Edited version of your written advice

Authorisation Number: 1051476401912

Date of advice: 01 February 2019

Ruling

Subject GST classification of food product

Question

Is the supply of the Product GST-free under section 38-2 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer

No.

Relevant facts and circumstances

You are introducing the Product.

It will be placed in the chiller/freezer of the supermarket.

The Product is not currently being sold. However, you provided a picture of the artwork for the packaging which includes the following information:

● The Product is a flavoured Product.

● Each package contains a number of items of a particular weight.

● Suggested preparation and that the Product must be served warm.

● Serving suggestion

● Ingredients including flour, sugar, eggs, flavouring and a liquid.

● Storage suggestion.

You provided the production flowchart which shows that the dough and cream are prepared, fully baked, cooled, frozen, packaged, labelled and palletised. It is stored and then shipped.

You provided the product specification which describes the Product as a flavoured item which is fully baked and frozen.

You provided a sample of the product you are importing. You stated that the packaging for the Product sold in Australia is different to the sample provided. However, the product itself is the same.

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)(a)

A New Tax System (Goods and Services Tax) Act 1999 Schedule 1, Clause 1, item 20

Reasons for decision

Summary

The Product is ‘of a kind’ of cake, which is food of a kind specified in item 20 in the table in clause 1 of Schedule 1 to the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) and is therefore excluded from being GST free by paragraph 38-3(1)(c) of the GST Act. Hence, the supply of the Product is not GST-free under section 38-2 of the 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). The Product is food for human consumption and therefore satisfies 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).

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 ...'

In sales tax cases and when determining the phrase ‘of a kind’, the Courts have determined the ’essential character of the goods‘. Essential character derives from the basic nature of the goods, from what they are, though composition, function and other factors necessarily play a part.

The GST case Lansell House Pty Ltd & Anor FC of T 2010 ATC 10851 (Lansell 2010) did not provide an essential character test, rather it provided an overall impression test. Sunberg J held that the words in item 32 are not used in a specialised or trade sense that differs from their ordinary usage, and that it is a matter of overall impression in deciding the proper classification of a product. Please note that this Federal Court decision has been upheld by the Full Federal Court, hence this quote from the Federal Court decision is still relevant.

In addition, the case law Lansell House Pty Ltd & Anor v FC of T 2011 ATC 20-239 (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.

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.

The picture of the artwork for the packaging of the Product describes it as a flavoured item.

Item 20 of Schedule 1 (item 20) lists bakery products “cakes, slices, cheesecakes, pancakes, waffles, crepes, muffins and puddings”.

It is considered that for this case, the relevant food listed in item 20 is cake.

The term ‘cake’ is not defined in the GST Act so the ordinary meaning is applied for interpretation purposes. However, in the application of item 20 the other products specified (i.e. slices, cheesecakes, pancakes, waffles, crepes, muffins and puddings) provide the context of what is meant by cake (or ‘of a kind’ of cake) for the purposes of this provision.

The Macquarie Dictionary Online defines cake as per below:

cake

noun 1. a sweet baked food in loaf or layer form, made with or without shortening, usually with flour, sugar, eggs, flavouring, and a liquid.

2. a flat, thin mass of bread, especially unleavened bread.

3. a shaped or moulded mass of other food.

4. a shaped or compressed mass: a cake of soap; a cake of tobacco.

The artwork for the packaging lists the ingredients of the Product including egg, flavouring, sugar water and flour. The production flowchart shows that the dough and cream are prepared, fully baked, cooled, frozen, packaged, labelled and palletised. It is stored and then shipped. The product specification describes the Product as a flavoured item which is fully baked and frozen. From the picture and the sample provided, the Product is a moulded mass of food product.

Based on the above, it is considered that the Product has the nature, character and ingredients of a cake product. We consider the Product to be within the meaning of the word cake, or is food ‘of a kind’ of cake. Therefore, the Product is food of a kind specified in item 20.

Accordingly, the Product is excluded from being GST free by paragraph 38-3(1)(c) of the GST Act. Hence, the supply of the Product is not GST-free under section 38-2 of the GST Act.

You should note that the Detailed Food List, which is a public ruling for the purposes of the Taxation Administration Act 1953, provides details of the GST status of major food and beverage product lines and includes the following:

Other issues

Whilst you have advised that you believe that your competitors are supplying similar products GST-free, we are unable to comment on the taxation affairs of another entity. However, we have noted your concern and escalated them to the appropriate area of the ATO for consideration.