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Edited version of your written advice
Authorisation Number: 1051463517254
Date of advice: 7 December 2018
Ruling
Subject: Goods and Services Tax (GST) and a supply of food product
Question
Is a supply of the product by an Australian entity (you) GST-free pursuant to section 38-2 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?
Answer
No, the supply of the product by you is a taxable supply under section 9-5 of the GST Act and subject to GST.
Relevant facts and circumstances
You are an Australian entity which is registered for GST.
You import the product from overseas.
You supply the product to various shops in Australia.
The shelf life for the product is one year from production date.
The product is ready to eat.
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 Paragraph 38-3(1)(d)
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 38-4(1)(b)
A New Tax System (Goods and Services Tax) Act 1999 Paragraph 38-4(1)(d)
A New Tax System (Goods and Services Tax) Act 1999 Paragraph 38-4(1)(e)
Reasons for decision
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 by section 38-3 of the GST Act.
The term 'food' is defined in paragraph 38-4 (1) of the GST Act as including:
(a) food for human consumption (whether or not requiring processing or treatment);'.
(b) ingredients for food for human consumption;
(c) beverages for human consumption;
(d) ingredients for beverages for human consumption;
Based on the information provided, the product is food for human consumption and therefore satisfy the definition of food in paragraph 38-4(1)(a) of the GST Act.
However, under paragraph 38-3(1)(c) of the GST Act, 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).
Schedule 1
Schedule 1 specifies a range of food that is not GST-free. Based on the information provided of most relevance item to the product is Item 32 of Schedule 1 (item 32).
Item 32
Foods listed under item 32 are biscuits, cookies, crackers, pretzels, cones or wafers. The foods listed under this item would include food of a kind specified under item 32.
In order to determine whether the supply of The productcomes within the class/genus of items described in item 32, it is necessary to determine the ordinary meaning of ‘biscuits’ and ‘cracker’s described in that item.
Issue 26 of the Food Industry Partnership Issues Register (the Issues Register), states:
The further explanatory memorandum to the A New Tax System (Goods and Services Tax) Bill 1998 at paragraph 1.52 states "...The category of biscuit goods follows the WST definition except that the exclusion for crispbread has been removed. This category would tax amongst other things, dry biscuits, savoury biscuits and chocolate biscuits."
The word 'crispbread' is defined in the Macquarie Dictionary 3rd Edition as "a kind of crisp biscuit, frequently made to be low in kilojoules".
'Biscuit' is defined as
"1a a stiff, sweet mixture of flour, liquid, shortening and other ingredients, shaped into small pieces before baking or sliced after baking, b a savoury, unleavened similar mixture, rolled, sliced and baked crisp".
…
● Dried bread products (such as oven baked toasts, minitoasts, rusks etc) are not considered to be crispbreads. Items 20 to 27 of clause 1 of Schedule 1 list the bakery products which are not GST-free. Specifically, item 27 relates to bread (including buns) with a sweet filling or coating. Dried bread products do not fall within the bakery products listed in items 20 to 27 nor are they considered to be biscuit goods under item 32. Therefore these products will be GST-free.
Cracker is defined as:
a. 9a A thin hard biscuit (Now chiefly in the US)..' - Oxford Dictionary 2nd Ed.
b. 5 A thin dry biscuit. b A light crisp made of rice or tapioca flour. Usu. With specifying word. Cream cracker etc b prawn cracker, shrimp cracker etc- Shorter Oxford English Dictionary 6th Ed;
c. 1. a thin, crisp biscuit. Macquarie Dictionary Online Ed.
The product has tiny perforation holes (please refer to their pictures). This means the product was docked before baking.
In Federal Court in Lansell House Ltd & Anor v FCT 2010 ATC 20-173 (Lansell case), discussed at 104-106 discussed about the docking in relation to crackers, which is a stamping or perforating operation that is applied to thin dough sheet as it enters the oven. Generally only crackers are docked to prevent the layers of dough from separating and forming air pockets. In addition, the Court also took into consideration the shelf life of the products (12 months or more). Biscuit/cracker products tend to have longer shelf life than bread.
The sample of the product looks and taste like a biscuit. The ingredients in the product contain wheat flour, vegetable fats and water. We consider that the product has the same or similar appearance and ingredients to various biscuit and cracker products on the market. The product does not have the appearance of dried bread such as oven baked toasts, minitoasts, rusks etc.
Based on the above definitions the following features / characteristics can be deduced as features and characteristics common to the class or genus of products in described in item 32:
● They are products derived from bread and/or recipes the main ingredients of which are flour and water;
● They are usually baked;
● They are generally thin flat cakes, although the reference to pretzels, waffles and cones suggest the class is not limited to small items;
● They are used as a snack or as an accompaniment to other food items such as cheese, dips and hors d’oeuvres;
● Usually unleavened; and
● They have a hard crisp texture.
The product has the following physical features:
● The product is baked and has a hard crisp texture;
● The product has tiny perforation holes. This means the product was docked before baking.
● From the sample provided each piece appears to be small and of a uniform shape. Each item is thin, relatively small in shape and consistent with the size of ordinary biscuits and crackers.
Further, the ingredients in the product are common ingredients of certain biscuits and crackers. The product is unleavened in that they do not have raising agents in their ingredients.
Other characteristics of the product which are consistent with biscuits and crackers are:
a. The product is not fresh product and has a shelf life. This is consistent with biscuits and crackers generally as opposed to other bread products not included in item 32 which have a limited shelf life or need to be served fresh;
b. The product is light and crunchy biscuits with a slightly hard texture. They are hard and crisp to the touch. The consistency when eaten is like that of a biscuit.
After considering all of the above factors we conclude that the product is crackers/ biscuits. The product possesses similar distinguishing qualities to other crackers/ biscuits. The product is of the same nature or character as other crackers/ biscuits.
As crackers/ biscuits, the product is food of a kind specified at Item 32. Pursuant to paragraph 38-3(1)(c) of the GST Act, a supply of food is not GST-free if it is food of kind specified in the third column of the table in clause 1 of schedule 1.
Taxable supply
The supply of the product is a taxable supply if the requirements of section 9-5 of the GST Act are satisfied.
Section 9-5 of the GST Act provides that you make a taxable supply if:
(a) you make the supply for consideration
(b) the supply is made in the course or furtherance of an enterprise that you carry on
(c) the supply is connected with the indirect tax zone, and
(d) you are registered, or required to be registered for GST.
However, the supply is not a taxable supply to the extent that it is GST-free or input taxed.
Based on the information provided, the supply of the product by you satisfies the requirements of paragraphs 9-5(a) to 9-5(d) of the GST Act because:
● you supply the product for consideration;
● the supply of the product is made in the course of your enterprise;
● the supply of the product is connected with Australia; and
● you are registered for GST.
Furthermore, the supply of the product is not input taxed or/and GST-free under any provisions of the GST Act or any other legislation.
Accordingly, the supply of the product by you will be a taxable supply under section 9-5 of the GST Act and subject to GST.