Edited version of private advice

Authorisation Number: 1051957374890

Date of advice: 3 March 2022

Ruling

Subject: GST classification of food products

Issue

Is the supply of traditional overseas sweets ('the Products') GST-free under 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 not GST-free under section 38-2 of the GST Act. The supply of the Products is a taxable supply under section 9-5 of the GST Act.

Relevant facts

You are an Australian entity who registered for GST

You import and supply the frozen Products, which are traditional sweets.

The Products are sold in supermarkets and groceries and located in the freezer section.

The Products are of a sweet character made from nuts and seeds.

The Products contain substantial amounts of sugar.

The labelling on the container of the Products states that the Products are authentic traditional overseas sweet. Furthermore, the Products are regarded as being in the nature of a delicacy.

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 Schedule 1 clause 1 table Item 8

Reasons for decision

Summary

The supply of 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 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 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 (whether or not requiring processing or treatment)'. In the present case, the Products are 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 Products are not specifically listed in Schedule 1. As such, the issue is whether the Products are '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'.

Even if a food is not marketed as confectionery if it has the characteristics of a confectionery it is still covered by Item 8.

Issue 12 of the Food Industry Partnership - issues register (Issue 12) outlines what we mean by the term 'confectionery'.

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."

Where products are currently WST exempt and are not captured under Schedule 1 of the GST Act, the WST exemption will carry across to the GST legislation and the products will be GST-free.

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.

Candy Maid decided whether a toffee apple was confectionery. It was held in this case that toffee apples were not articles of confectionery similar to chocolates or sweets.

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."

Further to the above, in determining whether food is marketed as a "confectionery" or "ingredients for confectionery" the activities of the seller are relevant. 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; and

•                how the goods are distributed.

In determining whether food is marketed as confectionery or as an ingredient for confectionery, it is also relevant to look at the uses to which the product is put.

The Products

The Products are of a sweet character made from nuts and seeds. The Products contain substantial amounts of sugar. The labelling on the container of the Products states that The Products are traditional overseas sweet. Furthermore, the Products are regarded as being in the nature of a traditional delicacy.

Therefore, we consider that the Products are a confectionery or food marketed as a confectionery and falls within the scope of item 8 of Schedule 1. As such, the supply of the Products is not a GST-free supply under section 38-2 of the GST Act.

Conclusion

As outlined above, the Products are covered by Item 8 and are excluded from being GST-free under paragraph 38-3(1)(c) of the GST Act. Therefore, 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.

The following item is included in Detailed food list, which is a public ruling for the purposes of the Taxation Administration Act 1953: