Edited version of your written advice

Authorisation Number: 1051505738548

Date of advice: 16 April 2019

Ruling

Subject: GST classification of brioche style fruit hot cross buns (product)

Question

ls your supply of Brioche style Fruit Hot Cross Buns (the Product) GST-free?

Answer

Yes

This ruling applies from the date of this ruling to a date four (4) years from that date.

Relevant facts and circumstances

You are registered for goods and services tax (GST).

You supply the following Product for human consumption in Australia. It is sold alongside other varieties of hot cross buns, including traditional hot cross buns.

In marketing materials, the Product is shown alongside other hot cross buns. The Product is generally sold at the same price as other varieties of hot cross buns.

The manufacturing process of the Product is the same as the manufacturing process of any of the your other Hot Cross Buns.

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 Section 9-5

Reasons for decision

Reasons for Decision

Summary

Your supply of the Product is a GST-free sale of food under section 38-2 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act). The product is neither brioche (item 25 Schedule 1 of the GST Act) nor bread with a sweet coating (item 27 of Schedule 1 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 (paragraph 38-4(1)(a).

The Product satisfies the definition of food because it is sold as food for human consumption. Therefore the next thing to consider is whether it falls within any of the exclusions in section 38-3 of the GST Act.

Of relevance to your Product is paragraph 38-3(1)(c) of the GST Act, which provides a supply of food is not GST-free if it is food of a kind that is 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 ...'

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.

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, 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…

The Detailed Food List provides the following:

fruit buns and hot cross buns (no icing or filling)

GST-free

Food for human consumption that is not of a kind specified in Schedule 1 of the GST Act.

hot cross bun with a sweet filling or coating (other than a glaze, supplied hot or cold or requires cooking, heating, thawing or chilling prior to consumption)

Taxable

Schedule 1, item 27 and clause 2 of the GST Act apply.

hot cross buns, plain without a sweet filling or coating (a glaze is not considered a sweet coating)

GST-free

Food for human consumption that is not of a kind specified in Schedule 1 of the GST Act

The label of the product states ’Brioche style Fruit Hot Cross Bun’, and you state it is a hot cross bun. However, we also need to determine whether the Product falls into Schedule 1.

Schedule 1

Clause 1 of Schedule 1 of the GST Act specifies a range of foods that are not GST-free. In relation to bakery products, the following relevant item is included in Schedule 1:

Item 25 …….brioche

Item 27……..bread (including buns) with a sweet filling or coating

Hence we need to determine whether the Product in fact a ‘brioche’ or a bread (including buns) with a sweet filling or coating, or ‘of a kind’ of the above two products for the purposes of Schedule 1.

Item 25 of Schedule 1 of the GST Act (Item 25) - Brioche

We need to decide whether the Product is a brioche or alternatively, something 'of a kind' of brioche, that is, if the product is of the same nature or character (possessing the same distinguishing qualities) as a brioche.

The Macquarie Dictionary 6th Edition ('the dictionary') defines 'brioche' as:

‘a kind of light, sweet bun or roll, raised with eggs and yeast’.

Recipes to make brioche appear to generally contain milk, sugar, butter, eggs, yeast and flour in the ingredients.

With regard to your Product, the ingredients include milk solids, sugar, dried egg, sunflower oil, Inactive dry yeast and flour. The brioche blend (9%) contained egg and milk, which indicates some of the characteristics of brioche. This is indicated in the name ‘brioche style’. However, there is no butter and the Product lacks the yellow appearance, flavour and taste of butter.

The ATO had obtained a sample of the Product. The appearance, texture, taste and flavour of the Product are similar to other hot cross buns.

We also note the Product is sold alongside other varieties of hot cross buns, including traditional hot cross buns at your premises. In marketing materials, the Product is shown alongside other hot cross buns. The Product is generally sold at the same price as other varieties of hot cross buns.

You have supplied the manufacturing process of the product and stated that the manufacturing process of the Product is the same as the manufacturing process of any of your other Hot Cross Buns.

After considering all of the above factors it is concluded that the supply of the Product is not 'of a kind' or of the class or genus of item 25 of Schedule 1.

Item 27 of Schedule 1 of the GST Act (Item 27) - Bread (including buns) with a sweet filling or coating

The Product is not classified under item 27 of Schedule 1 (Item 27) of the GST Act. The Product is baked and glazed but has no sweet filling. We do not consider that glaze is a sweet coating for the purposes of Item 27.

It is concluded that the supply of the Product is not excluded from being GST-free under paragraph 38-3(1)(c) of the GST Act. Therefore the supply of the Product is GST-free.