Edited version of private advice

Authorisation Number: 1051925151563

Date of advice: 25 November 2021

Ruling

Subject: GST and supply of dips

Question

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

Answer

Your supply of Product 1 and Product 2 is not a supply of GST-free food. The supply of the Product 1 and Product 2 is taxable pursuant to paragraph 38-3(1)(c) of the GST Act as the Products are food that are 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 of the GST Act.

Your supply of the Product 3 is 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 supply three dip products.

Product description:

The Products consist of three individually wrapped and sealed components, being the dip, nuts and spice components. The components are packaged together, before being wrapped in an outer sleeve.

The nut and spice components are intended to be mixed into the dip component to enhance the flavour and texture of the dip.

The nuts in Products1 and 2 are toasted, but the nuts in Product 3 is raw.

Price: The recommended retail price ('RRP') for each of the Products is $X.00. The dip components of the Products are already individually sold by you. The RRP of your standard Xg dips is $Y.00.

Placement: The Products will be sold in supermarkets, in the refrigerated /deli section, alongside other dips.

The nuts and spice items are acquired from their suppliers in their sachets and are added to the package.

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 paragraph 38-4(1)(b)

A New Tax System (Goods and Services Tax) Act 1999 paragraph 38-4(1)(e)

Reasons for decision

Summary

Products 1 and 2

Products 1 and 2 satisfy the definition of food in paragraph 38-4(1)(a) of the GST Act but are excluded from being GST-free due to paragraph 38-3(1)(c) of the GST Act. The Products are food which are a combination of one or more foods at least one of which is food of a kind specified in Schedule 1 of the GST Act and therefore are taxable supplies.

Product 3

The supply of Product 3 is GST-free under section 38-2 of the GST Act because:

•                 Product 3 satisfies the definition of food in paragraph 38-4(1)(a) of the GST Act as food for human consumption; and

•                 the supply of Product 3 does not fall within any exclusions in section 38-3 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).

The Products are food for human consumption, and therefore, satisfy 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 is not GST-free if it is food of a kind 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 specified in Schedule 1.

Each of the three Products contain three individually wrapped and sealed components, one for dip, one for crunch mix and the third for spices.

As the Products contain more than one type of food, we need to consider whether each food item in the Products is food of a kind specified in Schedule 1 (Element 1).

For each Product, if it contains one of the food items which is of a kind specified in Schedule 1, then we proceed to consider Element 2, which is to determine:

•                 whether the Product is a supply of a combination of foods to which paragraph 38-3(1)(c) of the GST Act applies; or

•                 whether it is a mixed supply of GST-free and taxable food.

Element 1 - Are any of the components of the product taxable?

Product 1 contains three items:

Item 1A:

Item 1A is food for human consumption as per paragraph 38-4(1)(a) of the GST Act is not food of a kind specified in Schedule 1, therefore it is not excluded from being GST-free by section 38-3 of the GST Act. As such, Item 1A is a GST-free food under section 38-2 of the GST Act.

Item 1B:

Item 1B is food for human consumption as per paragraph 38-4(1)(a) of the GST Act.

Item 16 of Schedule 1 (Item 16) provides that 'seeds or nuts that have been processed or treated by salting, spicing, smoking or roasting, or in any other similar way' are not GST-free.

Therefore, we need to determine whether Item 1B is food of a kind listed under Item 16.

The detailed food list (DFL), a public ruling, states:

We consider that the toasting process for Item 1B is similar to roasting. As such, Item 1B is food of a kind listed under Item 16 and are excluded from being GST-free by section 38-3 of the GST Act. It is not GST-free under section 38-2 of the GST Act.

Item 1C:

Food is defined in section 38-4 of the GST Act to include goods to be mixed with or added to food for human consumption (including condiments, spices, seasonings, sweetening agent or flavourings) (paragraph 38-4(1) of the GST Act).

Item 1C is a spice mix. Therefore, Item 1C is food as per paragraph 38-4(1) of the GST Act. It is not food of a kind specified in Schedule 1 and is not excluded from being GST-free by section 38-3 of the GST Act. Therefore, Item 1C is a GST-free food under section 38-2 of the GST Act.

Product 2 contains three items:

Item 2A:

Item 2A is food for human consumption as per paragraph 38-4(1)(a) of the GST Act is not food of a kind specified in Schedule 1, therefore it is not excluded from being GST-free by section 38-3 of the GST Act. As such, Item 2A is a GST-free food under section 38-2 of the GST Act.

Item 2B:

Item 2B is food for human consumption as per paragraph 38-4(1)(a) of the GST Act.

Item 16 of Schedule 1 (Item 16) provides that 'seeds or nuts that have been processed or treated by salting, spicing, smoking or roasting, or in any other similar way' are not GST-free.

Therefore, we need to determine whether Item 2B is food of a kind listed under Item 16.

We consider that the toasting process for Item 2B is similar to roasting. As such, Item 2B is food of a kind listed under Item 16 and are excluded from being GST-free by section 38-3 of the GST Act. It is not GST-free under section 38-2 of the GST Act.

Item 2C:

Food is defined in section 38-4 of the GST Act to include goods to be mixed with or added to food for human consumption (including condiments, spices, seasonings, sweetening agent or flavourings) (paragraph 38-4(1)(e) of the GST Act).

Item 2C is a spice mix. Therefore, Item 2C is food as per paragraph 38-4(1)(e) of the GST Act. It is not food of a kind specified in Schedule 1 and is not excluded from being GST-free by section 38-3 of the GST Act. Therefore, Item 2C is a GST-free food under section 38-2 of the GST Act.

Product 3 contains three items:

Item 3A:

Item 3A is food for human consumption as per paragraph 38-4(1)(a) of the GST Act. It is not food of a kind specified in Schedule 1, therefore it is not excluded from being GST-free by section 38-3 of the GST Act. As such, Item 3A is a GST-free food under section 38-2 of the GST Act.

Item 3B:

Item 3B is food for human consumption as per paragraph 38-4(1)(a) of the GST Act.

The nuts are raw and therefore not food of a kind listed within Item 16. Raw nuts are not food of a kind specified in Schedule 1 and is therefore not excluded from being GST-free by section 38-3 of the GST Act. Hence Item 3B are a GST-free food under section 38-2 of the GST Act.

Item 3C:

Food is defined in section 38-4 of the GST Act to include goods to be mixed with or added to food for human consumption (including condiments, spices, seasonings, sweetening agent or flavourings) (paragraph 38-4(1)(e) of the GST Act).

Item 3C is a spice mix. Therefore, Item 3C is food as per paragraph 38-4(1)(e) of the GST Act. It is not food of a kind specified in Schedule 1 and is not excluded from being GST-free by section 38-3 of the GST Act. Therefore, Item 3C is a GST-free food under section 38-2 of the GST Act.

As Product 3 contains all GST-free food, the supply of the Product 3 is GST-free under section 38-2 of the GST Act because:

•                 Product 3 satisfies the definition of food in paragraph 38-4(1)(a) of the GST Act as food for human consumption and

•                 the supply of Product 3 does not fall within any exclusions in section 38-3 of the GST Act.

Element 2 - Combination supply or mixed supply

Products 1 and 2:

As Products 1 and 2 contain food components that, if sold separately would not all be GST-free we need to determine whether the supply of the Product 1 and 2 is:

•                 excluded from being GST-free by paragraph 38-3(1)(c) of the GST Act, being 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; or

•                 a mixed supply that has separately identifiable taxable and non-taxable parts.

Combination of food

Paragraph 38-3(1)(c) of the GST Act provides that the supply of food that is a 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 is taxable.

The term 'combination' is not defined in the GST Act.

The Macquarie Dictionary (1997) defines 'combination' to mean '1. the act of combining. 2. the state of being combined. 3. a number of things combined.' 'Combine' is defined in The Macquarie Dictionary (1997) to include 'to bring or join into a close union or whole; unite; associate; coalesce.'

Therefore, food that is a 'combination of one or more foods' could be either a number of food items joined or mixed together to make a single product or a number of food products that are merely sold together. As the word 'combine' could be interpreted in more than one way, the meaning of the phrase 'food that is a combination of one or more foods' in paragraph 38-3(1)(c) of the GST Act is unclear.

Subsection 15AB(1) of the Acts Interpretation Act 1901 provides that consideration may be given to material not forming part of an Act for particular purposes including 'to determine the meaning of the provision when the provision is ambiguous or obscure....'. Paragraph 15AB(2)(e) of the Acts Interpretation Act provides that any explanatory memorandum relating to the Bill containing the provision is extrinsic material that may be considered for this purpose.

Paragraph 1.17 of the Further Supplementary Explanatory Memorandum to the A New Tax System (Goods and Services Tax) Bill 1998 (EM) states:

Food that is a combination of one or more foods, at least one of which is food of a kind specified in the table in new Schedule 1A of the Bill (prepared food, confectionery, savoury snacks, bakery products, ice-cream food and biscuit goods) is not GST-free. For example, a snack pack containing cheese and biscuits is not GST-free because it contains at least one type of food specified in new Schedule 1A (biscuits)...

Paragraph 1.18 of the EM clarifies the intended scope of this provision by stating:

The exclusion in the above paragraph would not apply where a mix of packaged goods is packed and sold together (eg. a hamper containing a packet of biscuits, box of chocolate and a jar of coffee). These items would be taxed individually (ie. Biscuits and chocolates subject to tax and the coffee GST-free.

We consider that if a food has separately identifiable components, then the food product can be a combination of foods. However, this view does not extend to foods sold together but are independent of each other such as foods that make up a hamper as described in the EM.

Also, it is our view that the time for determining whether the components of the food are separately identifiable, is at the time of supply, rather than examining the intention at the time of consumption.

As mentioned above for Products 1 and 2, at the time of supply each Product consists of three individually wrapped and sealed components, and the components of each Product are packaged together, before being wrapped in an outer sleeve.

The name, description and marketing of Products 1 and 2 demonstrate that when the Products are supplied, the components in each Product retain their separate identities.

The physical appearance of the Products 1 and 2 also support that the components have separate identities.

Composite supply

The term composite supply does not appear in the GST Act. A term composite supply is used to describe a supply that contains a dominant part and includes something that is integral, ancillary or incidental to that part (Goods and Services Tax Ruling GSTR 2001/8). However, the characterisation should be undertaken in a manner that is consistent with the object of the particular statutory provision in issue as per paragraph 19 of GSTR 2001/8:

Where a transaction comprises a bundle of features and acts, it may be necessary to characterise what is supplied to determine whether a particular provision applies in whole or in part. The characterisation should be undertaken in a manner that is consistent with the object of the particular statutory provision in issue. For example, if a provision specifically requires different treatment of two components of a transaction, this will mean that the two components must necessarily be separately recognised. However, that does not mean that the two components need to be separately recognised for all purposes of the GST Act.

We consider, but for paragraph 38-3(1)(c) of the GST Act the supply of Products 1 and 2 could be considered a composite supply as per the various principles in GSTR 2001/8, such as paragraph 59.

As per the view in paragraph 19 of GSTR 2001/8, in this situation, paragraph 38-3(1)(c) of the GST Act requires the whole supply of the Product 1 and 2 to be treated as a taxable supply despite having taxable and GST-free components. Products 1 and 2 are a food that is a combination of one or more foods, at least one of which is food of a kind listed in the third column of the table in Schedule 1. As such, paragraph 38-3(1)(c) of the GST Act specifically requires different treatment of the components of a transaction, and they must be separately recognised.

Mixed supply

The Products consist of three individually wrapped and sealed components, being the dip, nuts and spice components. The components are packaged together, before being wrapped in an outer sleeve. However, we do not consider the supply of Products 1 and 2 is a mixed supply.

ATO ID 2010/145 is not relevant to Products 1 and 2, because neither of the components of the supply in ATO ID 2010/145 would be considered dominant. The components being biscuits and separately a dip may complement each other but do not have the characteristics of being ancillary or integral to a dominant part. ATO ID 2010/145's main focus is determining if 38-3(1)(c) can apply to override the product being treated as a mixed supply.

Therefore, the supply of Products 1 and 2 is not a mixed supply.

Summary:

Products 1 and 2

Products 1 and 2 satisfy the definition of food in paragraph 38-4(1)(a) of the GST Act but are excluded from being GST-free due to paragraph 38-3(1)(c) of the GST Act. The Products are food which are a combination of one or more foods at least one of which is food of a kind specified in Schedule 1 of the GST Act and therefore are taxable supplies.

Product 3

The supply of Product 3 is GST-free under section 38-2 of the GST Act because:

•                 Product 3 satisfies the definition of food in paragraph 38-4(1)(a) of the GST Act as food for human consumption; and

•                 the supply of Product 3 does not fall within any exclusions in section 38-3 of the GST Act.