Edited version of private advice

Authorisation Number: 1052204487263

Date of advice: 15 December 2023

Ruling

Subject: GST and food classification

Question

Is the supply of the specified 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.

This ruling applies for the following period:

Commencing dd/mm/yyyy and ending dd/mm/yyyy

Relevant facts and circumstances

You are registered for GST.

You are importing the Product. You will launch the Product in the Australian market in mm/yyyy.

The Product is for the Australian foodservice market (not retail) and will be sold by you to foodservice distributors/wholesalers who will in turn sell the Product to end-users, such as restaurants, cafes, food caterers, etc.

The Product is made from bread that is coated with a sweet mixture, cooked and then freezed.

The Product is sold frozen and needs to be cooked before consumption.

Once cooked, the Product is crispy on the outside and soft on the inside. The Product tastes quite sweet.

You provided full description of the Product including details of the ingredients of the bread and the coating, the manufacturing process, and the preparation methods.

You provided samples of the Product as well as images of the Products packaging artwork and a point-of-sale flyer.

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

A New Tax System (Goods and Services Tax) Act 1999 Schedule 1, item 27

Reasons for decision

Summary

The Product is bread with a sweet coating and therefore food of a kind specified at item 27 in the third column of the table in clause 1 of Schedule 1 to the GST Act (item 27).

The supply of the Product therefore is not GST-free under section 38-2 of the GST Act as the supply is excluded from being GST-free by paragraph 38-3(1)(c) of the GST Act.

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

Detailed reasoning

Section 9-40 of the GST Act provides that 'you must pay the GST on any taxable supply that you make'.

Section 9-5 of the GST Act provides that you make a taxable supply if:

(a)               you make the supply for consideration

(b)               the supply is made in the course or furtherance of an enterprise that you carry on

(c)               the supply is connected with Australia, and

(d)               you are registered or required to be registered.

However, the supply is not a taxable supply to the extent that it is GST-free or input taxed.

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 of the product 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 Product is food for human consumption, and therefore, satisfies 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 the third column of the table in clause 1 of Schedule 1 to the GST Act (Schedule 1), or food that is a combination of one or more foods at least one of which is food of such a kind.

In this case item 27 in the category heading 'bakery products' is relevant for consideration. Item 27 specifies 'bread (including buns) with a sweet filling or coating'.

The Product is made from bread that is coated with a sweet mixture, cooked, and sold frozen.

The Product needs to be cooked before consumption.

When cooked, the Product is crispy on the outside and soft on the inside. The Product tastes quite sweet.

It should be noted that clause 2 of Schedule 1 states that in relation to bakery products, it does not matter whether the product is supplied hot or cold, or requires cooking, heating, thawing or chilling prior to consumption. Therefore, a product that is bread with a sweet filling or coating will be covered by item 27 even if it requires cooking, thawing or chilling prior to consumption.

The Detailed food list which is a public ruling for the purpose of section 105-60 of the Taxation Administration Act 1953 relevantly includes the following entries:

Table 1: The Detailed food list which is a public ruling for the purpose of section 105-60 of the Taxation Administration Act 1953 relevantly includes the following entries:

Additionally, although 'bread (including buns) with sweet filling or coating' is listed in the category of 'bakery products, the category headings in the second column in the table in Schedule 1 are not operative, as per Note 2 in Schedule 1 which states:

Note 2: The second column of the table is not operative (see section 182-15).

Section 182-15 of the GST Act limits the use of the second column (the category heading) to situations where the words in a particular item are unclear. Section 182-15 of the GST Act states:

The second columns of the table in Schedules 1, 2 and 3 are not operative. In interpreting an item in those tables, or any other operative provision, those columns may only be considered for a purpose for which an *explanatory section may be considered under subsection 182-10(2).

Subsection 182-10(2) of the GST Act states:

Explanatory sections form part of this Act, but they are not operative provisions. In interpreting an operative provision, an explanatory section may only be considered:

(a)    in determining the purpose or object underlying the provision; or

(b)    to confirm that the provision's meaning is the ordinary meaning conveyed by its text, taking into account its context in this Act and the purpose or object underlying the provision; or

(c)    in determining the provision's meaning if the provision is ambiguous or obscure; or

(d)    in determining the provision's meaning if the ordinary meaning conveyed by its text, taking into account its context in this Act and the purpose or object underlying the provision, leads to a result that is manifestly absurd or is unreasonable.

(emphasis added)

While items 20 to 27 are listed under the category of 'bakery products', it is clear from an analysis of the foods listed in this category that not all are baked. For example, some slices and cheesecakes are not cooked at all. Pancakes, waffles and crepes are normally cooked in a pan or a griddle rather than baked. Doughnuts are often fried rather than baked.

Accordingly, we consider that the Product comes within the genus, class or description of food covered by item 27 as the Product is bread with a sweet coating. The supply of the Product is therefore excluded by paragraph 38-3(1)(c) from being GST-free under section 38-2 of the GST Act.

Further, the supply of the Product is not otherwise GST-free under any other provision of the GST Act or a provision of another Act. The supply of the Product is also not an input taxed supply under a provision of the GST Act or a provision of another Act.

The supply of the Product is a taxable supply as it meets all the requirements of section 9-5 of the GST Act.