Edited version of your written advice

Authorisation Number: 1012666190429

Ruling

Subject: GST and classification of food

Previously we gave you a private ruling about the Goods and Services Tax (GST) treatment of sales of two Dessert products (Dessert 1 and Dessert 2)

We have revised the above mentioned private ruling previously issued to you because an internal review of the private ruling revealed that it is incorrect in relation to both the Dessert products.

The following revised private ruling states that under section 38-2 of A New Tax System (Goods and Services Tax) Act 1999 (GST Act) the relevant sales of both Dessert 1 and Dessert 2 products is GST-free.

This revised ruling, in relation to the desserts described above, takes effect from the date of this advice of revised ruling.

Question 1

Is the supply of Dessert 1 a GST-free supply of food under section 38-2 of the GST Act?

Answer

Yes

Question 2

Is the supply of Dessert 2 a GST-free supply of food under section 38-2 of GST Act?

Answer

Yes

Relevant facts

• You are registered for GST and lodge your Business Activity Statements (BAS) on a monthly basis.

• You, through your stores, will be selling the following chilled dairy dessert products:

• Dessert 1 and

• Dessert 2

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

Dessert 1

• The Dessert 1 is a cold set ready to eat dessert that is primarily dairy based.

• The dessert 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.

• The Dessert 1 is principally made up of the following constituents:

• Flavoured Mousse

• Flavoured sauce

• Sponge cake

• Cocoa dusting

• Ingredients include: partially reconstituted skimmed milk, glucose syrup, refined coconut oil, cocoa sponge cake (wheat flour, sugar, egg, potato starch, emulsifier: mono and diglycerides of fatty acids; fat reduced cocoa powder , raising agents: diphosphates, sodium bicarbonate; salt), sugar, fat reduced cocoa powder cocoa dusting (cocoa, dextrose, wheat starch, sugar, vegetable fat), alcohol, egg yolk, bitter chocolate (cocoa mass, sugar, cocoa butter, emulsifier: soya lecithin), thickeners: carrageenan, xanthan gum, sodium alginate, pectin; gelatine, corn starch, emulsifiers: mono and diglycerides of fatty acids; caramelized sugar, salt.

• The Dessert 1 will be merchandised through your stores dairy chillers. The product will sit alongside and compete against other branded dairy desserts and yoghurt products. The product must be kept refrigerated at 4°C.

• The Dessert 1 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.

Dessert 2

• The Dessert 2 is best described as a multilayer dessert with a thick layer of vanilla mousse, deposited on a thin layer of sponge cake drenched in a specified flavoured soak, and dusted with a specified type of crumble.

• The Dessert 2 is principally made up of the following constituents:

• Mascarpone mousse

• Sponge cake

• Specified crumbles

• Ingredients include: glucose syrup, water, sponge cake (wheat flour, sugar, eggs, potato starch, emulsifier: mono- and diglycerides of fatty acids; vegetable oil, raising agents: diphosphates, sodium carbonates; salt), vegetable fat, milk protein, specified crumbles (sugar, sweet apricot kernels bitter apricot kernels egg white, sweet almonds , alcohol, sugar, humectant: sorbitol; thickeners: carrageenan, xanthan; tapioca starch, mascarpone cheese (cream, acidity regulator: lactic acid), emulsifier: mono- and diglycerides of fatty acids; flavouring, acidity regulator: citric acid; salt.

• The Dessert 2 will be merchandised through your stores dairy chillers. It will sit alongside and compete against other dairy desserts and yoghurt products. The product must be kept refrigerated at 4°C.

• The Dessert 2 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

• The Dessert 1 and Dessert 2 are not considered to be food of a kind specified in Schedule 1 of the GST Act.

• The Dessert 1 and Dessert 2 are also not food products that combine a taxable food and a GST-free food as a distinct item.

• The supply of either dessert is not excluded from being GST-free by any provision contained in section 38- 3 of the GST Act.

• Both desserts are akin to dairy desserts which are GST-free as listed in the Detailed Food list.

• We do not consider that the minimal amount of sponge cake used in the Dessert 1 and Dessert 2 results in them acquiring the nature of a cake.

• The mascarpone mousse filling which makes up a specified percentage of the Dessert 2 only contains a specified percentage of mascarpone full fat soft cheese. We do not consider this minimal amount of cheese will result in the Dessert 2 acquiring the nature of a cheesecake.

• The type of crumbles and sponge cake are not discrete items nor are they separable from the Dessert 2 itself.

• The sponge cake which forms the base layer of the Dessert 1 is not a discrete item nor is it separable from the dessert.

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 paragraph 38-3(1)(c)

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

A New Tax System (Goods and Services Tax) Act 1999 paragraph 38-4(1)(a)

A New Tax System (Goods and Services Tax) Act 1999 Schedule 1 clause 1 item 20

Reasons for decision

A supply of food will be GST-free under section 38-2 if it satisfies the definition of food in section 38-4 and the supply is not excluded from being GST-free by section 38-3.

The meaning of food includes at paragraph 38-4(1)(a), food for human consumption. Both the Dessert 1 and the Dessert 2 products satisfy the definition of food for the purposes of section 38-4 as it is food for human consumption.

However, under section 38-3 certain supplies of food are not GST-free. Paragraph 38-3(1)(c) is relevant to both the Dessert 1 and the Dessert 2 products and reads as follows:

38-3 Food that is not GST-free

(1) A supply is not GST-free under section 38-2 if it is a supply of:

(c) 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;

In relation to the second limb of paragraph 38-3(1)(c), neither of the Dessert 1 or the Dessert 2 products is considered to be a combination of foods in the context of this provision. An example of a product that would be a combination in this context is a snack pack containing cheese and biscuits.

For the purposes of paragraph 38-3(1)(c) the issue is whether either of the Dessert 1 or the Dessert 2 products is food of a kind that is specified in the table in clause 1 of Schedule 1. The food products, Dessert 1 or the Dessert 2, are not specifically listed, but item 20 of the table in clause 1 of Schedule 1 (Item 20) is considered the relevant item.

The third column of Item 20 lists 'cakes, slices, cheesecakes, pancakes, waffles, crepes, muffins and puddings' as food that is not GST-free. None of these food products are defined in the GST Act and as such take on their ordinary meaning.

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.

You contend that both desserts are akin to dairy desserts which are GST-Free as listed in the Detailed Food List.

The term Dairy Desserts, however, is not defined in the GST Act nor is the term defined in the Macquarie or Oxford on-line dictionaries. It is an accepted generic term used by food retailers to describe dessert type products that consist in the main of cream or dairy based ingredients that require constant refrigeration in a stores chiller area and sit alongside and compete against yoghurt type products.

The issue of what a product is called, or what is on the label, was considered in the Full Federal Court case Lansell House Pty Ltd and Perfek Pty Ltd v Commissioner of Taxation 2011 ATC 20-239 (Lansell House). The Court held at paragraph 29:

"that the supplier cannot, by a label, govern the classification of a product for the purposes of the GST Act."

Further, in the Lansell House case it was accepted by the Court:

"that what is and what is not a cracker is not a 'bright line' defined by the percentage of its ingredients."

Therefore, although a wide range of products are called dairy desserts; it does not necessarily follow that they will all have the same GST classification.

For the purposes of the GST classification of the Dessert 1 or the Dessert 2 product, the question is whether they are a kind of cake or cheesecake. These are the foods listed in Item 20 that are considered relevant.

The ordinary meaning of cake and cheesecake, as per the Australian Oxford Dictionary (online), is:

Cake: An item of soft sweet food made from a mixture of flour, fat, eggs, sugar, and other ingredients, baked and sometimes iced or decorated.

Cheesecake: A kind of rich sweet tart made with cream and soft cheese on a biscuit base.

Further and in relation to your two products:

The Australian Oxford Dictionary (online) defines 'Dessert 1' as:

1. …

2. … creamy mousse-like consistency.

And

The Macquarie Dictionary (online) defines Dessert 2 as;

…, slightly bitter to taste.

Both the Dessert 1 and the Dessert 2 product have some of the characteristics of a cake and a cheesecake.

However, having regard to the essential character of these products they do not fall within the genus, class or description of a 'cake' or 'cheesecake' in item 20. This is because both these products:

• do not meet a generally accepted definition (as above) of a cake as a mixture of flour, eggs, sugar, etc.;

• only have a thin base of sponge;

• have the overall texture of a mousse type product rather than the texture expected of a cake; and

• there is little comparison to the expected structure, form and freshness of a cake that may be sold for example in a restaurant, café or bakery.

The overall impression of the Dessert 1 product based on its ingredients and physical appearance is that it is a mainly mousse product with a thin layer of sponge cake as a base which is covered in a flavoured sauce It has no cheese content and is packaged in a way that supports the product before it is served. Generally a cheesecake would be expected to contain a reasonable cheese content which would give it a firmer structure enabling it to stand on a plate and be sliced. On balance the Dessert 1 does not fall within the genus, class or description of a 'cake' or 'cheesecake' in Item 20.

The Dessert 2 is very similar in construction to the Dessert 1 described above. A thin base of sponge and a thick layer of mascarpone mousse on top. The mascarpone mousse makes up a specified percentage of the dessert, with the mascarpone full fat soft cheese content in the mousse a very low percentage

As mentioned above, generally a cheesecake would be expected to contain a greater cheese content which would give it a firmer structure enabling it to stand on a plate and be sliced. On balance the Dessert 2 does not fall within the genus, class or description of a 'cake' or 'cheesecake' in Item 20.

As such we consider that the Dessert 1 and the Dessert 2 products are not excluded from being GST-free under section 38-3, as they are not food of a kind that is specified in item 20.

Consequently, the supply of the Dessert 1 or the Dessert 2 is GST-free.