Edited version of private advice

Authorisation Number: 1051627552622

Date of advice: 16 January 2020

Ruling

Subject: GST and a supply of food products

Question

Is the supply of food products (the Products) by an Australian entity (you) GST-free pursuant to section 38-2 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer

No, the supply of the Product by you is a taxable supply under section 9-5 of the GST Act and subject to GST.

Relevant facts and circumstances

You are an Australian entity which is registered for GST.

You are in the business of the manufacture of pastries.

You supply the product to retailers in Australia.

The label on the product states the product is a frozen traditional styled filled pastry with sweet filling.

The Product is semi cooked, frozen and ready to fry.

Ingredients in the Product

·         Pastry- (Wheat flour, water, vitamins (thiamine, folate) salt) - 59.5%

·         Sweet filling (sugar, vegetable oil

·         Dough conditioner (protease and Amylase)

Manufacturing process

The pastry is semi baked and used as base.

Sweet filling is spread on the pastry and then pastry is folded.

The product is packed raw (except the pastry is semi baked.

Directions for cooking

Fry

1.    Remove the Product from bag

2.    Place on an oiled hotplate or non-stick fry pan

3.    Fry until golden brown

4.    Serve hot.

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

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 by section 38-3 of the GST Act.

The term 'food' is defined in paragraph 38-4 (1) of the GST Act as including:

(a)  food for human consumption (whether or not requiring processing or treatment);'.

(b)  ingredients for food for human consumption;

(c)  beverages for human consumption;

(d)  ingredients for beverages for human consumption;

You consider paragraph 38-4(1)(b) of the GST Act applies to the Product because it is semi frozen pastry with sweet filling.

The Product is made up of pastry and nut and sugar paste which by themselves are ingredients for food. However, it is the end product, that is, the Product that needs to be considered. The Product is sold semi baked and frozen and pan fried before consumption. The Product is food in its own right, and therefore, satisfies the definition of food in paragraph 38-4(1)(a) of the GST Act as food for human consumption.

However, under paragraph 38-3(1)(c) of the GST Act, a supply of food is not GST-free if it is food of a kind that is specified in clause 1 of Schedule 1 to the GST Act (Schedule 1). The Product is not specifically listed in Schedule 1. As such, the issue is whether the Product is 'food of a kind' specified in Schedule 1.

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. 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. 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...

Accordingly, it is considered that food will be 'food of a kind' listed in Schedule 1 if it is food belonging to the same class or genus as food listed in Schedule 1.

Included under the category bakery products in Schedule 1 are:

Food that is not GST-free

The ATO view on pastry products is provided in Issue 30 of the Food Industry Partnership - issues register (Issue 30).

It is clear from an analysis of the foods listed in Bakery category that not all are baked. For example, some slices and cheesecakes are not cooked at all. Pancakes, waffles and crepes are normally cooked in a pan or a griddle rather than baked. Doughnuts are often fried rather than baked.

We therefore consider that the method of cooking is not the most relevant consideration in determining whether food is of a kind specified in the third column of the table in clause 1 of schedule 1. This is emphasised by clause 2 of the Schedule, which specifies that for the purpose of determining whether particular food is covered by any of the items in the table relating to categories of food that are not GST-free it does not matter whether the food is supplied hot or cold, or requires cooking, heating, thawing or chilling prior to consumption

The item from Schedule 1 that are of most relevance to this case are items 22 and 23.

Item 22

Item 22 lists pies (meat, vegetable or fruit), pasties and sausage rolls.

The words 'pies', 'pasties' and 'sausage rolls' are not defined in the GST Act; therefore it is necessary to consider the ordinary meanings of those terms. The Macquarie Concise Dictionary 3rd Edition (the Macquarie Dictionary) provides the following definitions:

Pie - 'a baked dish consisting of a sweet (fruit, etc) or savoury (meat, fish, etc) filling, enclosed in or covered by pastry, or sometimes other topping as mashed potatoes'.

Pastie - 'a type of pie in which a circular piece of pastry is folded around a filling of vegetables, meat etc, and baked'.

Sausage roll - 'a roll of baked pastry filled with sausage meat'.

Based on the information provided, the Product is made of semi baked pastry with a sweet filling. We consider that the Product is not food 'of a kind' known as 'pies', 'pasties' and 'sausage rolls' referred to in Item 22.

Item 23

Item 23 specifies that the supply of tarts and pastries is not GST-free. Therefore, the issue is whether the Product is considered to be 'tarts' or 'pastries'.

The word 'pastry' is not defined in the GST Act; therefore it is necessary to consider the ordinary meanings of those terms. The Macquarie Dictionary provides the following definitions:

Tart -

'a small and saucer-shaped shell of pastry, filled with cooked fruit or other sweetened preparation, and having no top crust'.

Pastry -

1. food made of paste or dough, as the crust of pies, etc.

2. articles of food of which such paste forms an essential part, as pies, tarts, etc."

In this case, from the definition of the word tart, the Product is not a tart under this definition. Therefore, it is necessary to determine whether the reference to pastry in item 23 should be interpreted to mean food made of paste or dough or whether the interpretation of the word pastry should be confined to articles of food of which such paste forms an essential part.

Issue 30 provides that products classified under item 23 are those products that are sweet and might be considered similar to a tart, and are generally sold by a bakery (although they may be supplied in other stores for example, supermarkets). For example, Danish pastries or profiteroles those are made from choux pastry and contain a custard or cream filling. Moreover, item 23 is not intended to be a catch all provision for all products that are made from pastry.

From the facts provided, the Product is made with 59.5% of pastry and 40% sweet paste, The pastry is semi baked and used as base, sweet paste is spread on the pastry then pastry is folded.

As the Product is made with an outer shell of semi baked pastry encasing with sweet filling, we consider that the Product is a food 'of a kind' known as 'pastries' referred to in item 23.

The fact that the Product is supplied semi baked and frozen, and requires pan frying prior to consumption is not a relevant consideration in determining whether it is food of a kind listed in item 23. This is emphasised in Clause 2 of Schedule 1 which provides that, for the purpose of determining whether particular food is covered by any of the items in the table in Schedule 1 relating to the category of bakery products, it does not matter whether the food is supplied hot or cold, or requires cooking, heating or thawing or chilling prior to consumption.

Therefore, as the Product is food 'of a kind' listed in item 23, it is excluded from being GST-free by paragraph 38-3(1)(c) of the GST Act. Hence, the supply of the Product is not GST-free under section 38-2 of the GST Act.

Taxable supply

The supply of the Product is a taxable supply if the requirements of section 9-5 of the GST Act are satisfied.

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

(a)  you make the supply for consideration

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

(c)  the supply is connected with the indirect tax zone, and

(d)  you are registered, or required to be registered for GST.

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

Based on the information provided, the supply of the Product by you satisfy the requirements of paragraphs 9-5(a) to 9-5(d) of the GST Act because:

·         you supply the Product for consideration;

·         the supply of the Product is made in the course of your enterprise;

·         the supply of the Product is connected with Australia; and

·         you are registered for GST.

Furthermore, the supply of the Product is not input taxed or/and GST-free under any provisions of the GST Act or any other legislation.

Accordingly, the supply of the Product by you will be a taxable supply and subject to GST.