Edited version of your written advice

Authorisation Number: 1012833096745

Date of advice: 3 July 2015

Ruling

Subject: Goods and services tax (GST) and edible cake decorations

Question

Is GST payable on your sales of X?

Answer

Yes.

Relevant facts and circumstances

You are registered for GST.

You are planning to sell retail packages of X in Australia for home baking purposes. They are a certain brand.

This product is not designed to be used on its own since it has virtually no taste and/or is not sweet.

X is designed and used for a particular purpose and as part of home bake cake as a component. X is not mixed in with an un-cooked cake mix.

X is not designed, sold or categorised as confectionery (or confection) and is normally not consumed other than as an ingredient in final food preparation.

The packaging of the product states the product's name; and indicates that it is for baking and is edible.

Characteristics of X:

• They have a decorative character.

• Their flavour is extremely slight.

• They do not have a sweet taste.

Ingredients

(Ingredients) (Contains an extremely low amount of sugar relative to the entire product)

Directions on packaging

(Directions on packaging)

X will be available in the same aisle of the supermarket as other cooking ingredients (for example, flour).

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 subsection 7-1(1)

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 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 section 38-4

Reasons for decision

Summary

X is not GST-free as food because it is edible cake decorations and biscuit goods.

GST is payable on your sales of X, because all of the requirements of section 9-5 of the GST Act are met.

Detailed reasoning

GST is payable on your taxable supplies.

You make a taxable supply where you satisfy the requirements of section 9-5 of the GST Act, which states:

You make a taxable supply if:

(a) you make the supply for *consideration; and

(b) the supply is made in the course or furtherance of an *enterprise that

you *carry on; and

(c) the supply is *connected with Australia; and

(d) you are *registered, or *required to be registered.

However, the supply is not a *taxable supply to the extent that it is *GST-free

or *input taxed.

(*Denotes a term defined in the GST Act)

You meet the requirements of paragraphs 9-5(a) to 9-5(d) of the GST Act. This is because:

• you will supply X for consideration

• you will supply X

• in the course or furtherance of an enterprise that you carry on

• these supplies will be connected with Australia, and

• you are registered for GST.

There are no provisions of the GST Act under which your sales of X will be input taxed.

Therefore, what remains to be determined is whether your sales of X will be GST-free.

A supply of food is GST-free in accordance with section 38-2 of the GST Act, if it satisfies the definition of food in section 38-4 of the GST Act and it does not come within any of the exclusions in subsection 38-3(1) of the GST Act.

Paragraph 38-4(1)(b) of the GST Act provides that ingredients for food for human consumption are food for the purposes of the GST Act.

Subsection 38-3(1) of the GST Act states:

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

(a) *food for consumption on the *premises from which it is supplied

(b) hot food for consumption away from those premises; or

(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; or

(d) a *beverage (or an ingredient for a beverage), other than a beverage (or ingredient) of a kind specified in the third column of the table in clause 1 of Schedule 2; or

(e) food of a kind specified in regulations made for the purposes of this subsection.

X is an ingredient for food for human consumption and is therefore food for the purposes of the GST Act.

The exclusions at paragraphs 38-3(1)(a), 38-3(1)(b), 38-3(1)(d) and 38-3(1)(e) of the GST Act do not apply to your sale of X.

Item 14

Items 8 to 14 in the third column of the table in clause 1 of Schedule 1 to the GST Act (items 8 to 14) come under the column two heading 'Confectionery'

Item 14 is edible cake decorations.

The Detailed Food List (DFL) on the Australian Taxation Office (ATO) website specifies that edible cake decorations are taxable.

Your contention

You are aware that Schedule 1 lists 'edible cake decorations' under the category heading in column two 'confectionary'. Therefore, you consider that the type of edible cake decorations covered by item 14 is candy confectionery marketed exclusively as confectionary to decorate cakes.

Hence, you consider that as X is food and it is not designed, sold or categorised as confectionery (or confection) and is normally not consumed other than as an ingredient in final food preparation, it is GST-free.

Our contention

Subsection 15AB(1) of the Acts Interpretation Act 1901 (Acts Interpretation Act) provides that consideration may be given to material not forming part of an Act but which is capable of assisting in the ascertainment of the meaning of the provision.

Paragraph 15AB(2)(e) of the Acts Interpretation Act provides that any explanatory memorandum relating to the Bill containing the provision is extrinsic material that may be considered for this purpose.

Therefore, it is appropriate to consider the Further Supplementary Explanatory Memorandum to the A New Tax System (Goods and Services Tax) Bill 1998 (EM). The EM states: 

1.44 New Schedule 1A lists certain products that will be taxed as confectionery. This list is essentially the same as the definition of confectionery used in the WST legislation.

1.45 Confectionery includes food that is marketed as confectionery, such as chocolate, boiled sweets, lollipops, sherbet, marshmallow and fruit lollies, as well as the specific types of goods included in new Schedule 1A' (emphasis added note that Schedule 1A was enacted as Schedule 1 of the GST Act).

Note that the specific types of foods listed in items 8 to 14 of Schedule 1 are not necessarily all confectionery in the ordinary sense, but are deemed to be confectionery as reflected in the EM and are taxed accordingly. The list in Schedule 1 is essentially the same, although not exactly the same, as in the previous sales tax regime.

Accordingly, it is the ATO view that the second column heading of 'confectionery' was not intended to limit the scope of items listed under that heading to confectionary goods.

It therefore follows that edible cake decorations do not need to be confectionery in the ordinary sense, in order to be covered by item 14, as the EM makes clear, they are taxed as confectionery.

Additionally, the 'category' headings in column 2 are not operative, as explained below.

Section 182-15 of the GST Act states:

The second columns of the table in Schedules 1, 2 and 3 are not operative. In interpreting an item in those tables, or any other operative provision, those columns may only be considered for a purpose for which an *explanatory section may be considered under subsection 182-10(2).

The ATO acknowledges the general principle that section 182-15 can be used to enable a column 2 heading in the table in Schedule 1 to be referred to for the purpose of providing further guidance on how the words in an item are to be interpreted. However, this can only occur for the four purposes specified in subsection 182-10(2), namely to:

1. Determine the purpose or object underlying the provision (paragraph 182-10(2)(a) of the GST Act);

2. Confirm that the provision's meaning is the ordinary meaning conveyed by its text, taking into account its context in the Act and the purpose or object underlying the provision (paragraph 182-10(2)(b) of the GST Act);

3. Determine the provision's meaning if the provision is ambiguous or obscure (paragraph 182-10(2)(c) of the GST Act); or

4. Determine the provision's meaning if the ordinary meaning conveyed by its text, taking into account its context in the Act and the purpose or object underlying the provision, leads to a result that is manifestly absurd or is unreasonable (paragraph 182-10(2)(d) of the GST Act).

The ATO determines that the purpose or object underlying the provision (item 14) is clear, that being to ensure that edible cake decorations are not GST-free. Any referral to the column 2 heading provides no further assistance in this matter, hence paragraph 182-10(2)(a) of the GST Act is not relevant.

The second purpose is to confirm that the provision's meaning is its ordinary meaning and not any other, taking into account its context in the GST Act and the purpose of object underlying the provision.

Taking into account the excerpt from the EM, as set out above, it is the ATO view that the application of the column heading 'confectionary' was not intended to restrict the meaning of 'edible cake decorations' for the purposes of item 14 to edible cake decorations that are confectionery in the ordinary sense.

The third purpose is to assist in determining the meaning of the provision where the provision is ambiguous or obscure. Thus, to accept that paragraph 182-10(2)(c) applies, it is necessary to accept that ambiguity or obscurity exists in the words that item 14 uses. The ATO considers that the words of item 14 clearly identify a class of goods, namely one that encompasses food known as edible cake decorations. Accordingly, it is the ATO view that the words of item 14 in themselves are not ambiguous or obscure, and thus that paragraph 182-10(2)(c) of the GST Act is not relevant.

The fourth purpose is to determine the provision's meaning if the ordinary meaning conveyed by its text leads to a result that is manifestly absurd or unreasonable. It is the ATO view that it is not manifestly absurd or unreasonable that edible cake decorations are subject to GST. Hence, it is considered that paragraph 182-10(2)(d) of the GST Act is not relevant.

Hence, we do not consider that section 182-15 of the GST Act in combination with the 'category' heading in Schedule 1 - 'Confectionary' narrows the scope of the term 'edible cake decorations' for the purposes of item 14.

We consider that X is edible cake decorations because it is edible; it is designed and marketed to be used for a particular purpose and it has a decorative character.

Item 32

Item 32 in the table in clause 1 of Schedule 1 to the GST Act (item 32) lists'*food that is, or consists principally of, biscuits, cookies, crackers, pretzels, cones or wafers'.

Clause 2 in Schedule 1 states that for the purpose of determining whether particular food is covered by any items in the table relating to the category of prepared food, bakery products or biscuit goods, it does not matter whether it is supplied hot or cold, or requires cooking, heating, thawing or chilling prior to consumption.

The first food type listed in item 32 after the word principally is biscuits; and the other items listed after the word biscuit are broad categories of biscuits or specific examples of biscuits. Therefore, we consider that food will be food of kind listed at item 32 if they are biscuit goods or goods that consist principally of biscuits.

The Macquarie Dictionary, 2013, 6th edition, defines biscuit as '1. a. a stiff, sweet mixture of flour, liquid, shortening and other ingredients, shaped into small pieces before baking or sliced after baking. b. a savoury, unleavened similar mixture, rolled, sliced and baked crisp'.

The ATO's impression from looking at, touching and tasting X, after we cooked it, is that it is a type of biscuit. Therefore, we have classified X as food of a kind listed in item 32.

Conclusion

X is covered by item 14 and is food of a kind specified in item 32. Therefore, the exclusion at paragraph 38-3(1)(c) of the GST Act applies. Hence, your sales of X are not GST-free under section 38-2 of the GST Act.

There are no other provisions of the GST Act under which your sales of X are GST-free.

Hence, as all of the requirements of section 9-5 of the GST Act are met, GST is payable on your sale of X.