Edited version of private advice

Authorisation Number: 1052168021565

Date of advice: 23 October 2023

Ruling

Subject: GST classification of fruit nuggets and sticks

Question

Are the supplies of "fruit nuggets' and "fruit sticks" collectively called "the Products" GST free under section 38-2 of the A New Tax System (Goods and Services Tax Act 1999 (GST Act)?

Answer

No.

Relevant facts and circumstances

X is registered for GST from XX XX XXXX.

X has a website and social media accounts.

The Products are in organic and non-organic and versions.

The taste of the products are fruity.The texture is soft and chewy. The color of the products are brown.

The non-organic version of the Products are currently stocked with other lunchbox multi-pack nutritional snacks.

The organic version of the Products are expected to be stocked with health & wellbeing/organic snacks.

The Products are packed in smaller pouches and are not visible through the larger pouches or boxes.

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 section 38-4

Reasons for decision

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

Food is defined in section 38-4 of the GST Act as follows:

(1)    Food means any of these, or any combination of any of these:

(a) food for human consumption (whether or not requiring processing or treatment);

(b) ingredients for food for human consumption;

(c) *beverages for human consumption;

(d) ingredients for beverages for human consumption;

(e) goods to be mixed with or added to food for human consumption (including condiments, spices, seasonings, sweetening agents or flavourings);

(f) fats and oils marketed for culinary purposes...

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

The next step is to consider whether they fall within any exclusions in section 38-3 of the GST Act.

Subsection 38-3 of the GST Act provides that a supply of food is not GST-free if, among other things, it is a supply of food of a kind specified in the third column of the table in clause 1 of Schedule 1 (Schedule 1), or food that is a combination of one or more foods at least one of which is food of such a kind (paragraph 38-3(1)(c) of the GST Act).

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 courts' approach to food classification issues for GST purposes

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 products.

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.

The factors that may be relevant when considering the overall impression of a food product for the purpose of its GST classification include the following:

•         appearance

•         texture

•         size, shape, weight, volume

•         ordinary and trade meaning

•         preparation and manufacturing process

•         display location in a retail outlet

•         labels/packaging/marketing

•         ingredients

•         shelf life

•         intended use of the product

•         storage requirements

•         taste

In this case item 8 of Schedule 1 (item 8) is relevant for consideration. Item 8 covers:

confectionery

food marketed as confectionery

food marketed as ingredients for confectionery, or

food consisting principally of confectionery

The Food Industry Partnership Issues Register - Issue 12 available in this link Food industry partnership | Legal database (ato.gov.au) discusses whether a product is confectionery.

Paragraph 1.44 of the Further Supplementary Explanatory Memorandum to the GST Bill ('the EM') provides that Schedule 1 of the GST Act available on Legal database - View: Principal legislation: 1 (ato.gov.au) 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.'

Confectionary and food marketed as confectionery

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 as follows:

... It is a word 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, a product is covered by item 8 if the product is 'marketed as confectionary'.

When considering whether food is marketed as a 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
• how the goods are distributed.

We acknowledge that the UK law expressly states that 'confectionary includes...any item of sweetened prepared food which is normally eaten with the fingers', whereas the GST Act does not include such a description for confectionary. However, the GST Act specifies that food of a kind that is marketed as confectionary is not GST-free.

We consider that the overall impression is that the Products come with genus, class or description of food of a kind marketed as confectionery. Hence, this reinforces the concept that the Product is marketed as confectionery. It does not matter if the products are organic or non-organic.

Further, the supply of the Product is excluded from being GST-free by paragraph 38-3(1)(c) of the GST Act and the Products are not input taxed under Division 40 of the GST Act. Therefore, the supply of the Product is taxable.