Edited version of private advice

Authorisation Number: 1051696453174

Date of advice: 1 September 2020

Ruling

Subject: GST and food classification

Question 1

Is the supply of Product A by you GST-free under section 38-2 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer

Yes, your supply of Product A will be GST-free under section 38-2 of the GST Act.

Question 2

Is your supply of Product B GST-free under section 38-2 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer

Yes, your supply of Product B will be GST-free under section 38-2 of the GST Act.

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 are an Australian entity which is registered for GST.

You are planning to launch a range of plant-based snack products.

You will manufacture and distribute the products to major supermarkets.

Product A

The Product A will be marketed as hearty and delicious plant-based desserts.

The Product A is required to be refrigerated.

It is expected to be placed with other dessert products in the refrigeration cabinets of supermarkets.

You have provided details of the ingredients, the manufacturing process and photographs of the packaging of the products.

Product A is not frozen.

Product B

Product B will be marketed as a delicious and nutritious snack made from plant based ingredients. Product B comes in different flavours.

Product B is required to be refrigerated. It is expected to be placed with other chilled snack products (i.e., yoghurt and dairy desserts) in the refrigeration cabinets of supermarkets.

You have provided details of the ingredients, the manufacturing process and photographs of the packaging of Product B.

Product B is sealed in a barrier plastic cup and packaged for retail sales with a shrink label, lid, spoon, and fibre case. Product B does not supply sufficient energy or macronutrients to replace a complete balanced meal.

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)(a)

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

Reasons for Decision

Summary

Your supply of Product A and Product B will be GST-free under section 38-2 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) of the GST Act).

Product A and Product B 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

We need to determine whether Product A and Product B are covered by any of the items in Schedule 1 to the GST Act.

Product A

Product A will be GST-free unless it is 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 most relevance is Item 20 in Schedule 1 (Item 20) which specifies 'cakes, slices, cheesecakes, pancakes, waffles, crepes, muffins and puddings'. Therefore, we need to determine whether the product A is of a kind of pudding.

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.

Based on the information provided, product A is boiled in a creamy solution. The manufacturing process indicates that Product A is not 'baked' at any stage of the production process. Therefore, Product A does not satisfy the meaning of 'pudding' as described in Item 20.

Product A is not covered by Item 20 in Schedule 1 to the GST Act and is not food that is a combination of one or more foods at least one of which is food of such a kind.

Further, we do not consider that Product A is covered by any other item in Schedule 1 to the GST Act.

Therefore, as none of the other exclusions in subsection 38-3(1) of the GST Act apply, your supply of Product A will be GST-free under section 38-2 of the GST Act and GST will not be payable on your supply of Product A.

Product B

As stated above, Product B will be GST-free unless it is food of a kind specified in 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 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 Product B is a kind of pudding or a kind of food marketed as a prepared meal.

Item 20 - Puddings

You stated that Product B is not 'cooked' at any stage of the production process. In particular, the heating aspect used in the production process does not constitute 'cooking'. The requirement to apply heat is to expedite the blending process and make the production process more efficient, which is not a cooking step. The heat would make the ingredients blend faster to achieve the desired consistency. Further, this step is performed as a food safety measure to prevent microbiological contamination. The application of heat does not alter the essential nature of Product B.

Based on the information provided, we accept that neither of these processes are a cooking process. Accordingly, Product B does not satisfy the meaning of pudding outlined in Issue 13 and therefore is not covered by item 20 of Schedule 1 to the GST Act.

Item 4 - Prepared meal

As stated above, Item 4 of Schedule 1 to the GST Act excludes prepared meals and food marketed as prepared meals, but not including soup from GST-free status.

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 matter whether 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.

The ATO view on 'prepared food' and 'food marketed as a prepared meal' is outlined in the Food Industry Partnership Goods and Services Tax Industry Issues - Issue 5 and the Detailed food list.

The Food Industry Partnership - Issue Register - Issue 5, notes that the term 'marketed as a prepared meal' will cover a range of food products. It provides that when determining if a product is marketed as a prepared meal, the activities of the seller are relevant in determining whether a food is marketed as a prepared meal. 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, including placement in the store, and
• how the goods are distributed.

How a product is marketed is determined by "the total process whereby goods are put onto the market".

From the facts provided, the following are the characteristics of Product B:

• Product B will be marketed as a delicious and nutritious snack made from plant based ingredients;
• Product B is not marketed as prepared meal. Each individual product is less than 10% of an adult's daily intake, they are not considered or intended and will not be marketed as a meal replacement;
• Product B will be placed with other chilled snack in the refrigerated display cabinets in supermarkets.
• Product B will be sold at a considerably lower price than what a consumer would expect to pay for breakfast from a restaurant or takeaway outlet.
• Product B does not compete with takeaway food as it is not similar to breakfast products that can be purchased from takeaways and cafes.
• Product B is sealed in a barrier plastic cup and packaged for retail sales with a shrink label, lid, spoon, and fibre case.

Based on the above facts, we consider that Product B is not a prepared meal under Item 4 of Schedule 1 to the GST Act and not excluded from being under paragraph 38-3(1)(c) of the GST Act.

Accordingly, Product B is not covered by item 4 or item 20 of Schedule 1 to the GST Act. In addition, Product B does not fall within any of the other exclusions in section 38-3 of the GST Act. Therefore, the supply of Product B is GST-free under section 38-2 of the GST Act.

In summary, we consider that your supply of Product A and Product B will be GST-free under section 38-2 of the GST Act.