Private ruling: GST classification of a food product
Date of advice: 28 February 2018
Published: June 2018

Ruling: Q1: Is the supply of a food product GST-free pursuant to section 38-2 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)? | A1: Yes, your supply of a food product is GST-free under section 38-2 of the GST Act.

Relevant facts and circumstances: This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling. You are an Australian entity which is registered for GST. You distribute and market a food product which is sold on-line and some of the Supermarkets. The food product is dairy free, gluten free and vegan. The food product is marketed as baking chocolate chips. Ingredients Sugar, Cocoa Mass, Cocoa Butter, Soy flour, emulsifier (soy Lecithin), salt and Vanilla Extract The food product is made with 51% Cocoa solids providing an ideal balance between intensity and sweetness.

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 Paragraph 38-3(1)(c) | A New Tax System (Goods and Services Tax) Act 1999 Section 38-4 Reasons of decision | While these reasons are not part of the private ruling, we provide them to help you to understand how we reached our decision. | The supply of the food product is a taxable supply if the requirements of section 9-5 of the GST Act are satisfied. Section 9-5 of the GST Act states: | You make a taxable supply if: | (a) you make the supply for *consideration; and | (b) the supply is made in the course or furtherance of an *enterprise that you *carry on; and | (c) the supply is *connected with the indirect tax zone; and | (d) you are *registered, or *required to be registered for GST. | However, the supply is not a *taxable supply to the extent that it is *GST-free or *input taxed. | (* denotes a term defined in section 195-1 of the GST Act.) | Based on the information provided, the supply of The food product by you satisfy the requirements of paragraphs 9-5(a), 9-5(b), 9-5(c) and 9-5(d) of the GST Act because: ● you supply the food product for consideration. | ● the supply of the food product is made in the course of your enterprise. | ● Your supply of The food product is connected with Australia and | ● you are registered for GST. | The supply of the food product is not input taxed under any provisions of the GST Act or any other legislation. The next step is to determine whether the supply of the food product is GST-free. | GST-free | A supply of food is GST-free under section 38-2 of the GST Act if the products satisfy the definition of food in section 38-4 of the GST Act and the supply is not excluded by section 38-3 of the GST Act. | The term 'food' is defined in paragraph 38-4 (1) of the GST Act as including: (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; | Based on the information provided, the food product satisfies the definition of food under section 38-4 of the GST Act. Therefore next thing to consider is whether the food product falls within any of the exclusions in section 38-3 of the GST Act. Subsection 38-3 (1) of the GST Act excludes certain foods from GST-free status. These include: | ● food for consumption on the premises from which it is supplied; or | ● hot food for consumption away from those premises; or | ● food of a kind specified in the third column of the table in clause 1 of Schedule 1; or the combination of one or more foods at least one of which is food such a kind; or | ● Beverages (or an ingredient for a beverages), other than a beverage (or ingredient) of a kind specified in the third column of the table in clause 1 of Schedule 2; | The food product is food for human consumption as they will be made from ingredients that are food for human consumption. Therefore, the food product is considered to be food for the purposes of the GST Act. GST status | The GST status of foods for human consumption is outlined in the ATO public ruling "Detailed Food List" (Food list). The details on chocolate products are as follows: | Items | GST status | Notes | compound chocolate (marketed as an ingredient for confectionery) | taxable | Schedule 1, item 8 of the GST Act applies. | compound chocolate (not marketed as an ingredient for confectionery) | GST-free | Ingredients for food. Paragraph 38-4(1)(b) of the GST Act applies. compound chocolate confectionery (e.g. Easter Eggs) | taxable | Schedule 1, item 8 of the GST Act applies. | confectioner's chocolate (marketed as an ingredient for confectionery) | taxable | Schedule 1, item 8 of the GST Act applies. | confectioner's chocolate (not marketed as an ingredient for confectionery) | GST-free | Ingredients for food. Paragraph 38-4(1)(b) of the GST Act applies cooking/baking chocolate (marketed as an ingredient for confectionery) | taxable | Schedule 1, item 8 of the GST Act applies. | cooking/baking chocolate (not marketed as an ingredient for confectionery) | GST-free | Ingredients for food. Paragraph 38-4(1)(b) of the GST Act applies | Therefore where the chocolate products are marketed as an ingredient for confectionery, they will be excluded from being GST free under paragraph 38-3(1)(c) of the GST Act as the chocolate products are food of a kind specified in the third column of the table in clause 1 of Schedule 1 of the GST Act. | Item 8 of clause 1 of Schedule 1 of the GST Act provides: confectionery, food marketed as confectionery, food marketed as ingredients for confectionery or food consisting principally of confectionery' | However, if the chocolate products are not marketed as an ingredient for confectionery, they are GST-free under section 38-4 of the GST Act as they satisfy paragraph 38-4(1)(b) of the GST Act as Ingredients for food for human consumption. | We need to determine whether the food product is confectionery or food marketed as confectionery or food marketed as ingredients for confectionery for the purposes of Item 8 in Schedule 1 of the GST Act. What is confectionery? | Food Industry Partnership- issues register in issue 12 discusses what do we mean by the term ‘confectionery’ | It states: | 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. Issue 29 of Food Industry Partnership Issue register provides further guidance on the GST treatment of different types of chocolate. It states: | To assist 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. | Can it therefore be concluded that cooking chocolate is confectionery? Generally, the answer to this is no. Cooking/baking chocolate contains different ingredients to chocolate confectionery. Cooking/baking chocolate is often made to hold its shape when baked (for example, the chocolate chips used in chocolate chip cookies or muffins). | However, some, but not all, cooking/baking chocolate may fail a marketing test. Two marketing tests exist in item 8 of Schedule 1 of the GST Act - food marketed as confectionery and food marketed as ingredients for confectionery. We need to consider the marketing factor of the food product. | Food marketed as confectionery and food marketed as ingredients for confectionery | Issue 29 of Food Industry Partnership Issue register further states: | Food marketed as confectionery | As stated above, confectionery is something that is considered to be a treat or delicacy. Cooking/baking chocolate does not fit into this category. Often it is bitter and unpleasant to eat on its own. It is often found in the ingredient aisle of the supermarket, not with chocolate confectionery in the confectionery aisle. | However, compound chocolate that is sold as confectionery (for example, Easter for eggs) will be subject to GST. | Food marketed as ingredients for confectionery | Some cooking or baking chocolate will be caught as 'food marketed as ingredients for confectionery'. Some products on the market, although available in the ingredient aisle of the supermarket, contain recipes etc on the packaging. Often these recipes will be for confectionery. Others may contain a couple of different recipes, for example - how to make chocolates and a recipe for chocolate chip cookies. In both instances, the ATO will conclude that the products are marketed as an ingredient for confectionery. | Where cooking chocolate or baking bits are packaged in clear bags with no statements as to their intended use, and are found in the ingredients aisle of the supermarket, it is accepted that they are marketed as an ingredient for food for human consumption and are therefore GST-free. | However the same product is often sold at craft stores and markets. In these instances the cooking chocolate/baking bits are often sitting next to chocolate moulds and fondue that is used to make chocolates and other confectionery. It is therefore difficult to argue that it is being marketed for a purpose other than to make confectionery. Therefore item 8 of Schedule 1 of the GST Act would apply to subject this product, in this instance, to GST. The application of a marketing test can and will result in different treatments of the same product. This is unavoidable. | Based on the facts provided, we consider that the food product is marketed as baking chocolate chips and is not marketed as an ingredient for confectionery. Therefore the food product does not fall under confectionery nor is similar to those items. Accordingly, the food product is not taxable under item 8 of Schedule 1 of the GST Act and your supply of the food product is GST-free under section 38-2 of the GST Act.