Edited version of your written advice

Authorisation Number: 1012732505285

Ruling

Subject: GST classification of a food product

Question 1

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

Answer

Yes.

Relevant facts and circumstances

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

• You manufacture, sell and distribute a range of food products.

• You have supplied the packaging for the product which lists the ingredients.

• The instructions on the packaging state, that to prepare the food product for consumption you remove from the packaging while it is frozen and place in a serving dish or bowl. Allow to defrost in fridge for XX minutes than scoop or cut into portions to serve.

• The food product is displayed in the freezer section of supermarkets.

Relevant legislative provisions

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

Section 38-2

Subsection 38-3(1)

Paragraph 38-3(1)(c)

Paragraph 38-4(1)(a)

Section 38-4

Schedule 1

Reasons for decision

Summary

In our view the supply of the food product is a GST-free supply of food pursuant to section 38-2 of the GST Act and is not a supply of food of a kind specified in Item 20 in Schedule 1 to the GST Act.

Detailed reasoning

A supply of food is GST-free under section 38-2 of the GST Act if it 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 meaning of food includes at paragraph 38-4(1)(a) of the GST Act, food for human consumption. The food product satisfies the definition of food for the purposes of section 38-4 of the GST Act as it is food for human consumption.

However, under section 38-3 of the GST Act certain supplies of food are not GST-free. Paragraph 38-3(1)(c) of the GST Act is relevant to the food product 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) of the GST Act, the food product is not 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) of the GST Act the issue is whether the food product is food of a kind that is specified in the table in clause 1 of Schedule 1. The food product is 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.

In determining the GST classification of the food product, we need to consider the product characterisation, marketing, labelling, product placement in retail stores and the overall impressions of the product, the product's intended use and actual use by the consumer.

Product names and labels

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.

This is important as a wide range of products may be called a certain thing, but it does not automatically follow that they all have the same goods and services tax (GST) classification. The classification always falls to whether they are of a kind of food listed in the third column of the relevant table of Schedule 1.

An example of this is the range of the food product. The food products that have multiple layers of sponge or biscuit and cream that have the appearance and texture of a cake, typically sold in cafes or restaurants as kinds of cakes, would be classified as a cake as per the third column of Item 20 of the table in Schedule 1 (Item 20). However, other food products in the market include a small cup type that is mainly cream and mousse. These don't have the appearance or structure of the cake products, and are more similar to other mousse cup desserts which have historically been treated as not a kind of product captured by Item 20.

In this case, the food product consists of mainly cream and mousse. The product sits on a biscuit crumb base. The food product is food for the purposes of section 38-4 of the GST Act.

The food product does not have the appearance or structure of the cake products, and is more similar to other mousse desserts or dairy desserts which have historically been treated as not a kind of product captured by Item 20.

Consideration is given to whether the food product is a cheesecake for the purposes of Item 20 which specifies that bakery products including cheesecakes are excluded from being GST-free.

The Macquarie Dictionary (Online: Macmillan Publishers Group Australia 2014) defines 'cheesecake' as follows:

noun 1.  a kind of cake or open pie filled with a rich, sweet mixture containing a soft cheese, such as cream cheese, and other flavourings.

From the information provided the food product contains mainly cream and mousse. The food product sits on a biscuit crumb base which effectively holds the food product together. The product does not contain cheese. The preparation instructions on the product labelling suggest the consumer needs to remove the food product from the foil whilst frozen. Thereafter, the consumer needs to place the product in a dish or bowl and allow XX minutes to defrost. Then, the consumer will need to scoop or cut into portions for serving.

Based on the information provided, it is not of a kind with cheesecakes or with other standard bakery products. It is considered that the food product is of a kind or basically a mousse dairy dessert product.

It is considered based on the general texture, product description and appearance; the food products are not considered to be cakes nor cheesecakes, that these products are not a kind of cake for purposes of item 20.

Applying the facts of the case, we consider that the food product is not excluded from being GST-free under section 38-3 of the GST Act, as it is not food of a kind specified in item 20.

Consequently, your supply of the food product is GST-free under section 38-2 of the GST Act