Edited version of private advice

Authorisation Number: 1051850062702

Date of advice: 5 August 2021

Ruling

Subject: GST and food

Question

Is the supply of the nuts and seeds product range (the Products) 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 Products is a taxable supply.

Relevant facts and circumstances

You sell the Products in Australia.

You are registered for GST.

The predominant ingredients in the Products are specified varieties of nuts and seeds. The Products contain other specified ingredients.

You provided samples of the Products.

•         The Products consist of over 50% nuts and seeds.

•         The Products contain other ingredients.

•         The Products are packed in a specified quantity.

•         The Products can be eaten on their own as a snack or added to other food.

The nuts and seeds are roasted and retain their identities as nuts and seeds in the mixtures.

You provided details of the manufacturing process of the Products.

You provided a photo of the shelves in a supermarket showing where the Products are displayed.

You provided screenshots of a supermarket's online catalogue showing the Products being sold for a specified amount per pack.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 section 9-5

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 table item 16

A New Tax System (Goods and Services Tax) Act 1999 Schedule 1 clause 1 table item 19

Reasons for decision

Summary

The supply of the nuts and seeds product range (the Products) is not GST-free under section 38-2 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act).

The supply of the Products is a taxable supply under section 9-5 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 (whether or not requiring processing or treatment) (paragraph 38-4(1)(a) of the GST Act).

The Products are food for human consumption under paragraph 38-4(1)(a) of the GST Act.

However, paragraph 38-3(1)(c) of the GST Act provides that a supply of food is not GST-free if it is food of a kind specified in the third column of the table in clause 1 of Schedule 1 to the GST Act (Schedule 1). As such, the issue is whether the Products are 'food of a kind' specified in Schedule 1.

The food category in Schedule 1 that is relevant for consideration is 'savoury snacks', which states:

A number of cases have dealt with classification of food products. In Lansell House Pty Ltd v Commissioner of Taxation [2010] FCA 329, the court considered whether a product known as 'mini ciabatte' was 'a cracker' under item 32 in Schedule 1 and therefore taxable. The product was imported and described on its packaging as 'Italian flat bread'. The court noted that classification decisions for GST purposes are often described as questions of fact and degree, a matter of overall impression and a combination of fact-finding and evaluative judgment. Ultimately, the court found that the mini ciabatte was a 'cracker', and thus was not GST-free. In coming to that decision, the court considered a number of factors to establish the nature and character of the product.

On appeal, the Full Federal Court (in Lansell House Pty Ltd v Commissioner of Taxation [2011] FCAFC 6), upheld the Federal Court's decision. It also considered the meaning of the words 'of a kind' and noted that the use of the words 'of a kind' in paragraph 38-3(1)(c) of the GST Act adds further generality to the description of the items described in Schedule 1. The question is whether the product being considered comes within the genus, class or description of an item described in Schedule 1.

As stated above, 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.

Item 19 of Schedule 1 (item 19) covers food of a kind consisting principally of food covered by items 15 to 18.

The word 'principally' is not defined in the GST Act, therefore it will take its ordinary meaning.

Macmillan Publishers Australia, The Macquarie Dictionary Online, www.macquariedictionary.com.au, (Macquarie Dictionary),accessed 16 July 2021, defines principally as:

adverb chiefly; mainly.

The courts have considered the meaning of the word 'principally' in relation to food products in the context of the Sales Tax and GST legislations.

In particular, in the case of FCT v F H Faulding & Co Ltd. (1950) 83 CLR 594, the High Court examined whether two cordials produced by the taxpayer were 'essences, concentrates and cordials, consisting wholly or principally of juices of Australian fruits'. In doing so the Court noted that principally had the same meaning as 'mainly' and further that whether this was referring to a quantitative or other measure was determined by the context in which it was used.

Latham CJ, at page 597, stated that the term 'principally' has been considered from two aspects, namely the content and the substance, as follows:

"...The reference is not to the principle characteristic of the cordial considered as a cordial, but to the content of the cordial. In the phrase "consisting wholly or principally of juice of Australian fruits" the word "wholly" necessarily requires the application of a quantitative standard. The word "principally" must, in my opinion, be similarly construed."

"...The words "consisting principally of" must be read as referring to quantity expressed in terms of either volume or weight of the substance of the cordial and cannot be read as referring to that constituent of the cordial, whatever its proportionate quantity, which gives to the cordial its distinctive flavour as a cordial."

Further, at page 602 Fullager J. concluded that:

'The natural meaning of the words 'consist... principally is emphasized in item 36(3) by the presence of the words 'wholly or'. The reference must be to quantity'.

As the cordials in question consisted of well under 50% juices of Australian fruit, the court held that, on a quantitative analysis, they did not consist wholly or principally of such juices.

While each case turns on its facts, we consider that an ingredient making up more than 50% of a food meets the 'consists principally' or 'consisting principally of' requirement. As stated above, this quantitative interpretation in relation to ingredients has been accepted in Sales Tax cases. GST cases have also adopted this approach of applying a quantitative interpretation.

The Products consist of over 50% nuts and seeds that have been roasted. The nuts and seeds have retained their identities as nuts and seeds in the mixtures.

As the Products consist of over 50% of nuts and seeds that have been processed, on a quantitative analysis, they consist principally of food covered by item 16. As such, the Products are covered by item 19 and are therefore excluded from being GST-free by paragraph 38-3(1)(c) of the GST Act.

Accordingly, the supply of the Products is not GST-free under section 38-2 of the GST Act.

The supply of the Products is a taxable supply as all the requirements of section 9-5 of the GST Act are satisfied as follows:

•         you supply the Products for consideration

•         the supply is made in the course or furtherance of an enterprise that you carry on

•         you supply the Products in Australia

•         you are registered for GST, and

•         the supply of the Products is neither GST-free nor input taxed.