Edited version of your written advice

Authorisation Number: 1013002030752

Date of advice: 13 May 2016

Ruling

Subject: Goods and services tax (GST) classification of food

Question 1

Are your supplies of X GST-free under Division 38 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer

Yes, the supplies of X are GST-free.

Relevant facts and circumstances

You are registered for GST.

You supply X which is produced in a limited number of varieties with various ingredients. They each contain over 70% fruit and are packaged as a collection of bite sized shapes and are neither individually wrapped nor sufficient (on an individual basis) to represent a standard serving size.

The manufacturing process is:

• Required stock for the product is picked from the warehouse

• Those products that require mincing are minced

• Products are weighed out and placed in a large scale mixing bowl

• Ingredients are mixed in a large scale mixing bowl to make dough

• The dough is cut into rough pieces

• Each piece is placed into the extrude machine (the extrude machine cuts the product into bite sized pieces)

• The pieces are collected on trays which are stacked in racks

• The products are air dried (no heat involved)

• The products are then packed, weighed and metal detected

• There is no heat, no other added ingredients, sugar, artificial colours, flavours or preservatives.

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: Schedule1

A New Tax System (Goods and Services Tax) Act 1999: Schedule1, Item 8

A New Tax System (Goods and Services Tax) Act 1999: Schedule1, Item 10

A New Tax System (Goods and Services Tax) Act 1999: Schedule1, Item 11

A New Tax System (Goods and Services Tax) Act 1999: Schedule1, Item 12

Acts Interpretation Act 1901: Subparagraph 15AB(1)(b)(i)

Acts Interpretation Act 1901: Paragraph 15AB(2)(e)

ATO View

Detailed Food List

GST Food Guide

Food Industry Partnership - Issues Register

Reasons for decision

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 does not come within any of the exclusions listed in section 38-3 of the GST Act. 

Section 38-4 of the GST Act includes as food:

• food for human consumption (whether or not requiring processing or treatment), and

• ingredients for food for human consumption. 

The exclusions listed in section 38-3 of the GST Act apply where the food is:

• food for consumption on the premises from where it is supplied

• hot food for consumption away from the premises

• food listed in the table in clause 1 of Schedule 1 of the GST Act (Schedule 1)

• beverages not listed in the table in clause 1 of Schedule 2 of the GST Act, or

• food of a kind specified in the A New Tax System (Goods and Services Tax) Regulations 1999 (Regulations). 

Therefore, provided the food does not fall into any of the above exclusions, section 38-4 of the GST Act treats the supply of food for human consumption (whether or not requiring processing or treatment) as GST-free. 

In your case, we consider that X is food for human consumption as it will be made from ingredients that are food for human consumption. Hence, the supply of X would be GST-free provided it does not meet any of the above exclusions. 

Schedule 1 

X is not a beverage, does not appear in the Regulations as a product that is excluded as a food and you are to sell X to retailers (that is, the food will not be consumed on the premises from where it is supplied by you and will not be supplied by you as hot food for consumption away from these premises).

Therefore, it is only necessary to determine if X is listed in Schedule 1 to determine if its supply will be GST-free or taxable.

Of importance are Item 8 of Schedule 1 (Item 8), Item 10 of Schedule 1 (Item 10), Item 11 of Schedule 1 (Item 11) and Item 12 of Schedule 1 (Item 12). The other items listed in Schedule 1 are not relevant for this particular food product. 

Item 8 and Item 10 

Item 8 lists confectionery, food marketed as confectionery, food marketed as ingredients for confectionery or food consisting principally of confectionery. Item 10 lists confectionery novelties.

The term confectionery is not defined in the GST Act and therefore, we use its ordinary meaning. Confectionery is defined in the 3^rd edition of The Macquarie Dictionary (Dictionary) to include confections or sweets collectively. Confection is further defined as a sweet preparation (liquid or dry) of fruit or the like.

Aickin J in the High Court decision Landau and Anor v. Goldwater and Anor (1976) 13 ALR 192 gave the following general description of confectionery:  

They are primarily small articles of a sweet character containing substantial amounts of sugar and regarded as being in the nature of a delicacy in whatever quantity they may be consumed.  

X will have no sugar added throughout the manufacturing process and the food will retain its character as dried fruit. X will also not be marketed as confectionery or ingredients for confectionery. Consequently, we consider that X does not have the above characteristics to be treated as confectionery or as confectionery novelties, the ingredients for confectionery or as food that consists principally of confectionery.

Item 11 

Item 11 lists food known as muesli bars or health food bars, and similar food stuffs. 

Muesli bar 

The term muesli bar is not defined in the GST Act and therefore takes its ordinary meaning. Muesli is defined in the Dictionary as a breakfast cereal of various mixed products such as oats, wheat germ, chopped fruit and nuts, etc. A muesli bar is defined as a commercially prepared and packaged snack made from a muesli mixture, usually sweetened and set in a bar shape. Some muesli bars also contain confectionery pieces, such as chocolate chips or have a chocolate or yoghurt coating.  

X does not satisfy the above requirements to be treated as a muesli bar as it consists primarily of dried fruit.

Health food bar 

The term health food bar is not defined in the GST Act. Furthermore, the term is not defined in the Dictionary and there is no generally accepted description of what constitutes a health food bar. Accordingly, the meaning of this term is ambiguous.

Where the meaning of a term is ambiguous, subparagraph 15AB(1)(b)(i) and paragraph 15AB(2)(e) of the Acts Interpretation Act 1901, make it permissible to refer to the explanatory memorandum to the relevant Act in determining the meaning of the provision. 

Paragraph 1.3 of the Further Supplementary Explanatory Memorandum to A New Tax System (Goods and Services Tax) Bill 1998 states:

The amendments will ensure that basic food for human consumption is GST-free. In addition, they will ensure that the current WST [wholesale sales tax] exemptions for food are, in general, maintained. 

Under the WST system, the following guidelines were developed to indicate the characteristics of muesli bars and health food bars. These characteristics are:

• Muesli bars and health food bars have less than 55% real fruit content.

• Muesli bars and health food bars contain significantly more than 10 per cent added sugars in any form.

• Muesli bars and health food bars have greater than 2% added fat.

• Muesli bars and health food bars are multi component products combining products such as fruits, nuts, cereals, sugars, milk etc. 

Health food bars are also often characterised and distinguished in the market place by their (real or perceived) health giving properties. 

Terms that are used to describe health food bars include sweetened with honey, rice syrup or raw sugar; no added artificial colours, flavours or preservatives; high in fibre, low in salt, cholesterol free; a natural product, organic; made with only the best ingredients; a healthy snack; gluten free; dairy free; fat free; and caffeine free. Health food bars also often contain fruit, nuts and seeds. 

X does not satisfy the majority of the characteristics listed above to be treated as a health food bar. 

Other similar foodstuffs

As new products are constantly developed and entering the market place, this discussion is not intended to be exhaustive.  

The GST Act does not define the meaning of similar foodstuffs however the word similar is defined in the Dictionary to mean having a likeness, or to resemble these bars, especially in a general way. 

Foodstuff is further defined in the Dictionary as a substance or material suitable for food. 

Therefore in order to be similar to a muesli or health food bar, the product would need to have a likeness to or resemble of these bars and take the same shape. Other similar foodstuffs may include products such as fruit bars and energy bars.  

X cannot be considered as being similar to either muesli or health food bars given its appearance, packaging, marketing and ingredients. 

Item 12

Item 12 lists crystallised fruit, glace fruit and drained fruit.

X has the consistency of dried fruit and is not a fruit product listed in Item 12. 

Therefore as X is not excluded by Schedule 1, you will be making a GST-free supply when you sell X.