Edited version of private advice

Authorisation Number: 1012648979957

Ruling

Subject: GST and food

Question 1

Will the sale of your food products be taxable supplies?

Answer

Yes.

Relevant facts and circumstances

This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.

• You are a company registered for GST.

• You supply your food products in bulk.

• The packaging shows a table with recommended applications for your food products

• You are currently treating your supplies of the food products as taxable due to Item 8 of Schedule 1 of the A New Tax System (Goods and Services Tax) Act, 1999 (GST Act).

• You do not market the products as ingredients for confectionery and based on your customer knowledge, the intended use of the food products by your customer's is only as an ingredient for bakery products excluding confectionary purpose.

• You market the products to current/potential industry customers through product demonstrations.

• The products' taste can range from sweet to bitter.

Relevant legislative provisions

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

Section 9-5

Section 38-2

Section 38-3

Section 38-4

Reasons for decision

Summary

The supply of your food products is excluded from being GST-free under Schedule 1 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act). Accordingly, the supply of your food product is a taxable supply under paragraph 38-3(1)(c) of the GST Act.

Detailed reasoning

A supply of food is GST-free under section 38-2 of GST Act. Food is defined in subsection 38-4(1) of the GST Act to include:

(a) food for human consumption (whether or not requiring processing or treatment);

(b) Ingredients for food for human consumption;

(c) beverages for human consumption;

(d) ingredients for beverages for human consumption;

(e) goods to be mixed with or added to food for human consumption'

…

Your food product is included in the definition of food above as it is an ingredient for food for human consumption.

GST status

The GST status of foods for human consumption is outlined in the ATO public ruling "Detailed Food List" (Food list).

Therefore where the food products are marketed as an ingredient for confectionery, they will be excluded from being GST free under paragraph 38-3(1)(c) of the GST Act as the food products are food of a kind specified in the third column of the table in clause 1 of Schedule 1 of the GST Act.

Item 8 of clause 1 of Schedule 1 of the GST Act provides:

confectionery, food marketed as confectionery, food marketed as ingredients for confectionery or food consisting principally of confectionery'

However, if the food products are not marketed as an ingredient for confectionery, they are GST-free under section 38-4 of the GST Act as they satisfy paragraph 38-4(1)(b) of the GST Act as Ingredients for food for human consumption.

Determining the use of the food product

Example 3 in Issue 1 of the Food Register outlines some guidelines to help us determine the use of a product, it states:

…In determining whether a supply is a supply of GST-free food, it is not only the physical characteristics of the product that are important but also the nature of the supply.

You have advised that the food products that you supply have minimal labelling and are packaged in bulk cartons and bags. The packaging shows recommended applications for your food product.

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

However, it is evident that in your case, the food products can be utilised in a variety of ways through a secondary manufacturing process. The food products can be utilised as an ingredient for confectionery as shown on the packaging.

To determine the primary use of the products it is necessary to refer to the Australian Taxation Office (ATO) view concerning the 'essential character' test of a product. The Food Issues Partnership Register on the ATO website (the ATO view) provides that in certain circumstances it is necessary to adopt the 'essential character' test to assist in determining the GST classification of a product. The Food Issues Partnership Register states:

"...It is therefore relevant to use the 'essential character' test adopted under the former wholesale sales tax regime. The Australian Taxation Office adopts the view that the essential character of goods assists in determining their GST classification. This involves ascertaining what the goods essentially are, as distinct from merely identifying one of a number of characteristics the goods might have. This approach relies upon deciding what is the basic nature of the goods and involves consideration of what the goods are made of and what they might be used for. …"

This was also determined in the Federal Court case Lansell House Pty Ltd & Anor v FC of T 2010 ATC20-173 (Lansell). At paragraph 16 of the Lansell judgement the Court stated:

16. The primary judge said at [108] that classification decisions for GST tax purposes are often prescribed as questions of fact and degree, a matter of impression and a combination of fact-finding and evaluative judgment.

Taking the above into consideration, we have looked at all the facts you have provided, ascertaining what the food products essentially are and what and how you are marketing the food products.

Accordingly your food products satisfy the requirements of item 8 of Clause 1 of Schedule 1 of the GST Act. The supply of your food products is considered to be a supply of food marketed as ingredients for confectionery. Item 8 of clause 1 of Schedule 1 of the GST Act applies to your food products.

Therefore the supply of your food products is supplied under Item 8 and is a taxable supply under paragraph 38-3(1)(c) of the GST Act.