Edited version of your written advice

Authorisation Number: 1051407201539

Date of advice: 3 August 2018

Ruling

Subject: GST and supply of frozen food products

Question

Is the supply of the frozen food packs GST-free pursuant to section 38-2 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer

Yes.

Relevant facts

You supply a variety of health food products.

You define your frozen food products as “superfood”. This is the central theme in describing your products to consumers.

You list Products A, B, C and D on your website under a frozen foods range.

You provided the following information in your private ruling application:

● Product A - The contents of this pack is 100% pure fruit which has been pulped, packed and frozen. The packaging states that this contains a small amount of food additive.

● Product B - The contents of this pack is approximately less than 100% pure fruit which has been pulped and blended with a small amount flavouring & food additive then packed and frozen.

● Product C - The contents of this pack is 100% pure fruit which has been pulped, packed and frozen.

● Product D- The contents of this pack is approximately less than 100% pure fruit blended with fruit-based sweetener which has been pulped, packed and frozen.

You recommend your customers a number of uses for the frozen food packs:

● eaten singly as a wonderful source of antioxidants, vitamins and minerals

● added into breakfast bowls

● added into a liquid to form a drink, such as a smoothie or fruit drink.

If the product is consumed directly, no preparation is required. If the product is consumed as part of a breakfast bowl, it is combined with a small amount of liquid to allow mixing and served in a bowl topped with cereals, fresh fruit and other toppings. Other preparations would be to melt the product totally to add to cereal, used in baking and added to a blender as part of a smoothie.

At times your packaging and marketing materials have focused on one suggested use, such as a ‘smoothie pack’ or ‘breakfast bowls’.

In terms of use, eating as is, or in bowls provides a greater number of options than simply using in a smoothie.

Your products are sold in the following ways:

● retail – health food stores, gyms, fitness retailers and cafes

● wholesale – various distributors serving the above

● e-commerce – direct to retail customers or corporate clients

● on-site – minimal sales made from your head office.

The frozen food packs contain fruit which has been pulped, packed and frozen at country of origin.

You provided pictures of the labels which are used in the current season production.

All the labels include the following information:

The frozen food packs are perfect addition to your smoothies and breakfast bowls.

Ingredients as outlined above.

How to use:

1. Cut pack in half with knife.

2. Add ingredients such as fruits, juice or non-dairy milk.

3. Combine in a blender, mix to desired consistency & serve immediately.

OR Simply eat straight from the pack.

A Smoothie recipe

A Bowl recipe

The label includes pictures of prepared breakfast bowls.

The pack contains a number of smaller packets.

You provided pictures of the contents of the packs which show them as blocks of pureed product.

Your website includes a number of recipes for breakfast bowls using at least one of the frozen food packs. The recipes require one to combine all the ingredients, including liquid, in a blender until smooth and creamy. It is then spooned into a bowl and garnished with one’s choice of toppings.

Your social media pages include a number of pictures of breakfast bowls using your frozen food packs.

Assumptions

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 Paragraph 38-3(1)(c).

A New Tax System (Goods and Services Tax) Act 1999 Section 38-4.

A New Tax System (Goods and Services Tax) Act 1999 Paragraph 38-4(1)(b).

A New Tax System (Goods and Services Tax) Act 1999 Schedule 1.

Reasons for decision

Summary

The supply of the frozen food packs is GST-free pursuant to section 38-2 of the A New Tax System (Goods and Services Tax) Act 1999 (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 (whether or not requiring processing or treatment) (paragraph 38-4(1)(a) of the GST Act)

● ingredients for food for human consumption (paragraph 38-4(1)(b) of the GST Act) and

● ingredients for beverages for human consumption (paragraph 38-4(1)(d) of the GST Act).

You recommend your customers a number of uses for the frozen food packs. They can be added into breakfast bowls, eaten on their own or added into a liquid to make a smoothie or fruit drink.

Whilst a product can be characterised in more than one way, this is irrelevant for the purposes of the GST Act, as a product can only be classified as one particular item (Lansell House Pty Ltd & Anor FC of T (2011) ATC 20-239 at [7] (Lansell 2011)

Further in Customs and Excise Commissioners v. Ferrero UK Ltd [1997] STC 881 at 888, where the question to be answered as to the characterisation or classification of a product is one of fact and degree, as it was for biscuits, Lord Wolf MR concluded that where a product has the characteristics of two categories, it is placed in a category in which it has sufficient characteristics to qualify.

In determining whether a product is an ingredient for food or an ingredient for a beverage, it is important to determine the essential character of the product. There are products that are generally only used as an ingredient for a beverage – for example, milk powder. Although milk powder could be used as an ingredient for cooking, its essential character is that of an ingredient for a beverage.

The frozen food packs consists of frozen fruit pulp which can be eaten on their own, added into breakfast bowls or used to make a smoothie or fruit drink. The packaging and marketing materials suggest that they be used to make a smoothie or breakfast bowls. However, you consider that eating as is, or adding in breakfast bowls provides a greater number of options than simply using in a smoothie.

The labels you provided include pictures of breakfast bowls using the frozen food packs.

The information on your website and your social media accounts suggest that the frozen food packs are intended to be and marketed as an ingredient for making breakfast bowls.

Although the frozen food packs can be eaten on their own or used to make a drink, it is more generally used as an ingredient in making a breakfast bowl.

We consider that the frozen food packs have sufficient characteristics to qualify as ingredients for food for human consumption. The fact that the frozen food packs have subsidiary uses for beverages does not alter its characterisation as an ingredient for food and therefore should be classified as such. Hence, the frozen food packs satisfies the definition of food in paragraph 38-4(1)(b) of the GST Act.

We consider the frozen food packs to be ingredients for food for human consumption and therefore, satisfies the definition of food in paragraph 38-4(1)(b) of the GST Act.

However, 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). The frozen food packs are not specifically listed in Schedule 1. As such, the issue is whether the frozen food packs are 'food of a kind' specified in Schedule 1.

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 kind 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, Lansell 2011 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…

Of relevance when considering the GST treatment of the frozen food packs are under the category ice-cream food:

● item 29 in the table in clause 1 of Schedule 1 of GST Act (item 29), which lists ‘frozen confectionery, frozen yoghurt and frozen fruit products (but not frozen whole fruit)' and

● item 31 in the table in clause 1 of Schedule 1 of GST Act (item 31), which lists ‘any *food similar to food listed in items 28 to 30'.

All the products listed in item 29 do not require the addition of any other ingredients in order to be ready for consumption.

We do not consider the Frozen Food Packs to be of a kind of frozen confectionery or frozen yoghurt listed in item 29.

Item 29 includes frozen fruit products. However, it is not intended to tax frozen whole fruit.

“Whole fruit” does not have to be a single uncut piece of fruit but can be fruit pieces or pureed fruit (provided it is purely fruit without additives such as fruit syrup, sugar, water etc.).

This position is supported by the comments made by Gzell J in P& N Beverages Australia Pty Ltd v Federal Commissioner of Taxation (2007) ATC 4481, which related to the application of item 11 of Schedule 2 – non-alcoholic carbonated beverages, if they consist wholly of juices of fruits or vegetables:

36. … in my view, that item 11 must be construed according to its ordinary meaning. As a Full Court of the Federal Court observed in Zeroz Pty Ltd v Deputy Commissioner of Taxation 97 ATC 4277 at 4284, if there is no trade usage then, a fortiori, the expression must be used in its ordinary English sense. The ordinary meaning of "wholly of juices of fruits" is 100% fruit juice.

37. The concession by P & N that the word "wholly" meant 100% was a proper one. Items 10 and 12 in the table to cl 1 in Sch 2 of A New Tax System (Goods and Services Tax) Act 1999 (Cth) are, respectively, concentrates for making non-alcoholic beverages if the concentrates consist of at least 90% by volume of juices of fruits, and non-alcoholic non-carbonated beverages if they consist of at least 90% by volume of juices of fruits or vegetables. In that context, "wholly" must, in my view, mean 100%.

As such if the frozen product is made up of 100% fruit, it will not be of a kind covered by item 29.

The frozen food packs are predominantly made from fruits which have been pulped, packed and frozen.

The Products C and D are made wholly of fruits. Hence, we do not consider these products to be ‘frozen fruit products’ of a kind covered by item 29.

Products A and B contain a small amount of food additive. The labels and marketing information suggests that the main purpose of the frozen food packs is to be added to other things to make a breakfast bowl, rather than to be eaten on their own as a kind of frozen fruit product. Hence, we do not consider these products to be ‘frozen fruit products’ of a kind covered by item 29.

We do not consider the frozen food packs to be food similar to food listed in items 28 to 30.

The frozen food packs are not food of a kind specified in Schedule 1. Furthermore, the supply of the frozen food packs does not fall within any of the other exclusions in section 38-3 of the GST Act. Therefore, the supply of the frozen food packs is a GST-free supply under section 38-2 of the GST Act.