Edited version of private advice

Authorisation Number: 1051955615305

Date of advice: 25 February 2022

Ruling

Subject: GST classification of a food product

Issue

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

Answer

No. Your supply of the Product is not GST-free under section 38-2 of the GST Act.

Relevant facts

You are an Australian entity that is registered for GST.

You import and supply the Product in Australia.

The ingredients of the Product are milk solids, sugar, butter, liquid glucose and spices.

The Product is of a sweet character and is in the nature of a delicacy.

The packaging of the Product states the Product is a traditional dessert made from milk.

The Product does not need refrigeration until after opening.

The Product is required to be stored in a cool and dry place.

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

Summary

The supply of the Product is not GST-free under section 38-2 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) as the Product is excluded from being GST-free by paragraph 38-3(1)(c) of the GST Act. The Product is considered to be confectionary and falls under item 8 in the table in clause 1 of Schedule 1 to the GST Act (item 8).

The supply of the Product is a taxable supply under section 9-5 of the GST Act and subject to GST.

Detailed reasoning

A supply of food is GST-free under section 38-2 of the GST Act if it satisfies the definition of food in section 38-4 of the GST Act and it is not excluded from being GST-free by section 38-3 of the GST Act.

'Food' is defined in paragraph 38-4(1)(a) of the GST Act to include 'food for human consumption (whetheror not requiring processing or treatment)'.

In the present case, it is accepted that the Product is 'food for human consumption' under section 38-4 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' 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.

The item listed in Schedule 1 that is of relevance in this case is item 8. Item 8 lists:

confectionery,

food marketed as confectionery

food marketed as ingredients for confectionery, or

food consisting principally of confectionery

The ATO view on confectionery is outlined in Issue 12 of the Food Industry Partnership - Issues Register (Issue 12).

Issue 12 states in part:

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.'

...

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.

...

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.'

Additionally, the Detailed Food List, which is a public ruling for the purposes of the Taxation Administration Act 1953 includes the following entries:

Based on the information provided:

•           the name of the Product is 'xxxx xxxx'.

•           the Product includes ingredients such as sugar, milk, butter, liquid glucose and spices

•           the Product is of a sweet character and is in the nature of a delicacy.

•           the Product does not require refrigeration in an unopened state.

Given the characteristics of the Product identified above, it is considered that the Product has sufficient qualities to be considered 'of a kind' of confectionery under item 8. Accordingly, the supply of the Products is not GST-free under section 38-2 of the GST Act as the Product is excluded from being GST-free by paragraph 38-3(1)(c) of the GST Act.

You contend that Product is a 'dairy dessert' and therefore GST-free.

We do not agree with your view.

Item 20 in Schedule 1 (item 20) lists bakery products cakes, slices, cheesecakes, pancakes, waffles, crepes, muffins and puddings.

Issue 13 of the Food Industry Partnership - Issues Register (Issue 13) considers the definition of pudding for the purposes of item 20 and provides that certain products including dairy desserts are not considered to be a 'pudding' and will be GST-free.

The Detailed Food List also classifies some 'dairy desserts' as GST-free as not being food of a kind specified in Schedule 1.

The term 'dairy desserts', neither defined in the GST Act nor defined in the Macquarie or Oxford dictionaries. It is an accepted generic term used by food retailers to describe dessert type products that consist in the main of cream or dairy based ingredients that require constant refrigeration in a stores chiller area and sit alongside and compete against yoghurt type products.

Additionally, whilst Issue 13 provides that 'dairy desserts' are GST-free this does not mean that all dairy based desserts or sweets are GST-free. Dairy based desserts or dairy based sweets will not be GST-free if they are of a kind of food listed in Schedule 1.

For example, while fudge is usually a dairy based product, as its ingredients generally include milk and butter, it is considered to be a confectionary under item 8 and not a GST-free dairy dessert. Further, ice-creams made from dairy products are considered to be dairy desserts, however, they are not GST-free as they are food of a kind listed in Schedule 1.

We consider that the Product has the characteristics of a confectionary and therefore, covered by item 8. The Product is excluded from being GST-free under section 38-2 of the GST Act pursuant to paragraph 38-3(1)(c) of the GST Act. The supply of the Product therefore is a taxable supply and subject to GST.