Edited version of your written advice

Authorisation Number: 1013029742297

Date of advice: 10 June 2016

Ruling

Subject: GST and supply of seed products

Question

ls your supply of the seed products (the products) GST-free?

Answer

No, your supply of the products is not GST-free, it is a taxable supply.

Relevant facts and circumstances

You supply seed products. You registered for goods and services tax (GST).

You supply the products to wholesalers and in gourmet food outlets and health food shops in Australia.

The seeds are soaked for many hours before being dried out.

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 not a GST-free sale of food under section 38-2 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) because:

• the seed products have been treated by a process, or in any other similar way -items 16 and 18 in the table of Schedule 1 of the GST Act (Schedule 1). Soaking the seed products and dehydrating seed products are processes similar to other processes because it enhances the flavour of the seed products.

• The mixed product are combination of foods, at least one of which is food of a kind specified in item 16 of Schedule 1, hence they are excluding from being GST-free food, - paragraph 38-3(1)(c) of the GST Act. Item 19 of Schedule 1 also include these products because it includes food consisting of food covered by items 16 and 18 of Schedule 1.

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 supply the products for consideration

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

• the supply is connected with Australia since the products are made available in Australia, and

• you are registered for GST.

There are no provisions of the GST Act under which your supply of the products is input taxed.

Therefore, what remains to be determined is whether your supply of the products is GST-free.

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, whether or not it requires processing or treatment (paragraph 38-4(1)(a) of the GST Act).

The product satisfies the definition of food because it is sold as food for human consumption. Therefore the product will be GST-free unless it falls 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). Items 16 and 18 of Schedule 1 are relevant here for all seed products.

In addition, in relation to the Mixed product, the Further Supplementary Explanatory Memorandum to the A New Tax System (Goods and Services Tax) Bill 1998 (EM) states:

1.17 Food that is a combination of one or more foods, at least one of which is food of a kind specified in the table in new Schedule 1A of the Bill (prepared food, confectionery, savoury snacks, bakery products, ice-cream food and biscuit goods is not GST-free. For example, a snack pack containing cheese and biscuits is not GST-free because it contains at least one type of food specified in new Schedule 1A (biscuits).

The phrase 'of a kind' is not defined in the GST Act. Accordingly, it is appropriate to examine the ordinary meaning of that term. The Macquarie Dictionary (1997) does not define the entire phrase 'of a kind' however, it defines the word 'kind' to mean:

'1. A class or group of individuals of the same nature or character, especially a natural group of animals or plants. 2. Nature or character as determining likeness or difference between things: things differing in degree rather than in kind. 3. A person or thing as being of a particular character or class: he is a strange king of hero. 4 ...'

Accordingly, something will be 'of a kind' if it is of the same nature or character (possessing the same distinguishing qualities) as the thing or group in question.

In addition, the case law LANSELL HOUSE PTY LTD & ANOR v FC of T 2011 ATC 20-239 at [30] relevantly provides:

The use of the words "of a kind" in s 38-3(1)(c) of the GST Act adds further generality to the description of the items described in Schedule 1: Air International Pty Ltd v Chief Executive Officer of Customs (2002) 121 FCR 149 per Hill J. Thus, a new product that does not possess all of the same characteristics of known crackers may nevertheless be within the relevant item…

The Seed Products:

Items 16 and 18 of Schedule 1 (item 16)

Item 16: "Seed products that have been processed or treated by salting, spicing, smoking, or roasting, or in any other similar way"

Item 18:" food similar to that covered by item 15 or 16…"

The seed products have been treated by a process. Soaking the products dehydrates the product, similar to other processes. The processes enhance the flavour of the seed products.

In addition, Item 18 includes products which are of the class specified in Item 16, but are not listed in Item 16. The seed products are either listed in item 16, or are considered to be of the class of a seed as described in Item 16. The seeds can also be considered as food of a kind that is included under Items 16.

Therefore, items 16 and 18 will apply to the products and they are excluded from being GST-free by paragraph 38-3(1)(c) of the GST Act.

The Mixed products

These 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 that is a combination of one or more foods at least one of which is food of such a kind to those foods listed in Schedule 1.

Since one of the food items in a foods combination is listed in Schedule 1, the foods combination is excluded from being GST-free by paragraph 38-3(1)(c) of the GST Act.

In addition, item 19 of Schedule 1 includes food consisting principally of food covered by items 15 to 18, and the four products consisting principally of seed products which are either included in items 16 or 18 of Schedule 1.

In the mixed products, the seeds retain a separate identity in the food combination. The products are food products that combine a taxable food and a GST-free food (dried fruits, etc.) as distinct items. Hence the mixed products are not GST-free under paragraph 38-3(1)(c) of the GST Act.:

In summary, the supply of the products listed in the ruling application is not GST-free under section 38-2 of the GST Act.

As all of the requirements of section 9-5 of the GST Act are met, GST is payable on your supply of the products.