Edited version of private advice

Authorisation Number: 1052211329992

Date of advice: 1 July 2024

Ruling

Subject: GST and food colourings

Question

Is your supply of the Food colouring products (Products) a GST-free supply under section 38-2 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer

The Products are of a kind of food that is marketed as ingredients for confectionery therefore covered by item 8 of Schedule 1 to the GST Act (Item 8).

As such, the supply of the Products is not GST-free under section 38-2 of the GST Act as the Products are excluded from being GST-free by paragraph 38-3(1)(c) of the GST Act, being food of a kind that is specified in Schedule 1 of the GST Act.

Relevant facts and circumstances

You are an Australian entity and registered for GST.

You supply the Products exclusively in bulk to manufacturers of food, and not for retail sale.

The Products are used for many other applications such as beverages; and other foods such as dairy, bakery, savoury and meat.... The Products can be used by the customer for confectionery. The Products are not differentiated in any way (i.e., price, packaging and labelling is the same and there is no change to the barcode/GTIN).

Most products have a number of information sheets to reflect different 'suitable applications'. Suitable application is a technical term, and the sheet reflects the fact that the product may be used for that purpose.

All of the Products are suitable (from a technical perspective) and may be used in different food categories. For various reasons, you may develop differentiated promotional material. X products had material that 'recommends' them for various kinds of confectionery.

All the Products are materially the same products for GST purposes.

You provide the packaging information, a photo of the packaging, Product Information Sheet and technical information for the Products. Apart from the name, the brand and the ingredients, there is no additional literature or instructions on the packaging of the Products. The product packaging does not provide nutritional information, but customers get nutritional information through a separate Product Information Sheet.

You provided the promotional material for the X products that recommends them for various kinds of confectionery, and also material which recommend other uses for each product such as beverages and other food products such as sugar icing and cakes.

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 subsection 38-4(1) of the GST Act to include ingredients for food for human consumption (paragraph 38-4(1)(b) of the GST Act), ingredients for beverages for human consumption (paragraph 38-4(1)(d) of the GST Act) and goods to be mixed with or added to food for human consumption (paragraph 38-4(1)(e) of the GST Act).

The Products are used in the manufacturing of food and beverages, hence they are considered ingredient for food for human consumption and therefore satisfy the definition of food in paragraph 38-4(1)(b) of the GST Act.

Food additives

The Products are additives as discussed in Issue 11 of the Food Industry Partnership - Issues Register (Issue 11), hence they also meet the definition of food in paragraph 38-4(1)(e) of the GST Act.

Issue 11 at https://www.ato.gov.au/law/view/document?LocID=%22GIR%2Ffood-industry-CH11%22&PiT=99991231235958#H11, states in part:

The word 'additive' is defined in The Macquarie Dictionary (3rd edition, 1997) to mean '...3. a substance added to a product, usually to preserve or improve its quality'. Examples of products that are considered to be food additives for GST purposes include:

•         colourings

•         flavourings

•         preservatives

•         antioxidants

•         sweeteners

•         vitamins

•         minerals

•         modifying agents (vegetable gums, mineral salts, food acids, emulsifiers, humectants, thickeners).

Some of these additives fall within the term 'ingredient for food for human consumption' as stated in paragraph 38-4(1)(b), whilst others are specifically included in paragraph of the GST Act as 'goods to be mixed with or added to food for human consumption'. Those products included in paragraph 38-4(1)(e) of the GST Act include:

•         condiments (for example, tomato sauce, jam, chutney)

•         spices (for example, pepper, cinnamon, cloves)

•         seasonings

•         sweetening agents

•         flavourings (for example, vanilla essence).

Products that satisfy paragraph 38-4(1)(e) are used for the purpose of adding to the taste or flavour of finished foods and are not products that are used in the manufacturing process (although some products may fall for consideration as both an ingredient for food and as a good to be mixed with or added to food for human consumption).

...

GST treatment from 1 December 2001

Regulation 38-3.01 of the A New Tax System (Goods and Services Tax) Regulations 2019 (GST Regulations) applies to food additives. This regulation gives effect to paragraph 38-3(1)(e) of the GST Act and determines those foods that are not GST-free.

...

Regulation 38-3.01 of the GST Regulations states:

(1) For the purposes of paragraph 38-3(1)(e) of the GST Act food additives other than exempt fool additives are specified.

(2) Each of the following is an exempt food additive:

(a) a food additive which, at the time of supply is packaged and marketed for retail sale; or

(b) a food additive which, at the time of supply:

(i)    has a measurable nutritional value; and

(ii)   is supplied for use solely or predominantly in the composition of food; and

(iii)  is essential to the composition of that food.

You advised that the Products:

a)    have a measurable nutritional value (carbohydrate, fat, protein, vitamin or dietary mineral);

b)    are supplied for use solely or predominantly in the composition of food; and

c)    are essential for the composition of that food.

Based on the information provided, the Products are exempt food additives under paragraph 38-3.01(2)(b) of the GST Regulations and therefore not food of a kind specified in GST Regulations for the purposes of subsection 38-3(1)(e) of the GST Act.

The Explanatory Statement to the A New Tax System (Goods and Services Tax) Amendment Regulations 2001 (No 2) states:

The purpose of the Regulations is to give effect to the Government's original intention that a supply of a potential food additive which may be produced to a 'food grade quality', but is not actually used as an ingredient or mixed with food for human consumption, be subject to the GST.

...

Application of the Regulation

Subregulation 38-3.02(1) provides that a supply of food additives will be taxable unless the food additive is an exempt food additive.

Subregulation 38-3.02(2) defines an 'exempt food additive' to be either one which is packaged and marketed for retail sale, or one which satisfies 3 additional tests. If a food additive is supplied in accord with these conditions then it is not specified for the purposes of the Regulations and therefore the GST treatment of a supply of such food additives will be dependent upon the existing provisions. (Emphasis added)

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

The exclusion in paragraph 38-3(1)(c) of the GST Act

Paragraph 38-3(1)(c) of the GST Act provides that a supply of food is not GST-free if it is food of a kind that is 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.

The phrase 'of a kind' is not defined in the GST Act. Accordingly, it is appropriate to examine the ordinary meaning of that term.

The Macquarie Dictionary online, www.macquariedictionary.com.au, accessed 1 July 2024, does not define the entire phrase 'of a kind' however, it defines the word 'kind' to mean:

'1. A class or group of individuals of the same nature or character, especially a natural group of animals or plants. 2. Nature or character as determining likeness or difference between things: things differing in degree rather than in kind. 3. A person or thing as being of a particular character or class: he is a strange kind of hero. 4...'

In sales tax cases, when considering whether a product was 'of a kind', the Courts determined the 'essential character of the goods'. Essential character derives from the basic nature of the goods, from what they are, though composition, function and other factors necessarily play a part.

The GST case Lansell House Pty Ltd v Commissioner of Taxation [2010] FCA 329 (Lansell 2010) did not provide an essential character test, rather it provided an overall impression test. Sundberg J held that the words in item 32 are not used in a specialised or trade sense that differs from their ordinary usage, and that it is a matter of overall impression in deciding the proper classification of a product.

The Full Federal Court inLansell House Pty Ltd v Commissioner of Taxation [2011] FCAFC 6 (Lansell 2011) upheld the Federal Court's decision and at [30] relevantly provided:

...The use of the words "of a kind" in s 38-3(1)(c) of the GST Act adds further generality to the description of the items described in Schedule 1: Air International Pty Ltd v Chief Executive Officer of Customs (2002) 121 FCR 149 per Hill J. Thus, a new product that does not possess all of the same characteristics of known crackers may nevertheless be within the relevant item...The question is whether the resulting product comes within the genus, class or description of a cracker.

The meaning of the phrase 'of a kind' was also considered in Simplot Australia Pty Limited v Commissioner of Taxation [2023] FCA 1115 (Simplot) at [98-99], applying Cascade Brewery Co Pty Ltd and Another v Commissioner of Taxation [2006] FCA 821(Cascade) at [16] and (Lansell 2011) at [30]. It was considered that words 'of a kind' are words of expansion rather than limitation. They have the effect that the question is not whether the product is the particular item of food specified in Schedule 1, but whether the product is a member of a class or genus of food of the item specified.

Accordingly, the statutory question is whether a product falls within the genus, class, or description of an item specified in Schedule 1, as paragraph 38-3(1)(c) of the GST Act requires.

The Products are marketed for use in the manufacture of foods including confectioneries. Hence item 8 is relevant for consideration.

Item 8

Item 8 lists 'confectionery, food marketed as confectionery, food marketed as ingredients for confectionery or food consisting principally of confectionery'.

In respect of food colouring, the Detailed Food List, which is a public ruling for the purpose of the Taxation Administration Act 1953, relevantly states:

Table 1: In respect of food colouring, the Detailed Food List, which is a public ruling for the purpose of the Taxation Administration Act 1953, relevantly states:

The Products, being food colouring, are not confectionery, food marketed as confectionery or food consisting principally of confectionery. The remaining issue is to determine whether they are food of a kind marketed as ingredients for confectionery.

Marketing test

The word 'marketed' is not defined in the GST Act and therefore it takes its ordinary meaning.

The term 'marketed' was considered by Sundberg J in Cascade. Specifically, whether Ultra-C (the product at issue) was 'marketed principally as food for infants or invalids' so that it would fall within Item 13 of Schedule 2. Sundberg J looked at the dictionary definition of the term as a guide to determine its ordinary meaning. The dictionary definitions cited by Sundberg J define 'marketing' as 'the total process whereby goods are put onto the market' or 'the action or business of promoting and selling products, including market research and advertising'.

His Honour stated at [11], that assessing how a food or beverage is 'marketed' requires 'an examination of the content of the advertising and other marketing in fact carried out either by the taxpayer or by competitors in the market':

The words "marketed principally as food for infants" in item 13 require an examination of the content of the advertising and other marketing in fact carried out either by the taxpayer or by competitors in the market. The witnesses to whom I have referred spoke somewhat generally about their aims and hopes in respect of the marketing. The relevant findings at [9] are based on the content of the marketing, that is to say, on what a reader of the labels, the Bounty bag brochure and the print advertisements or a viewer of the television advertisements would derive from them. The findings do not entirely accord with the witnesses' evidence about Cascade's aims. That evidence seems to me to have been subconsciously influenced by the existence of item 13 and the purpose of the litigation.

It is perhaps worth noting that the use of 'principally' in Schedules 1 and 2 creates a higher test as it is included as an additional qualifier. Item 8 of Schedule 2 is not qualified by the use of 'principally' therefore a lesser standard in terms of the level of marketing activity is required.

The meaning of 'marketed as' was also considered in Simplot. The following paragraphs are relevant:

103. The Commissioner's reliance on the nature, quality and adaptation of the Products to identify the genus or category of foods to which they belong is also problematic in the context of the present case. The concepts of nature, quality and adaptation are useful when trying to classify goods of a kind specified by reference to their use. Those concepts of nature, quality and adaptation are of less utility when trying to classify food of a kind marketed as a prepared meal. As discussed further below from paragraph [105], the category is directed not at how the Products are in fact consumed or purchased but whether they are members of a class or genus of foods that are marketed as prepared meals. The characteristic that the foods must have in common is that they are of a type marketed as a prepared meal. The question is not how the Products themselves are marketed but whether the Products are of a kind that are marketed as prepared meals.

(Emphasis added)

"Marketed as"

105. The focus of item 4 of Schedule 1 is on how foods are marketed and not how they are consumed. "Marketed" looks at the activities of the seller. It is the activities of the seller of that kind of food and not the actual use by the consumer of the food which is the subject of examination. Marketing is not any activity performed by the seller but is the activities of the seller in communicating or conveying messages to the market for the promotion or sale of the product: Cascade Brewery at [24]-[26]. Internal activities such as product conception may be precursors to the marketing of the product but are not themselves marketing.

(Emphasis added)

108. It is not simply the taxpayer's activities as a seller that are relevant. As observed by Sundberg J in Lansell (PJ) at [109].

...A supplier cannot by a label govern the classification of a product for the purposes of the GST Act.

A food does not cease to be of a kind marketed as a prepared meal merely because the seller of the particular item of food does not engage in any marketing at all. A lasagne does not cease to be a food of a kind that is marketed as a prepared meal simply because it is sold in plain packaging with no accompanying advertisement. That is because other sellers of lasagne market lasagne as a prepared meal. The content of the marketing is to be distinguished from the seller's aims and hopes in respect of the marketing. The content of the marketing is determined having regard to what a reader of the labels and printed advertising materials or viewers of television or web advertisements would derive from them: Cascade Brewery at [11]. Relevant matters in evaluating how a food is marketed includes labelling, packaging, display, promotion and advertising: see for example Cascade Brewery at [23]-[26]

(Emphasis added)

110. The phrase "marketed as a prepared meal" directs attention to the marketing of the product to the end consumer of the product. I have therefore regarded how the foods are marketed by the applicant and by the sellers of the Products to consumers (ie, retail food vendors such as supermarkets) as important.

The application of the marketing test to the Products

As outlined in Issue 12, in determining whether you are marketing the Products as 'ingredients for confectionery' consideration must be given to your total process in promoting and selling the Products. These include:

•         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.

Name of the Products

The Products are sold in bulk packaging with the Product name, ingredients, brand and quantity printed on the packaging. The Products have generic names.

While the names of the Products may not convey that they are ingredients for confectionery, this is not a determinative factor on its own.

The price of the Products

You have stated that there is no price differentiation if the Products are used for confectionery versus non confectionery.

We consider that, in the present case, the price of the Products is not a determinative factor.

Labelling on the containers, packaging and literature or instructions packed with the Products

There is no labelling nor packaging differentiation if the Products are for use in confectionery versus non confectionery. Labels are standard for all products globally. There is no additional literature or instructions on the packaging of the Products.

The Products are sold in plain packaging. Standard packaging is used globally. Each product has a unique barcode/GTIN on its packaging.

The Packaging and labelling and barcode/GTIN of the Products is the same and not differentiated based on their application.

We consider that the use of standard labelling and packaging, and the lack of literature or instructions on the packaging is not determinative of whether the Products are marketed as an ingredient for confectionery. The purchasers will be able to refer to your website and product information sheets for information about the use of the Products.

How the goods are promoted or advertised and distributed

You stated that there is no differentiation for how the Products are promoted or advertised or distributed if used for confectionery versus non confectionery. You are not aware of how the purchasers will use the Products.

You also stated that all the Products are materially the same products for GST purposes as they are each a food colouring and food under paragraphs 38-4(1)(b) or 38-4(e) of the GST Act; and that for the purposes of GST treatment, it is not necessary to dissect the Products any further.

In your view none of the Products are marketed as ingredients for confectionery.

While we accept that all the Products are materially the same for GST purposes, we disagree that the Products are not marketed or are not of a kind marketed as ingredients for confectionery.

Consistent with the relevant cases, as cited above, marketing is the activities of the seller in communicating or conveying messages to the market for the promotion or sale of the product. Further, the content of the marketing is determined having regard to what a reader of the labels and printed advertising materials or viewers of television or web advertisements would derive from them.

In this case, all the Products can be used as ingredients for confectionery. The information on your website not only indicates that the Products can be used for many applications such as beverages; bakery and cereals, etc. but it also promotes the Products as ingredients for confectionery.

Your website provides that the Products are suitable for different types of confectioneries such as jellies and gummies, panned candy, etc. Images of a variety of colourful confectionaries are displayed next to the information about each category of confectionery.

Your website promotes and advertises the Products as a key feature of a variety of confectionery products. It states that ..... It recommends your products .... It states that your Products are ideal for certain situations concerning certain ranges of confectionery. It further states that your Products can help the user get the results they are looking for, so they get perfectly.... candy. This shows that your website expressly promotes the Products as ingredients for confectionery.

The marketing of the Products as ingredients for confectionery is further evidenced by the information on your website, where they are promoted for ....confectionery products.

In addition to the information on your website, the promotional material for some of your Products and their technical information sheets promotes the products as ingredients for confectionery.

Further, the information in the technical information sheets for the sample product...., clearly promotes the product as an ingredient for confectionery suitable for use in various candy and gum. This shows that the Products are also capable of being promoted as ingredients for confectionery, and are in fact promoted as such.

We acknowledge that the Products are also marketed for other non-confectionery uses. However, as stated above, for the purposes of item 8, it is not a requirement for the Products to be solely or principally marketed as ingredients for confectionery. The test is whether the Products are marketed or are of a kind of food marketed as ingredients for confectionery.

Conclusion

The information on your website, the marketing material and the technical information sheets provided indicate that the Products can be used for many applications. However, they also specifically market the Products as ingredients for confectionery. This information indicates your intention and aim to promote the Products to the manufactures of confectionery. As a seller you are communicating or conveying messages to the confectionery manufacturers for the promotion or sale of the Products.

Accordingly, we consider that the Products are members of a class or genus of foods that are marketed as ingredients for confectionery or are of a kind marketed as ingredient for confectionary and therefore covered under item 8.

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

Relevant legislation

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 paragraph 38-3(1)(e)

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

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) Regulations 2019 regulation 38-3.01

A New Tax System (Goods and Services Tax) Act 1999 Schedule 1 clause 1 table item 8