Edited version of your written advice

Authorisation Number: 1012889757159

Date of advice: 22 October 2015

Ruling

Subject: GST and food classification

Question

Is the supply of assorted shaped sugar (sugar products) taxable supply?

Answer

Yes.

Relevant facts and circumstances

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

You sell assorted shaped sugar (sugar products) to retailers, restaurant and hotels.

The marketing brochure show the following information about the products: They are shaped sugar used for morning tea, afternoon tea, to sweeten hot drinks, to decorate cakes and tables.

You sent a sample invoice of the products and you have charged GST on the sales price.

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 paragraph 38-3(1)(c)

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

Reasons for decision

GST is payable on your taxable supplies.

You make a taxable supply where you satisfy the requirements of section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (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 the sugar products for consideration

• you will supply the sugar products in the course or furtherance of an enterprise that you carry on

• these supplies will be connected with Australia because the sugar products are made available to customers in Australia, and

• you are registered for GST.

There are no provisions of the GST Act under which your sales of the sugar products are input taxed. Therefore, what remains to be determined is whether your sales of the sugar products are GST-free.

Under section 38-2 of the GST Act, a supply of food is GST-free.

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 sugar products are food for human consumption, they satisfy the definition of food in paragraph 38-4(1)(a) of the GST Act.

However, under paragraph 38-3(1)(c) of the GST Act, certain supplies of food are not GST-free if it is food of a kind specified in the third column of the table in Schedule 1 of the GST Act (Schedule 1), or food that is a combination of one or more foods at least one of which is food of such a kind.

Sugar is not considered to be food marketed as an ingredient for confectionery, although it is an ingredient used in the manufacture of confectionery. However, the sugary products seem to have the characteristic of confectionery because they are marketed as assorted sugar shapes and colors to sweeten hot drinks, to decorate cakes and tables.

In determining whether food is marketed as a confectionery, consideration is given to the name of the goods, the price of the goods, the labelling on any containers for the goods, literature or instructions packaged with the goods, how the goods are packaged, how the goods are promoted or advertised and how the goods are distributed.

The marketing brochures state that the sugar products can be used for morning tea, afternoon tea, and to decorate cakes and tables (among other uses such as to sweeten hot drinks). The sugar products may be considered as sugar cakes decorations or sugar flowers, that is, edible cake decorations.

Edible cake decorations are specified in item 14 of Schedule 1 (Item 14) under the category of confectionery.

The Detailed Food Guide (DFL) specifies that edible cake decorations are taxable.

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 restrict the class of goods covered by item 14 to certain confectionery 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.

The sugar products are edible. The assorted shapes of the sugar are specifically designed, and are marketed, to be used for morning tea, afternoon tea, or to decorate cakes and tables. The price per unit/shape reflects the characteristics of the sugary products as confectionery and not plain sugar. Therefore, the sugary products are edible cake decorations.

The characterisation of a product as an edible cake decoration is not affected by the actual use to which it is put by a consumer (for example, to sweeten hot drinks). One of the purposes for which the sugary products is designed is to use as a cake and table decoration.

Our conclusion

The sugary products are covered by Schedule 1 (item 14). Therefore, the exclusion at paragraph 38-3(1)(c) of the GST Act applies. Hence, your sales of the sugary products 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 the sugary products are GST-free.

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