Private ruling: GST and food products
Published: August 2014

Ruling: Q1: Will your supply of the food products, be GST-free under section 38-2 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)? | A1: No.

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 registered for goods and services tax (GST). • You are a food manufacturing and distribution company. • You have recently received an adverse classification of 2 food products from the ATO through GS1. • You advise that the food products are small bread toasts that contain olive oil and seasoning. • The toasts have a golden brown crust and beige coloured crumb. • The toasts are crisp with an open texture and are slightly crumbly. • You advise that the intended use of the products by consumers is mainly as an alternative to 'Mini toasts' when entertaining and using these products with the addition of toppings. • You further advise that alternatively they can be used to snack instead of consuming traditional toasted loaf bread toasted or within salads as an alternative to croutons. • Your products are normally displayed in the premium entertaining section within the biscuit aisle. Within this category there are traditional biscuit products and also bread substitute products.

Relevant legislative provisions: All references are to the A New Tax System (Goods and Services Tax) Act 1999 : Section 38-2 | Section 38-3 | Section 38-4

Reasons for decision: Summary: Your supply of the food products will not be GST-free under the GST Act. | Detailed Reasoning - 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. The definition of food in section 38-4 of the GST Act includes food for human consumption, whether or not requiring processing or treatment. The food products will be sold in your retail outlets as food for human consumption and consequently can be treated as food for human consumption. The food products do not fall within any of the exclusions in section 38-3 of the GST Act, except potentially paragraph 38-3(1)(c). 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 the table in clause 1 of Schedule 1 to the GST Act (Schedule 1) or is a food that is a combination of one or more foods at least one of which is food of such a kind. Schedule 1 includes the following food categories that may be of relevance when considering the GST treatment of your supply of the food products: • Savoury snacks, and • Biscuit goods. | Detailed Reasoning - Savoury snacks: Item 15 of Schedule 1 (Item 15) covers products such as potato crisps, sticks or straws, corn crisps or chips, bacon or pork crackling or prawn chips as savoury snacks. Item 18 of Schedule 1 (Item 18) also covers food similar to Item 15 whether or not it consists wholly or partly of any vegetable, herb, fruit, meat, seafood or dairy product or extract and whether or not it is artificially flavoured. We acknowledge that the food products consist of dried bread, which may be GST-free as per the Detailed Food List (food list) (a public ruling for the purposes of the GST Act and available from the ATO website www.ato.gov.au). However, we also note that there is other and more relevant entry on the food list which is applicable to your food products which indicates the food products as taxable. To determine the actual nature of the food, and therefore whether it is GST-free or taxable, we need to look at the actual characteristics of your products. This may reveal that it is more appropriately characterised as a food of a kind listed in the Schedule and therefore not GST-free. Based on the types of products listed in item 15, we do not consider that the food products are best characterised as a food of a kind of the products that are listed in Item 15 of Schedule 1. However, to be a food that is not GST-free under Item 18 of Schedule 1, a food needs only to be similar to food that is covered by Item 15, regardless of what it consists of or how it has been processed. Under the legislation it does not matter whether the product has been fried, baked or roasted. In deciding whether the food products are similar to the products listed in Item 15 it is relevant to consider the reasoning and analysis provided in the full Federal Court case Lansell House Pty Ltd & Anor v FC of T [2011] FCAFC 6 (Lansell). In Lansell, it was necessary to determine if a product labelled as dried bread also had the characteristics of a cracker biscuit and therefore could be classified as such. In reaching this decision, Lansell recognised that a food product may have characteristics to allow it to be classified into more than one food category (in our case either savoury snacks or dried breads). However, Lansell further provides that for GST purposes a food product can only have one classification and this classification should be based on the product's characteristics. In coming to its decision, Lansell also considered (amongst other things) the product's: • use • in store display • marketing • tax treatment in the country of manufacture, and • appearance The ATO considers the principal characteristics of the products listed in Item 15 are that they are highly flavoured small bite size pieces of food generally consumed on their own. The flavouring is often obtained by seasoning (such as in the case of salt and vinegar potato chips) and also through the cooking process (the products being fried or baked). The food products have alternate flavours resulting from their ingredients and their flavoured salts and are small crispy bite size pieces capable of being consumed by themselves. Given all of these relevant factors, and following the guidance provided by Lansell, we consider that the food products have more the character of a savoury snack than that of dried bread. Hence, the food products are covered by Item 18 and therefore, their supply are taxable under paragraph 38-3(1)(c) of the GST Act. | Detailed Reasoning - Biscuit goods: Alternatively the food products may also fall within Item 32 of the Schedule as a biscuit good. The food products are not a product that is specifically listed in Item 32 but may be a product that is food of a kind of those listed (and hence taxable under paragraph 38-3(1)(c)). Of all the products listed in Item 32, crackers are the relevant type of biscuit that needs to be taken into account when determining whether the food products are a food of a kind of those specifically listed. Following the classification factors and guidance provided by Lansell, we consider the food products are lightly salted and have distinct flavouring brought about by the addition of other flavourings and their other ingredients (which includes a herb). You advise that the intended use of the food products by consumers is mainly as an alternative to 'Mini toasts' when entertaining and using these products with the addition of toppings. Based on the description above and the guidance provided by Lansell we consider the food products also have the character of a cracker type biscuit. Hence the food products are also captured by Item 18 and therefore, their supply would be taxable under paragraph 38-3(1)(c) of the GST Act.