Edited version of private advice

Authorisation Number: 1051529956086

NOTICE

This is an edited version of a revised private ruling. It replaces the edited version of the private ruling with the authorisation number 1051505738548

Date of advice: 17 June 2019

Ruling

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

Question

ls your supply of 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 Product for human consumption in Australia. The Product is not sold alongside of other brioches. It is sold alongside other varieties of hot cross buns, including traditional hot cross buns.

You have provided the ingredient list and the manufacturing process of the Product.

The Australian Taxation Office had obtained a sample of the Product. It is a sweet bun and the overall taste, colour, texture is not like a brioche. The texture of the Product is thick, it is not light, fluffy, flaky or buttery in flavour. The colour is not strong yellow.

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

Reasons for decision

These reasons for decision accompany the Notice of private ruling for Woolworths Group Limited.

While these reasons are not part of the private ruling, we provide them to help you to understand how we reached our 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. Paragraph 38-3(1)(c) of the GST Act 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. Sundberg J held at [108] 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 lawLansell 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 label of the product states 'Brioche style Fruit Hot Cross Bun'. Despite being labelled and marketed as a brioche style product, the Product still has to be determined whether it is a product, or 'of a kind' of a product listed in the table in 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 items are 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.

You have supplied the ingredients and the manufacturing process of the Product.

With regard to your Product, the ingredients include milk solids, sugar, dried egg, sunflower oil, Inactive dry yeast and flour. The brioche blend (9%) contains egg and milk, which indicates some of the characteristics of brioche. This is indicated in the name 'brioche style'.

In Lansell House it was argued the differences between bread and a Mini Ciabatte lay in the relevant percentages of water (40-55% for a cracker and 35% for Mini Ciabatte) and yeast (0-1.25% for a cracker and 1.5% for Mini Ciabatte). Sundberg J attached little significance to the fact that the water and yeast contents were outside the typical rage of ingredients for crackers. The Full Federal Court in Lansell House 2011 at [23], confirmed that the test is not a 'bright line' defined by percentage of its ingredients.

The Court in Lansell House 2010 at [108] quoted Jacob LJ in Commissioners for Her Majesty's Revenue and Customs v. Procter & Gamble UK [2009] STC 1990, that classification decisions for GST tax purposes are often prescribed as questions of fact and degree, a matter of impression and a combination of fact-finding and evaluative judgment.

We have interpreted this in our rulings to mean that the absence of one ingredient may not be determinative - we still look at the overall product character

The ATO had obtained a sample of the Product. It is a sweet bun and contains sugar, milk solids, egg powder and yeast in the ingredients, which are some of the ingredients of a traditional brioche. However, it does not contain butter and the overall taste, colour, and texture is not like a brioche. The texture of the Product is thick, it is not light, fluffy, flaky or buttery in flavour like a brioche. The colour is not a strong yellow like a brioche.

We also note the Product is not sold alongside other varieties of brioche. In marketing materials, the Product is not shown alongside brioche products.

After considering all of the above factors it is concluded that the overall impression of the Product is not of a brioche, nor 'of a kind' or of the class or genus of item 25 of Schedule 1 because it did not possess the essential characteristics of flavour, texture, or appearance of a kind of brioche.

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. Although the sample Product shows it is a sweet bun, all ingredients in the Product are mixed with the dough ingredients before baking and are considered to be ingredients for the Product, not sweet fillings.

Further, we do not consider that glaze is a sweet coating for the purposes of Item 27.

Hence, the overall impression of the Product is not of a bread (including buns) with a sweet filling or coating, nor 'of a kind' or of the class or genus of item 27 of Schedule 1.

Addressing your contention

In your Private Binding Ruling application, you referred to three entries that relate to 'hot cross bun' in the Detailed Food List (DFL) and submitted that the Product is properly advertised as 'hot cross buns' and could not be accurately described as 'brioche'.

It is important to note that the legislative framework does not establish a legal test of 'of a kind' to GST-free examples in the Detailed Food List such as hot cross buns. The purpose of providing this analysis is in regard to responding to the contentions raised by you.

In Lansell House 2010, the issue to be decided was whether 'mini Ciabatte', is 'food that is, or consists principally of, biscuits, cookies, crackers, pretzels, cones or wafers' (item 32 of Schedule 1)and therefore subject to GST.

At [12], the Court acknowledged that although a product can be characterised in more than one way, for the purposes of the GST Act, a product can only have one classification. At [7], the Court took the view that the question to be answered was whether the product falls within item 32 - that is, food that is, or consists principally of, crackers - and that evidence that the product fits within the definition of bread would not be sufficient to establish that it is not a food of a kind listed in item 32. The Court held at [110] that the appellants failed to establish that the product is not food that falls within item 32.

Applying that principle, we consider that as the Product is not food of a kind specified in Schedule 1 of the GST Act, it is GST-free. We do not refer to the DFL to determine if the Product should be better characterised as a hot cross bun.