Edited version of your written advice

Authorisation Number: 1051349349467

Date of advice: 22 March 2017

Ruling

Subject: GST and mixed supply of cookie mix and confectionery

Question

Is your supply of the cookie mix and confectionery (product) a GST-free supply under section 38-2 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer

No. Your supply of the product is a mixed supply of taxable confectionery and GST-free cookie mix unless the apportioned consideration of the confectionery is less than 20% of the consideration of the total supply. In this situation, the supply of the product is a composite supply of cookie mix and hence a GST-free supply

Relevant facts and circumstances

You are registered for GST.

You supply the product at supermarkets.

The product will be marketed in a box containing two sachets, one containing a powdered cookie mix and the other containing confectionery. The total value of the confectionery is less than $3.00.

The product requires the addition of butter and egg. Once the cookie mix is combined with the other ingredients, and spooned out on a baking tray (as separate cookies), the confectionery are to be pressed onto each cookie prior to baking.

Relevant legislative provisions

All references are to the A New Tax System (Goods and Services Tax) Act 1999 (GST Act):

Section 38-2

Section 38-3

Section 38-4.

Reasons for decision

Summary

Your supply of the product is a mixed supply of taxable confectionery and GST-free cookie mix unless the apportioned consideration of the confectionery is less than 20% of the consideration of the total supply. In this situation, the supply of the product is a composite supply of cookie mix and hence a GST-free supply.

Detailed reasoning

GST-free supply of food

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. The product is food for human consumption (whether or not requiring processing or treatment), and therefore food under paragraph 38-4(1)(a) of the GST Act.

Food that is excluded from being GST-free

However, a supply of food which falls under section 38-3 of the GST Act is not GST-free under section 38-2 of the GST Act.

Paragraph 38-3(1)(c) of the GST Act specifies that a supply of food is not GST-free if it is food of a kind specified in the table in clause 1 of Schedule 1 to 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 specified in Schedule 1.

Mini Confectionery

Confectionery is listed in item 8 in the table in Schedule 1 (Item 8).The confectionery are small articles of sweet flavour; they contain sugar and they would be regarded as being in the nature of a delicacy. They taste like a sweet. They are made from confectionery type ingredients: milk chocolate, sugar, vegetable fat, cocoa mass, etc.

Powdered cookie mix

Item 32 in the table in Schedule 1 (Item 32) excludes biscuit goods from the GST-free status conferred by section 38-2 of the GST Act. Item 32 is further expanded by the determination rule contained in clause 2 of Schedule 1 of the GST Act:

2 For the purpose of determining whether particular *food is covered by any of the 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 cookie mix is not in biscuit form and therefore is not 'biscuit goods' as stipulated in Item 32. Further, the cookie mix is not considered to be drawn under Item 32 by the determination rule contained in clause 2 of Schedule 1.

Clause 2 of Schedule 1 refers to biscuit goods that may be supplied hot or cold or that requires cooking, heating, thawing or chilling prior to consumption. The underpinning rule is that the goods are 'biscuit goods'. We consider that the cookie mix is not biscuit goods in any form. The cookie mix may at some time become biscuit goods, but at the time of supply is a mixture of various ingredients.

Food that is a combination of one or more foods

Paragraph 1.17 of the Further Supplementary Explanatory Memorandum to the A New Tax System (Goods and Services Tax) Bill 1998 (EM) states:

'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)...'

Paragraph 1.18 of the EM clarifies the intended scope of this provision by stating:

'The exclusion in the above paragraph would not apply where a mix of packaged goods is packed and sold together (eg. a hamper containing a packet of biscuits, box of chocolate and a jar of coffee). These items would be taxed individually (ie. Biscuits and chocolates subject to tax and the coffee GST-free).'

Therefore, a supply combining individual foods that are taxable (i.e. listed in Schedule 1) and GST-free, but which are supplied in a single tray and are not separated by their individual packaging (eg. snack pack containing cheese and biscuits) is excluded from being GST-free by paragraph 38-3(1)(c) of the GST Act. This is because it is 'a combination of food that contains a type of food specified in Schedule 1'.

This can be contrasted with a supply of individual foods that are taxable (i.e. listed in Schedule 1) and GST-free, but which are packaged individually and then wrapped and sold together (eg. a hamper). This type of supply is not 'a combination of food that contains a type of food specified in Schedule 1' because, as each food is individually packaged, they are not 'combined'. This is a mixed supply, with the GST status of each item being determined independently.

The product is a mixture of ingredients that are packaged separately, therefore, the supply is not 'a combination of one or more foods at least one of which is food of such a kind specified in Schedule 1'. This means that the product is not excluded from being GST-free by paragraph 38-3(1)(c) of the GST Act.

However, as a mixed supply, while the powdered cookie mix sachet is a GST-free supply, the confectionery sachet is a taxable supply (confectionery) under Item 8. The GST liability is only calculated on the taxable portion of a mixed supply as determined in subsection 9-80(2) of the GST Act. The value of a supply that is partly GST-free (actual supply) is calculated in accordance with the following formula:

(Price of the actual supply x 10) / (10 + Taxable proportion)

where: 'taxable proportion' is the proportion of the value of the actual supply that represents the value of the taxable supply (expressed as a number between 0 and 1).]

The Good and Services Tax Ruling, GSTR 2001/8 'Goods and services tax: apportioning the consideration for a supply that includes taxable and non-taxable parts' notes that a mixed supply can have concessional treatment as a composite supply if certain parameters are met. Paragraphs 60 and 61 of GSTR 2001/8 state:

60. As a means of minimising compliance costs, you may treat something (or things taken together) as being integral, ancillary or incidental if the consideration that would be apportioned to it (if it were part of a mixed supply) does not exceed the lesser of:

● $3.00; or

● 20% of the consideration of the total supply.

61. You may use this approach to treat a supply as a composite supply, although it might otherwise be considered as a mixed supply. However, if the consideration for a part exceeds the lesser of $3.00 or 20% of the consideration for the total supply, it does not necessarily mean that the part is not integral, ancillary or incidental.

20% of the consideration for the product is less than $3. If the apportioned consideration of the confectionery is less than 20% of the consideration of the total supply, then you can treat the supply of the confectionery as ancillary to the supply of the cookie mix, which means the supply of the product is a composite supply of cookie mix and hence a GST-free supply.

You need to work out the value of the taxable portion of the product on a fair and reasonable basis, for example, you can base on your cost and sales information. Paragraphs 97 to 111 of GSTR 2001/8 give you guidance in deciding Reasonable methods of apportionment.

Conclusion:

Your supply of the product is a mixed supply of taxable confectionery and GST-free cookie mix unless the apportioned consideration of the confectionery is less than 20% of the consideration of the total supply. In this situation, the supply of the product is a composite supply of cookie mix and hence a GST-free supply.