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Edited version of your written advice
Authorisation Number: 1051418395097
Date of advice: 23 August 2018
Ruling
Subject: GST and savoury snacks
Question
Is the sale of the specified products (the Products) GST-free?
Answer
No. The sale of the Products is a taxable supply and subject to GST.
Relevant facts and circumstances
You are registered for GST.
You produce the Products for sale.
The Products are made from a specified ingredient that is cut into small pieces/chips. The Products are dry, crispy, crunchy and salty.
The Products are produced in a specified way and are not fried in oil.
You have provided samples of the Products. The products are dry, crispy and crunchy to the bite and are salty.
The Products come in a small snack size bag. They are marketed as snacks and the packaging describes the Products as crispy, crunchy and salted chips.
You have been charging GST when selling the Products to your customers.
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 paragraph 38-4(1)(a).
A New Tax System (Goods and Services Tax) Act 1999 paragraph 38-3(1)(c).
Reasons for decision
Summary
The supply of the Products is a supply of a snack food of a kind covered under item 18 of Schedule 1 to the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) and therefore it is not a GST-free supply.
The supply of the Products is a taxable supply and subject to GST.
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).
The Products are food for human consumption and therefore, satisfy the definition of food in paragraph 38-4(1)(a) 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 items that are relevant for consideration in this case are item 15 of Schedule 1 (item 15), item 16 of Schedule 1 (item 16) and item 18 of Schedule 1 (item 18) which state:
Food that is not GST-free |
||
Item |
Category |
Food |
15 |
Savoury snacks |
potato crisps, sticks or straws, corn crisps or chips, bacon or pork crackling or prawn chips |
16 |
seeds or nuts that have been processed or treated by salting, spicing, smoking or roasting, or in any other similar way | |
18 |
*food similar to that covered by item 15 or 16, whether or not it consists wholly or partly of any vegetable, herb, fruit, meat, seafood or dairy product or extract and whether or not it is artificially flavoured | |
The Products are not covered by the food products that are specified in item 15 or item 16.
Item 18 states that ‘food similar to that covered by item 15 or item 16, whether or not consisting wholly or partly of any vegetable, herb, fruit, meat, seafood or dairy product or extract and whether or not it is artificially flavoured’ is not GST-free. Item 18 is very wide in scope and broadens the range of food products that are similar to those specified in item 15 or item 16 beyond their composition, ingredients or their manufacturing process.
The Products are not similar to food products specified in item 16.
Therefore, what needs to be determined is whether the Products are of a kind that is similar to the food products specified in item 15 and hence covered by item 18.
The word ‘similar’ is not a defined term in the GST Act. The Macquarie Dictionary [Online], viewed on August 2018, www.macquariedictionary.com.au, defines the term as:
having likeness or resemblance, especially in a general way.
Further, the use of the words ‘of a kind’ in paragraph 38-3(1)(c) has been considered by the Courts and held that it adds further generality to the description of food specified in Schedule 1 therefore this description should not be read narrowly. Accordingly, a new product that does not possess all of the same characteristics of a known product or a product that might be produced by different manufacturing processes may nevertheless be within the relevant item. The question is whether the resulting product comes within the genus, class or description of the relevant item.
Therefore, whether a food product is of a kind of food specified in Schedule 1, is a question of fact and degree and a matter of overall impression.
The food products listed in Item 15 are snack foods that have undergone a cooking process and share certain other characteristics such as crispness. Accordingly, to determine the classification of the Products we need to consider the characteristics of the Products.
In your case, the Products are not fried in oil. However, the manufacturing process of itself is not a determinative factor when considering whether the Products are similar to snack foods in item 15. As stated above a new product that does not possess all of the same characteristics of a known product specified in Schedule 1 may nevertheless be within the relevant item.
The Products are made from a type of ingredient that is specified in item 18. They come in a small snack size bag similar to other chips snacks. They are crispy and crunchy to the bite and are salty, like other chips snacks. Further, the Products are marketed as chips and the packaging correctly describes the Products as being crispy, crunchy and salted.
Taking all the above factors into account, we consider that the Products possess the characteristics of snack foods similar to the products mentioned in item 15. That is, the overall impression is that they are similar to food products specified in item 15 and are therefore of a kind covered by Item 18.
As the Products are covered by Item 18, they are excluded from being GST-free by paragraph 38-3(1)(c) of the GST Act. The supply of the products therefore is a taxable supply and subject to GST.