Edited version of private advice

Authorisation Number: 1051538713397

Date of advice: 3 July 2019

Ruling

Subject: GST and food

Question

Is the supply of the specified products (the Products) GST-free?

Answer

Yes

Relevant facts and circumstances

You are registered for GST.

You manufacture and distribute the Products to retailers in Australia. You also have an online presence, XXX.com.au, where you sell some of the Products directly to the consumers.

The Products are a blend of natural ingredients and advertised as breakfast or a health/nutrition food snack.

You have provided a description of each Product including photos of the Products and their packaging. The information on the packaging includes ingredients, nutrition information, weight and storage requirements.

You provided a description of the production flow of the Products. The production process includes adding warm water to mix the ingredients. You stated that the use of warm water is for the purposes of more efficient blending of the ingredients. The addition of warm water expedites the blending process and makes the manufacturing more efficient. This step can be done with cold water which would slow down the production process making it less efficient with no material impact on the end product.

The Products also go through a thermal sterilisation process. You stated that the thermal processing step is to sterilise the Products post filling. The sterilisation process is not a desired step in the recipe of the end product. You would have avoided thermally processing of the Products as it reduces product quality as the flavour and colour are impacted negatively. The purpose of thermal processing is not to cook the Products but it is to prolong the shelf life of the Products. Further, the use of thermal sterilisation is to comply with food safety regulations and standards and not to alter the essential nature of the Products.

The Products are stored in refrigerated display cabinets of the retail stores.

The information on the packaging of some of the Products indicates that the Products do not require refrigeration for their storage whilst the labelling of the other Products states 'keep refrigerated'.

You advised that none of the Products at issue require refrigeration for their storage. You stated that previously similar products required refrigeration for their storage due to the sterilisation method used. However, currently these Products are produced with a different type of sterilisation process and do not require refrigeration for their storage from a food safety perspective. However, the Products' flavour and quality are enhanced when served chilled.

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 Schedule 1

Reasons for decision

Summary

The supply of the Products is GST-free under section 38-2 of the A New Tax System (Goods and Services Tax) Act 1999 (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) 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.

Section 38-3 of the GST Act lists food that is not GST-free. Paragraph 38-3(1)(c) of the GST Act states:

(c) food of a kind specified in the third column of the table in clause 1 of Schedule 1 or food that is a combination of one or more foods at least one of which is food of such a kind; or

The Products at issue

The Products at issue will be GST-free unless they are food of a kind specified in Schedule 1 to the GST Act (Schedule 1) or a combination of one or more foods at least one of which is food of such kind (paragraph 38-3(1)(c) of the GST Act).

Of relevance are item 20 in Schedule 1 (item 20) which specifies 'cakes, slices, cheesecakes, pancakes, waffles, crepes, muffins and puddings', and item 4 in Schedule 1 (item 4) which specifies 'food marketed as a prepared meal, but not including soup'. Therefore, it needs to be determined whether the Products are of a kind of pudding or of a kind of food marketed as a prepared meal.

Item 20 - Puddings

The ATO view on the meaning of 'puddings' for the purposes of item 20 is outlined in Issue 13 of the Food Industry Partnership - Issues Register (Issue 13). Issue 13 states:

What is the definition of a 'pudding' for the purposes of item 20 in Schedule 1?

Clause 1, item 20 of Schedule 1 of the GST Act operates to subject the following products to GST:

"cakes, slices, cheesecakes, pancakes, waffles, crepes, muffins and puddings"

These terms are not defined in the GST Act and are therefore afforded their ordinary meaning. Therefore, the word 'pudding' is defined to mean:

a cooked food that is a sweet or savoury dish made in many forms and of various ingredients, as flour (or rice, tapioca, or the like), milk and for eggs, with or without fruit, meat or other ingredients and is a cooked dish consisting of various sweet or savoury ingredients, especially as enclosed within a flour-based crust or mixed with flour, for eggs, etc., and boiled or steamed; a baked batter mixture.

Although 'puddings' are incorporated under the category "Bakery products", the category headings are not operative, as per Note 2 in Schedule 1 and section 182-15 of the GST Act. However, the category "Bakery products" can be considered in accordance with subsection 182-10(2) to assist

"(a) in determining the purpose or object underlying the provision; or

(b) to confirm that the provision's meaning is the ordinary meaning conveyed by its text, taking into account its context in the Act and the purpose or object underlying the provision; or

(c) in determining the provision's meaning if the provision is ambiguous or obscure;..."

Therefore, the ATO is of the view that 'puddings' for the purposes of item 20 in Schedule 1 of the GST Act only include those products that satisfy the above meaning.

Below are examples of products that would be considered a 'pudding' and subject to GST:

·         Rice pudding**

·         Tapioca pudding

·         Self-saucing puddings

·         Steamed puddings

·         Christmas pudding

It should be noted that the following products are not considered to be a 'pudding' and will be GST-free:

·         Yoghurt

·         Dessert mousse (for example, chocolate)

·         Créme caramel

·         Dairy desserts

·         Custard

·         Jelly

** Products that are commonly known as creamed rice, creamed rice dairy dessert or rice puddings that consist of boiled rice in a milk or cream solution, which are not baked, will be GST-free.

You stated that the use of warm water is for the purposes of more efficient blending of the ingredients. The addition of warm water expedites the blending process and makes the manufacturing more efficient. This step can be done with cold water which would slow down the production process making it less efficient with no material impact on the end product.

In relation to the thermal processing step, you stated that this is to sterilise the Products post filling. The sterilisation process is not a desired step in the recipe of the end product. You would have avoided thermally processing of the Products as it reduces product quality as the flavour and colour are impacted negatively. The purpose of thermal processing is not to cook the Products but it is to prolong the shelf life of the Products. Further, the use of thermal sterilisation is to comply with food safety regulations and standards and not to alter the essential nature of the Products.

Based on the information provided, we accept that neither of these processes are a cooking processes. Accordingly, the Products at issue do not satisfy the meaning of pudding outlined in Issue 13 and therefore are not covered by item 20.

Item 4 - Food marketed as a prepared meal

Item 4 provides that food marketed as a prepared meal, but not including soup, is a taxable supply.

Relevant to prepared food and meals, are clauses 2 and 3 of Schedule 1 which state:

2 Prepared food, bakery products and biscuit goods

For the purpose of determining whether particular *food is covered by any of the items in the table relating to the category of prepared food, bakery products or biscuit goods, it does not matterwhether it is supplied hot or cold, or requires cooking, heating, thawing or chilling prior to consumption.

3 Prepared meals

Item 4 in the table only applies to *food that requires refrigeration or freezing for its storage.

(* denotes a defined term in section 195-1 of the GST Act)

Requirement for refrigeration or freezing for storage

Pursuant to clause 3 of Schedule 1 (clause 3), a product that does not require refrigeration or freezing for its storage would not be covered by item 4.

The labelling of some of the Products provides that they should be kept refrigerated whilst the labelling of some of the other Products provides that they do not require refrigeration for their storage.

You stated that despite the fact that the packaging of some of the Products states 'keep refrigerated' and the fact that they are located in the chilled section of the retail stores they do not require refrigeration for their storage. You stated that previously similar products required refrigeration for their storage due to the sterilisation method used. However, currently these Products are produced with a different type of sterilisation process and do not require refrigeration for their storage from a food safety perspective.

Based on the information that you have provided, the Products do not require refrigeration for their storage as such they do not meet the additional test set out in clause 3 and therefore are not covered by item 4.

In summary, the Products are not covered by item 4 or item 20. In addition, the Products do not fall within any of the other exclusions in section 38-3 of the GST Act. Therefore, the supply of the Products is GST-free under section 38-2 of the GST Act.