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Edited version of your written advice
Authorisation Number: 1012933879577
Date of advice: 11 January 2016
Ruling
Subject: GST and frozen foods
Question
ls your supply of the frozen food (products) GST-free?
Answer
Yes, your supply of the products is GST-free.
Relevant facts and circumstances
You are registered for goods and services tax (GST).
You supply the products to food service distributors and they on sell the products to food service outlets to be used in the build of food menu items.
The ingredients for the products are the same as for standard bun ingredients, apart from the specific concentrate and the topping.
The specific concentrate gives the bun crumb a colour and a slight flavour. The specific concentrate percentage contains various ingredients.
The topping contains various ingredients.
The manufacturing process of the products is the same as the manufacturing process of your other buns, except for the products' topping.
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 Section 38-4
A New Tax System (Goods and Services Tax) Act 1999 Section 9-5
Reasons for decision
Summary
Your supply of the products is a GST-free sale of food under section 38-2 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act). The products are neither buns (item 25 Schedule 1 of the GST Act) nor bread with a sweet coating (item 27 of Schedule 1 of the GST Act).
Detailed reasoning
A supply of food is GST-free under section 38-2 of the GST Act if the product 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.
Food is defined in section 38-4 of the GST Act to include food for human consumption (paragraph 38-4(1)(a) of the GST Act).
The products satisfy the definition of food because they are sold as food for human consumption. Therefore the products will be GST-free unless they fall within any of the exclusions in section 38-3 of the GST Act.
Of relevance to your circumstances is the exception under paragraph 38-3(1)(c) of the GST Act. Paragraph 38-3(1)(c) of the GST Act provides that a supply of food is not GST-free if it is food of a kind that is specified in the table in clause 1 of Schedule 1 to the GST Act (Schedule 1).
Schedule 1
The products are not specifically included in Schedule 1. Nevertheless, they may be subject to GST by virtue of paragraph 38-3(1)(c) of the GST Act which refers to food of a kind to those foods listed in Schedule 1
Clause 1 of Schedule 1 of the GST Act specifies a range of foods that are not GST-free. In relation to bakery products, the following items are included in Schedule 1:
Item 25- …….X
Item 27- bread (including buns) with a sweet filling or coating.
Hence the issue is whether the products are captured by item 25 or 27 of Schedule 1.
Clause 2 of Schedule 1 operates to ensure that these items are subject to GST regardless of whether they are supplied hot or cold, or require cooking, heating, thawing or chilling prior to consumption.
The inclusion of the words of a kind indicates that foods are taxable if they are of the class or genus referred to in Schedule 1.
The words 'of a kind' and their meaning have been considered in a number of court cases including Hygienic Lily Ltd v Deputy Commissioner of Taxation (NSW) (1987) 13 FCR 399, Sherwood Overseas Pty Ltd v FC of T 1985 and Diethelm Manufacturing Pty Ltd v FC of T 1992.
Gummow J in Hygienic Lily Ltd states:
the setting in which the phrase 'goods of a kind' appears suggests it is directed not to the use for which the particular goods in question were designed or manufactured, nor to the purpose to which it is intended those particular goods shall be put, but rather to their nature, quality and adaptation of the goods in the class or genus in question. Thus, goods are 'of a kind ordinarily used for household purposes' if they are to be recognised as members of a class or genus which commonly or regularly (albeit not necessarily exclusively or principally) is used for household purposes: cf Customs and Excise Commrs v Mechanical Services (Trailer Engineers) Ltd [1979] 1 WLR 305 at 312-13, 315, 316-17.
The Macquarie Dictionary 6th Edition ('the dictionary') defines 'X' to be:
"a kind of light, sweet bun or roll, raised with eggs and yeast".
Recipes to make X buns indicate that there are milk, butter and eggs in the ingredients. The products' ingredients do not list butter or eggs. Further, the manufacturing process for the products is similar to the manufacturing process for your hamburger buns, except for the products' topping. Hence the products are not 'of a kind' or of the class or genus of item 25 of Schedule 1.
In addition, the products cannot be classified under item 27 of Schedule 1 (item 27) of the GST Act either. In our opinion, the products have a sweet topping. However, topping is not considered to be a sweet coating for the purposes of Item 27.
After considering all of the above factors it is concluded that the supply of the products are not excluded from being GST-free under paragraph 38-3(1)(c) of the GST Act. Therefore the supply of the products is GST-free.