Edited version of private advice

Authorisation Number: 1051539841956

Date of advice: 26 July 2019

Ruling

Subject: GST and classification of a food product

Question

Is the supply of your GST group member's product a GST-free supply for the purposes of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer

Yes.

Relevant facts and circumstances

This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.
> You, as the GST group representative are applying for a ruling on behalf of your GST group member.

·        Both you and your GST group member are registered for GST.

·        Your GST group member currently sells a food product which has been designed for a particular sector of consumers.

·        Your GST group member markets the product on their website together with other similar food products and the product is placed with other similar food products in supermarkets.

·        The product is not marketed as 'biscuit goods', 'bakery products' or 'snacks'; nor is the product intended to be sold as such.

·        The product has significantly less sugar than a biscuit. You point this out even though sugar is not a listed ingredient, to demonstrate how the product is different to biscuits.

·        The product is not designed as a snack or to provide any substantial nutrition to the consumer.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 (GST Act)

Section 38-2;

Section 38-3;

Section 38-4;

Schedule 1

Reasons for decision

Summary

The product has been specifically designed for a particular sector of consumers. Due to the nature of the product, it is not 'food of a kind' listed in the table in Schedule 1 of the GST Act. As a result, the supply is GST-free under section 38-2 of the GST Act.

Detailed reasoning

Taxable supplies

Section 9-5 of the GST Act provides that you make a taxable supply if:

(a)   you make the supply for *consideration; and

(b)   the supply is made in the course or furtherance of an *enterprise that you

(c)   *carry on; and

(d)   the supply is connected with the indirect tax zone; and

(e)   you are *registered, or *required to be registered.

However, the supply is not a taxable supply to the extent that it is *GST-free or *input taxed.

For the supply of your GST group member's product to be a taxable supply, all of the requirements listed in section 9-5 of the GST Act must be satisfied.

Based on the information provided, your GST group member has satisfied the requirements in paragraphs 9-5(a) to 9-5(d) of the GST Act as follows:

·        the supply is for consideration as your GST group member sells the product for money

·        the supply is made in the course of a business that your GST group member carries on

·        the supply is connected with the indirect tax zone as your GST group member's business is located in Australia, and

·        you and your GST group member are registered for GST.

Therefore, the supply will be taxable to the extent that it is not input taxed or GST-free.

There are no provisions in the GST Act for the supply to be input taxed. As this exception does not apply, what remains to be considered is whether your GST group member's supply is GST-free.

GST-free

A supply of food is GST-free in accordance with section 38-2 of the GST Act, if it satisfies the definition of food in section 38-4 of the GST Act and it does not come within any of the exclusions in section 38-3 of the GST Act.

Meaning of Food

'Food' is defined in paragraph 38-4(1)(a) of the GST Act to include 'food for human consumption (whether or not requiring processing or treatment)'. The product in question is designed to be consumed by humans and can be consumed by humans; therefore the product 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 will not be GST-free if it is food of a kind that is specified in the third column of the table in clause 1 of Schedule 1 to the GST Act (Schedule 1), or food that is a combination of one or more foods at least one of which is food of such a kind. Accordingly it is necessary to establish if the product is covered by Schedule 1.

The term 'of a kind' in paragraph 38-3(1)(c)of the GST Act

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...'

Overall Impression Test

The GST case Lansell House Pty Ltd & Anor v FC of T 2010 ATC 10851 (Lansell House 2010) provides an overall impression test. This case considered whether a product known as 'mini ciabatte' was taxable.

The product in the abovementioned case was imported and described on its packaging as 'Italian flat bread'. Sundberg J held at paragraphs 108 to 109 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.

Further, the use of the words 'of a kind' in paragraph 38-3(1)(c) of the GST Act has also been considered by the Courts and held that it adds further generality to the description of food specified in Schedule 1 therefore this description should not be construed narrowly. See Lansell House Pty Ltd & Anor v FCT 2011 ATC 20-239 (Lansell House 2011) at paragraph 30 where the Full Federal Court said:

30. ...The word "kind" is appropriately used to denote a genus, class or description (Commonwealth of Australia v Spaul (1987) 74 ALR 513 at 516 per Davies, Lockhart and Neaves JJ). 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. For example, in the present case, included within item 32 are products that do and do not contain yeast and products that might be produced by different manufacturing processes. The question is whether the resulting product comes within the genus, class or description of a cracker.

In both cases, the Courts attached little significance to the fact that water and yeast were outside the range of those ingredients in crackers and were satisfied that, even accepting that the product is not laminated and contains yeast, it is 'of a kind' of the cracker genus (Lansell House 2010 at para 73 and Lansell House 2011 at para 33).

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. A new product that does not possess all of the same characteristics of a known product may nevertheless be within the relevant item.

Schedule 1

Clause 1 of Schedule 1 of the GST Act specifies a range of foods that are not GST-free. In relation to the product, the following relevant item is included in Schedule 1 (as we are of the view that the product will not fall within items 15-19 or 20-27):

Issue 26 of the ATO's Food Industry Partnership - issues register states:

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".

Clearly, crispbreads fit within item 32 and are therefore subject to GST.

...

Dried bread products (such as oven baked toasts, mini toasts, rusks etc.) are not considered to be crispbreads. Items 20 to 27 of clause 1 of Schedule 1 lists 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.

Application to your case

Your GST group member's product has been designed for a particular sector of consumers and is marketed with other similar food products on their website and in supermarkets.

Your GST group member's product is not a 'Bakery Product' or a 'Biscuit'. Accordingly, it is not a food that falls under any of the items listed in the table in Schedule 1 (which contains food that is not GST-free). The supply of the product is thus a supply of GST-free food under section 38-2 of the GST Act.