Edited version of private advice

Authorisation Number: 1051578534105

Date of advice: 24 October 2019

Ruling

Subject: GST and fruit and nut snack balls

Question

Are the following fruit and nut snack products (Products) GST-free in accordance with Section 38-2 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Advice/Answer

No.

Relevant facts and circumstances

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

You supply the Products in the health food aisle for human consumption in Australia:

The Australian Taxation Office (ATO) has obtained samples for the Products. Here follows a description of each Product...

You have provided the manufacturing process, ingredients and nutrition table of the Products.

There is information on the website and the packaging of the Products to indicate the Products are a kind of protein balls and health food balls. The Products are displayed in the health food aisles.

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 items 8 and 11 and 16.

Reasons for decision

Summary

The supply of the Products is not a supply that is GST-free under section 38-2 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) as the Products are excluded from being GST-free by paragraph 38-3(1)(c) of the GST Act (food of a kind specified in the third column of the table in clause 1 of Schedule 1). The Products are a kind of food listed in Item 11 in the table in clause 1 of Schedule 1, 'food known as muesli bars or health food bars and similar foodstuffs'.

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 Products are food for human consumption pursuant to paragraph 38-4(1)(a) of the GST Act and therefore meet the definition of food.

Subsection 38-3 of the GST Act lists food that is not GST-free. Of relevance to the Products 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, or food that is a combination of one or more foods at least one of which is food of such a kind.

'Of a kind'

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 Products states that ....... We need to determine whether the Products are a product, or 'of a kind' of a product, listed in the table in Schedule 1.

We will consider Item 8 of Schedule 1 (Item 8), Item 16 of Schedule 1 (Item 16), and item 11 of Schedule 1 (Item 11) of Schedule 1. The other items listed in Schedule 1 are not relevant for this particular food product.

Item 8

Item 8 lists confectionery, food marketed as confectionery, food marketed as ingredients for confectionery or food consisting principally of confectionery.

The Food Industry Partnership Issues Register - Issue 12 on this link, discusses whether a product is confectionery: https://www.ato.gov.au/Business/GST/In-detail/GST-issues-registers/Food-Industry-Partnership---issues-register/?anchor=Issue12#Issue12

Paragraph 1.44 of the Further Supplementary Explanatory Memorandum to the GST Bill ('the EM') provides that Schedule 1 lists certain products that will be taxed as confectionery. This list is essentially the same as the definition of confectionery used in the wholesale sales tax (WST) legislation.

Paragraph 1.45 of the EM goes on to say:

'Confectionery includes food that is marketed as confectionery, such as chocolate, boiled sweets, lollipops, sherbet, marshmallow and fruit lollies, as well as the specific types of goods included in Schedule 1.'

Where products are currently WST exempt and are not captured under Schedule 1 of the GST Act, the WST exemption will carry across to the GST legislation and the products will be GST-free.

There are a number of court cases that assist in determining whether a product is confectionery. The reasoning in Zeroz Pty Ltd v DFC of T 97 ATC 4277 and the decisions in Allied Mills Industries v FC of T 87 ATC 4387 and Candy Maid Confections v Customs & Excise Commissioners (1969) 1 Ch. 6111 lead to the conclusion that the word 'confectionery' must be given its ordinary meaning.

Candy Maid decided whether a toffee apple was confectionery. It was held in this case that toffee apples were not articles of confectionery similar to chocolates or sweets.

Aickin J in the High Court decision Landau and Anor. v Goldwater and Anor. 13 ALR 192 gave a general description of confectionery:

'one of common usage which embraces a wide variety of articles, many readily recognisable as examples of confectionery. They are primarily small articles of a sweet character containing substantial amounts of sugar and regarded as being in the nature of a delicacy in whatever quantity they may be consumed. There is, however, no doubt that in the ordinary parlance the term would now include blocks of chocolate, however small or however large.'

Further to the above, in determining whether food is marketed as a 'confectionery' or 'ingredients for confectionery' the activities of the seller are relevant. Consideration is given to the following:

·        the name of the goods

·        the price of the goods

·        the labelling on any containers for the goods

·        literature or instructions packed with the goods

·        how the goods are packaged

·        how the goods are promoted or advertised

·        how the goods are distributed.

In determining whether food is marketed as confectionery or as an ingredient for confectionery, it is relevant to look at the uses to which the product

The Products are not considered to be food of a kind specified in item 8 of Schedule 1. They do not meet the ordinary meaning of confectionery as they are not a sweet delicacy. The Products are not marketed as a confectionery taking into account their name, packaging, and how they are promoted.

The Products are not marketed as ingredients for confectionery as the packaging provides the Products are tasty snacks rather than as an ingredient for another confectionery product.

Further as the Products contain principally dried fruit and roasted nuts/seeds, they are not a food consisting principally of confectionery.

Consequently, we consider that the Products do not have the above characteristics to be treated as confectionery, or the ingredients for confectionery.

Item 11

Item 11 lists food known as muesli bars or health food bars, and similar food stuffs.

'known as'

Paragraph 5 in Goods and Services Tax Determination GSTD 2008/2 provides guidance on the term "known as":

5. The use of the words "known as" in Item 11 does not indicate a specific marketing test. That is, foodstuffs do not have to be actually labelled "muesli bars" or "health food bars", to be food known as muesli bars or health food bars. Rather, the terms "muesli bars" and "health food bars" are broad terms which are commonly used by sellers and consumers, indicating classes of products. Therefore, the Commissioner considers that the ordinary usage of these terms is appropriate in determining whether food known as breakfast bars fall within Item 11.

Muesli bar

Paragraphs 6 and 7 of GSTD 2008/2 provides guidance on muesli bar:

Muesli bars

6. The term "muesli bar" is not defined in the GST Act, so the ordinary meaning of the term applies. The dictionary definition of muesli bar is "a commercially-prepared and packaged snack made from a muesli mixture, usually sweetened and set in a bar shape". Muesli is defined as "a breakfast cereal of various mixed products such as oats, wheat germ, chopped fruit and nuts, etc".

7. A typical muesli bar contains ingredients similar to those found in muesli breakfast cereals, plus additional sugars and other ingredients necessary to achieve a consistency suitable for presentation in bar form. Some muesli bars contain confectionery pieces such as chocolate chips or chocolate, yoghurt or other flavoured coatings

ATO ID 2002/1046 GST and energy/sports bars states:

energy/sports bars are not 'food known as muesli and health food bars' despite containing some similar ingredients.

The next step is to determine whether energy/sports bars are 'similar foodstuffs' to muesli and health food bars as per Item 11. The phrase 'similar foodstuffs' is not defined in the GST Act. Accordingly, it is appropriate to examine the ordinary meaning of that phrase. The Macquarie Dictionary (1997) defines the word 'similar' to mean 'having likeness, or resemblance, especially in a general way'. 'Foodstuff' is defined in The Macquarie Dictionary (1997) as a 'substance or material suitable for food'.

Therefore, to be a similar foodstuff to muesli bars or health food bars, the energy/sports bars would need to have a general likeness or resemblance to muesli bars or health food bars.

The energy/sports bars contain some ingredients similar to those found in muesli bars and health food bars, are bar shaped and wrapped in similar packaging. Therefore, the energy/sports bars are foodstuffs similar to muesli bars and health food bars and are covered by Item 11.

Health food bar

The term health food bar is not defined in the GST Act. Furthermore, the term is not defined in the Dictionary and there is no generally accepted description of what constitutes a health food bar. Accordingly, the meaning of this term is ambiguous.

Where the meaning of a term is ambiguous, subparagraph 15AB(1)(b)(i) and paragraph 15AB(2)(e) of the Acts Interpretation Act 1901, make it permissible to refer to the explanatory memorandum to the relevant Act in determining the meaning of the provision.

Paragraph 1.3 of the Further Supplementary Explanatory Memorandum to A New Tax System (Goods and Services Tax) Bill 1998 states:

The amendments will ensure that basic food for human consumption is GST-free. In addition, they will ensure that the current WST [wholesale sales tax] exemptions for food are, in general, maintained.

Under the WST system, the following guidelines were developed to indicate the characteristics of muesli bars and health food bars. These characteristics are:

·        Muesli bars and health food bars have less than 55% real fruit content.

·        Muesli bars and health food bars contain significantly more than 10 per cent added sugars in any form.

·        Muesli bars and health food bars have greater than 2% added fat.

·        Muesli bars and health food bars are multi component products combining products such as fruits, nuts, cereals, sugars, milk etc.

Health food bars are also often characterised and distinguished in the market place by their (real or perceived) health giving properties.

Terms that are used to describe health food bars include sweetened with honey, rice syrup or raw sugar; no added artificial colours, flavours or preservatives; high in fibre, low in salt, cholesterol free; a natural product, organic; made with only the best ingredients; a healthy snack; gluten free; dairy free; fat free; and caffeine free.

Health food bars also often contain fruit, nuts and seeds. They are normally located with other health food products or with snack food products in the supermarket. Health food bars may be packaged using the words 'health food bars' and may also be marketed as a between meal snack.

Similar foodstuffs

The GST Act does not define 'similar foodstuffs'. However, paragraphs 8 to 13 of GSTD 2008/2 states the following:

Similar foodstuffs

8. Item 11 specifies "foods known as muesli bars or health food bars, and similar foodstuffs". The ordinary meaning of "similar" is "having likeness or resemblance, especially in a general way". Therefore, foods that resemble muesli bars in a general way, having regard to their essential character, are considered to be similar foodstuffs and therefore within the class of foods specified in Item 11.

9. The characteristics of muesli bars that form a basis for comparison with other products may be categorised as:

·        physical presentation; and

·        ingredients

Physical presentation

10. Muesli bars are shaped in the form of a bar for ease of eating. The size of muesli bars is appropriate for a single serving.

11. The texture of muesli bars varies from chewy to crunchy. Muesli bars are usually individually wrapped when sold, either individually or packaged in boxes.

12. To be similar to a muesli bar, a product would need to have a similar physical presentation.

Ingredients

13. To be similar to muesli bars, it would be expected that the foodstuff would contain some or all of the ingredients common to muesli bars as described above

In respect of 'similar foodstuffs' to a muesli bar, the Detailed Food List (DFL), which is a public ruling, provides the following guidance:

https://www.ato.gov.au/Calculators-and-tools/Host/?anchor=GSTFBSearch#GSTFBSearch/questions

breakfast bars

Taxable

Schedule 1, item 11 of the GST Act applies. Food similar to muesli bars (refer GSTD 2008/2 effective from 27/08/2008)

carbohydrate/high carbohydrate bars

Taxable

Schedule 1, item 11 of the GST Act applies (food of a kind similar to muesli bars or health food bars).

cereal bars

Taxable

Schedule 1, item 11 of the GST Act applies (food of a kind similar to muesli bars or health food bars).

diet bars

Taxable

Schedule 1, item 11 of the GST Act applies (food of a kind similar to muesli bars or health food bars).

energy/high energy bars

Taxable

Schedule 1, item 11 of the GST Act applies. Food of a kind similar to muesli bars or health food bars (refer ATO ID 2002/1046).

health/health food bars

Taxable

Schedule 1, item 11 of the GST Act applies.

low carbohydrate bars

Taxable

Schedule 1, item 11 of the GST Act applies (food of a kind similar to muesli bars or health food bars).

low/very low calorie diet bars

Taxable

Schedule 1, item 11 of the GST Act applies (food of a kind similar to muesli bars or health food bars).

meal replacement bars

Taxable

Schedule 1, item 11 of the GST Act applies (food of a kind similar to muesli bars or health food bars).

muesli bars and similar foods

Taxable

Schedule 1, item 11 of the GST Act applies.

nougat/nougat bars

Taxable

Schedule 1, item 8 of the GST Act applies.

nut bars

Taxable

Schedule 1, item 11 of the GST Act applies (food of a kind similar to muesli bars or health food bars).

performance bars

Taxable

Schedule 1, item 11 of the GST Act applies (food of a kind similar to muesli bars or health food bars).

protein/high protein bars

Taxable

Schedule 1, item 11 applies because protein bars are considered to be food of a kind similar to muesli bars or health food bars (refer to ATO ID 2002/1046).

slim/slimming bars

Taxable

Schedule 1, item 11 of the GST Act applies (food of a kind similar to muesli bars or health food bars).

sports bars

Taxable

Schedule 1, item 11 of the GST Act applies. Food of a kind similar to muesli bars or health food bars (refer ATO ID 2002/1046)

trail bars

Taxable

Schedule 1, item 11 of the GST Act applies (food of a kind similar to muesli bars or health food bars).

Application to your Products:

The ingredients of the Products do not contain any cereals such as oats or wheat germ, however they do contain fruit and nuts. They consist primarily of dried fruits and roasted nuts and seeds.

The Products are not in the shape of bars, however, they are in the shape of small balls, in single servings packed loosely in bags. They are sold in the health food aisles.

One Product is marketed as a kind of protein bars. The other is marketed as a kind of Health Food Bar. The Oxford online dictionary meaning of wholefood is:

wholefood

/ˈhəʊlfuːd/

noun

British

noun: whole food

1.     food that has been processed or refined as little as possible and is free from additives or other artificial substances.

"a wholefood diet"

Using the principles of the overall impression in Lansell 2010 and Lansell 2011, and the above ATO views, we consider that:

·        The Products can be considered as being similar to either muesli or health food bars because the Products are sold in the health food aisle, and contain some ingredients common to those found in muesli bars and health food bars, such as fruits and nuts. The Products are foods that resemble muesli bars in a general way. Having regard to the Products' essential character and overall impression, the Products are considered to be of a kind of food listed in Item 11 in the table in clause 1 of Schedule 1, 'food known as muesli bars or health food bars and similar foodstuffs', and therefore within the class of foods specified in Item 11.

·        It seems that the Products claim to give consumers a nutritional boost on their packaging. Hence the Products are considered to be of a kind of similar foodstuffs to health food bars and therefore within the class of foods specified in item 11 (health food bars).

·        The DFL states that protein bars and health food bars are taxable. We consider that the Products are of a kind of food listed in Item 11 in the table in clause 1 of Schedule 1 (Schedule 1) 'food known as muesli bars or health food bars and similar foodstuffs' and hence taxable.

·        Paragraph 10 of GSTD 2008/2 discusses physical presentation further and states that muesli bars are shaped into the form of a bar for ease of eating and that the size is appropriate for a single serve. Paragraph 12 of GSTD 2008/2 states that to be similar to a muesli bar, a product would need to have a similar physical presentation. That is a similar presentation (emphasis added), not an identical presentation. Paragraph 8 of GSTD 2008/2 defines the word 'similar' to mean 'having likeness, or resemblance, especially in a general way'. In our opinion, the Products are formed into small ball shapes that make them easy to eat as a single serve snack or treat, which means that their physical presentation is similar to a muesli bar.

Hence the Products are considered to be of a kind of food listed in Item 11 in the table in clause 1 of Schedule 1, 'food known as muesli bars or health food bars and similar foodstuffs '

Paragraph 38-3(1)(c) - combination of foods

For completion, we will discuss whether the Products are food that is a combination of one or more foods at least one of which is food of a kind specified in the third column of the table in clause 1 of Schedule 1.

ATO ID 2004/539: GST and blended seed and nut product, states:

Item 16 of Schedule 1 (Item 16) specifies seeds or nuts that have been processed or treated by salting, spicing, smoking or roasting, or in any other similar way.

The blended seed and nut product contains a variety of seeds with the addition of a small proportion of finely ground nuts. The seeds are cleaned and polished but otherwise unprocessed and therefore are not covered by Item 16. Although, the nuts are roasted, and therefore appear to be covered by Item 16, they have been finely ground and incorporated as an ingredient in the seed and nut product. The nuts have been processed to such a degree that they no longer retain a separate identity and have been incorporated as ingredients into the seed and nut blend. The product is not a food product that combines a taxable food and a GST-free food as distinct items. Therefore, the blended seed and nut product is not covered by the excluding provisions of paragraph 38-3(1)(c) of the GST Act.

We consider that the nuts and seeds in the ingredients of the Products are roasted (some are grounded) and mixed together with the rest of the ingredients. They are processed to such a degree that they no longer retain a separate identity and have been incorporated as ingredients of the Products. The nuts and seeds in the ingredients are not covered by Item 16. The Products are not a food product that combines a taxable food (roasted nuts and seeds) and a GST-free food (dried fruit) as distinct items.

However, as discussed above, the Products are a kind of food listed in Item 11 in the table in clause 1 of Schedule 1, 'food known as muesli bars or health food bars and similar foodstuffs'. The Products are excluded from being GST-free by paragraph 38-3(1)(c) of the GST Act.