, it considered to be combination of foods at least one of which is specified as food of a kind listed in the third column of Schedule 1 so that they are included within the exception of being GST-free provided by section 38-3.

Detailed reasoning

Product A

Product A contains X% sponge cake. It contains cake which is baked and is then decorated with chocolate sauce and cocoa mousse layers.

Where Product A is a food of a kind in Schedule 1, it will not be GST-free. Of particular relevance to Product A is Item 20, which provides that the following bakery products will not be GST-free:

cakes, slices, cheesecakes, pancakes, waffles, crepes, muffins and puddings.

More specifically, the most relevant food items within this list to the description of Product A are considered to be: cakes, cheesecakes and/or puddings.

Cakes

Cake is not defined in the Act and is therefore defined by its ordinary meaning. The Australian Oxford Dictionary defines cake as:

1. a mixture of flour, butter, eggs, sugar, etc, baked in the oven.

2. a quantity of this baked in a flat round or ornamental shape and often iced and decorated,

3. other food in a flat round shape (fish cake)

4. Sc.&N.Engl. thin oaten bread.

The Macquarie Dictionary defines cake as:

1. a sweet baked food in loaf or layer form, made with or without shortening, usually with flour, eggs, flavouring and a liquid.

2. a flat thin mass of bread especially unleavened bread.

3. a shaped or moulded mass of other food.

Further, it could be argued that although the final product is not baked, it forms an overall impression of being a cake. The ordinary meaning of cake also refers to the shape of the food. Therefore Product A could fall within the same genus, description or class of a cake as the product:

· gives the overall impression of a cake;

· is in the shape of a cake;

· is served as a cake;

· it contains cake; and

· it contains comparable ingredients to a cake.

We therefore consider that Product A is a: cake or a kind of a cake so that it is included within the exception of being GST-free provided by section 38-3 and Item 20 of Schedule 1.

The word xxxxxxxxxxxis not defined the GST Act and therefore it takes on the ordinary meaning. Neither the Macquarie Dictionary nor the Australian Oxford Dictionary contain a definition for xxxxxxxxxxxxxxx.

Wikipedia however describes xxxxxxxxxxxxx as:

xxxxxxxxxx is an specific ice-cream dessert. It is usually composed of two or more flavors of ice cream, often with either fruit syrup or frozen fruit – typically raspberry, strawberry or cherry – in the center. It is typically covered in a shell made of chocolate or cocoa, but cinnamon or nuts are also used.

The word "xxxxxxxx" means "Truffle" in Italian." It is well known as an ice cream dessert. It is also known as "Bomba".

Product A however is not similar to the definition contained above. You advise that Product A is a cold set ready to eat dessert that is primarily dairy based and is best described as a thin layer of sponge cake base covered with chocolate sauce, topped with a thick layer of chocolate mousse, and dusted with cocoa powder.

Product A is principally made up of the following ingredients:

· Cocoa mousse

· Chocolate sauce

· Cocoa sponge cake

· Cocoa dusting

It is our view that the label that is ascribed to the food product by the manufacturer or supplier is not determinative. It follows therefore, that each product must be considered separately and understood before applying the legislative test.

In this case, the layers of the fillings and the sponge cake base are distinctive and can be separately identified.

It is argued that for a food to fall within the same ‘class, genus or description of a cake’, not every element of the product will be comparable. As provided by Jacob LJ in Procter & Gamble at [19]:

It was not incumbent on the Tribunal in making its multifactorial assessment not only to identify each and every aspect of similarity and dissimilarity (as this Tribunal so meticulously did) but to go on and spell out item by item how each was weighed as if it were using a real scientist’s balance. In the end it was a matter of overall impression.

In the Lansell House decision, when deciding if the Mini Ciabatte was bread or a cracker, the absence of the lamination process was not a deciding factor, rather it was taken into account in the context of all the characteristics of Mini Ciabatte and crackers.

In United Kingdom case of Customs and Excise Commissioners v. Ferrero UK Ltd in determining if a product could be properly described as a biscuit, the question was one of fact and degree. While the product at issue had some characteristics that were not commonly found in biscuits, this did not mean that they were not capable of being regarded as biscuits.

The Further Supplementary Explanatory Memorandum suggests that the term refers to the type of items sold from a bakery premises, rather than being a reference to the manufacturing process and states:

Bakery products

Bakery products that are listed in new Schedule 1A will be taxable. The goods included in the list of bakery products will be taxable when sold by bakeries as well as by other businesses. It will not matter whether a bakery product is sold fresh or frozen.

Item 20 does not exclusively include items which are baked. Other foods are subject to a range of production processes, some of which do not include baking. For example, the item includes: pancakes and crepes, which are sautéed; and slices which may be cold set.

Further it is argued that not all products that are considered to fall within the ordinary meaning of cakes are baked. For example, gateaux which are filled with custard or fruit; tortes, which are cake containing cream and other rich ingredients. Additionally and as discussed below, a cheesecake is a form of cake and cheesecakes are not necessarily baked but cold set instead.

Cheesecake

The term cheesecake is not further defined in the Act and will be defined by its ordinary meaning. A cheesecake is defined in the Macquarie Dictionary as:

A kind of cake or open pie filled with a rich, sweet mixture containing a soft cheese, such as cream cheese, and other flavourings.

The Oxford Dictionary defines cheesecake as:

A tart filled with sweetened curds on a pastry or biscuit crumb base.

The ordinary meaning of cheesecake is not defined by reference to its cheese content alone. The ordinary meaning contemplates that it can contain a sweet mixture of another flavour.

In Lansell House it was argued the differences between bread and a Mini Ciabatte lay in the relevant percentages of water (40-55% for a cracker and 35% for Mini Ciabatte) and yeast (0-1.25% for a cracker and 1.5% for Mini Ciabatte). Sunberg J attached little significance to the fact that the water and yeast contents were outside the typical rage of ingredients for crackers. The Full Federal court confirmed that the test is not a ’bright line’ defined by percentage of its ingredients. A similar conclusion was reached by the court in Zeroz in respect of what was considered to be yogurt.

We therefore consider it would also meet the definition of a cheesecake or a food of a kind of cheesecake.

The Detailed food list provides the ‘ATO View’ on food products and is a public ruling (excluding appendixes) for the purposes of the Taxation Administration Act 1953. Relevantly, the Detailed food list indicates the following:

· cheesecake (supplied hot or cold or requires cooking, heating, thawing or chilling prior to consumption), taxable, Schedule 1, item 20 and clause 2 of the GST Act apply; [emphasis added]

· dairy desserts – including dairy rice, GST-free, Not a food of a kind specified in Schedule 1 of GST Act. Not similar to a cake, slice, cheesecake, pancake, waffle, crepe, muffin or pudding; [emphasis added]

· tiramisu (supplied hot or cold or requires cooking, heating, thawing or chilling prior to consumption), taxable, Schedule 1, item 20 and clause 2 of the GST Act apply. [emphasis added]

Of these products, we consider that the product is most like a cheesecake. The treatment of the product as taxable is therefore in line with our ATO view.

Therefore, we consider that Product A is a cake or a cheesecake and/or it is food of a kind similar to those foods described in item 20.

As Product A is food of a kind listed in Schedule 1, it is therefore excluded from being GST free under section 38-3 of the GST Act (paragraph 38-3(1)(c ) of the GST Act.

Furthermore, as Product A contains a combination of foods, one of which is specified (ie the layer of sponge cake by virtue of Item 20), it will not be GST-free pursuant to the second limb of section 38-3(1)(c).

Ruling 2

Question 2

Summary

Product B is a supply of food that is not GST-free pursuant to Division 38 and Schedule 1, Item 20 of the GST Act.

Further or alternatively, it considered to be combination of foods at least one of which is specified as food of a kind listed in the third column of Schedule 1 so that they are included within the exception of being GST-free provided by section 38-3.

Detailed reasoning

Product B

The word xxxxxxxx is not defined the GST Act and therefore it takes on the ordinary meaning. The Macquarie Dictionary defines amaretto as:

an Italian liqueur with an almond flavour, slightly bitter to the taste.

In this case Product B is described as a multilayer dessert with a thick layer of vanilla mousse, deposited on a thin layer of sponge cake drenched in Amaretto soak, and dusted with crumbles.

You advise that the Product B is principally made up of the following ingredients:

o - Vanilla mascarpone mousse

o - Sponge cake

o - Crumbles

For the reasons discussed in respect of Product A above, it is concluded that Product B is a: cake; cheesecake; or a kind of a cake or cheesecake; so that it is included within the exception of being GST-free provided by section 38-3 and Item 20 of Schedule 1.

Furthermore, as Product B contains a combination of foods, one of which is specified (ie the layer of sponge cake by virtue of Item 20 and the biscuit crumbles by virtue of item 32), it will not be GST-free pursuant to the second limb of section 38-3(1)(c).

Conclusion and general comments

The products subject to the PBR are a supply of food that is not GST-free pursuant to Division 38.

The products are either a cake, cheesecake or a kind of a cake or cheesecake (within the same genus, class or description) so that they are included within the exception of being GST-free provided by section 38-3 and Item 20 of Schedule 1.

Further or alternatively, they are considered to be combination of foods at least one of which is specified as food of a kind listed in the third column of Schedule 1 so that they are included within the exception of being GST-free provided by section 38-3.

The Further Supplementary Explanatory Memorandum explained that the amendments to the GST Act would ensure that basic food for human consumption would be GST-free. In addition, it would ensure that the then current wholesale tax exemptions for food would, in general, would be maintained. Item 72 of the Explanatory Memorandum to the Sales Tax (Exemptions and Classification) Bill 1992 simplified the wholesales tax exemption in relation to milk products, by providing that the exemption would apply to products that contain ‘milk to the extent of at least 95% and lactose’. The Tiramisu products at issue are not made from at least 95% milk products, therefore any applicable previous wholesales tax exemption would not be eroded by the finding that they are taxable.

Further, as provided by Sunberg J in Cascade Brewery Company Pty Ltd & Anor v. FC of T, the exemption of food from GST is not concerned with encouraging any particular activity. The food exemptions ensure that basic food remains GST-free. It is not considered that the products subject to the PBR are ‘basic foods’ given the level of processing and number of ingredients. Therefore, classifying the products in this private ruling as a supply of food that is subject to GST does not go against the legislative scheme of the Act.