Private ruling: Goods and services tax (GST) and food
Published: July 2015

Ruling: Q1: Is GST payable on your sales of X? | A1: Yes.

Relevant facts and circumstances: You are registered for GST. You are planning to supply retail packages of X for home baking purposes. They are a certain brand. Characteristics of X: • They are a type of food product. • They have a certain shape. • They have a certain width. • They have a rich, sweet flavour. X is designed to be used as cake ingredients combined with a usage as a topping. X is used and packed in a format designed to be used as an ingredient in cakes and occasionally for decorating cakes (as a topping). X will be used in the same way as cooking chocolate, that is, decorating, and as an ingredient used in, cakes. X is not designed for the confectionery market; it is not sold as confectionery (or confection) and it is not intended to be consumed other than as an ingredient for final food preparation. The marketing does not categorise X as confectionery (or confection). X will be sold in (number) gram plastic packets. Information on packaging • Product name (X) • Information that indicates that it is intended for baking. • Directions: • (Mix in with cake mixes) • (Decorate cakes; use as topping for cakes or desserts) Ingredients (Ingredients include sugar and other things) Nutrition information (Nutrition information) Other information X will be available in the same aisle of the supermarket as other cooking ingredients (for example, flour).

Relevant legislative provisions: A New Tax System (Goods and Services Tax) Act 1999 subsection 7-1(1) | A New Tax System (Goods and Services Tax) Act 1999 section 9-5 | A New Tax System (Goods and Services Tax) Act 1999 section 9-40 | 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: Summary: X is not GST-free as food because it is confectionery and edible cake decorations. GST is payable on your sales of X, because all of the requirements of section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) are met. | Detailed Reasoning - Detailed reasoning: GST is payable on your taxable supplies. You make a taxable supply where you satisfy the requirements of section 9-5 of the GST Act, which 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 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. (*Denotes a term defined in the GST Act) You meet the requirements of paragraphs 9-5(a) to 9-5(d) of the GST Act. This is because: • you will supply X for consideration • you will supply X in the course or furtherance of an enterprise that you carry on • these supplies will be connected with Australia, and • you are registered for GST. There are no provisions of the GST Act under which your sales of X are input taxed. Therefore, what remains to be determined is whether your sales of X are GST-free. A supply of food is GST-free in accordance with section 38-2 of the GST Act, if it satisfies the definition of food in section 38-4 of the GST Act and it does not come within any of the exclusions in subsection 38-3(1) of the GST Act. In accordance with subsection 38-4(1) of the GST Act food includes: • food for human consumption (paragraph 38-4(1)(a)) • ingredients for food for human consumption (paragraph 38-4(1)(b)) Subsection 38-3(1) of the GST Act states: A supply is not GST-free under section 38-2 if it is a supply of: (a) *food for consumption on the *premises from which it is supplied (b) hot food for consumption away from those premises; or (c) food of a kind specified in the third column of the table in clause 1 of Schedule 1, or food that is a combination of one or more foods at least one of which is food of such a kind; or (d) a *beverage (or an ingredient for a beverage), other than a beverage (or ingredient) of a kind specified in the third column of the table in clause 1 of Schedule 2; or (e) food of a kind specified in regulations made for the purposes of this subsection. Your product is an ingredient for food for human consumption. Therefore, it is food for the purposes of the GST Act (by virtue of paragraph 38-4(b) of the GST Act). The exclusions at paragraphs 38-3(1)(a), 38-3(1)(b), 38-3(1)(d) and 38-3(1)(e) of the GST Act do not apply to Fudge Chunks. Foods listed in the third column of the table in clause 1 of Schedule 1 to the GST Act next to item numbers 8 to 14 come under the column two heading 'Confectionery' | Detailed Reasoning - Item 8: Item 8 in the table in clause 1 of Schedule 1 to the GST Act (item 8) lists confectionery, *food marketed as confectionery, food marketed as ingredients for confectionery or food consisting principally of confectionery. Your contention You consider that X is not covered by item 8 because: • item 8 comes under the category heading in column two 'confectionery' • you believe that confectionery means candy marketed exclusively as confectionery • X is not designed as confectionery (in your opinion) or sold as confectionery (or confection) • the marketing does not categorise X as confectionery (or confection) • X have little or no use except when applied as an ingredient when preparing a cake or similar dessert • you consider that X is not able to be consumed other than as an ingredient in final food preparation, and • you do not believe X falls into the category of confectionery. | Detailed Reasoning - Our contention: Item 8 lists confectionery and food marketed as confectionery. Therefore, if a food is not marketed as confectionery, but has the characteristics of confectionery it is still covered by item 8. Aicken J in the High Court decision Landau and Anor. V Goldwater and Anor. 13 ALR 192 gave a general description of confectionery: "one 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." Subsection 15AB(1) of the Acts Interpretation Act 1901 (Acts Interpretation Act) provides that consideration may be given to material not forming part of an Act but which is capable of assisting in the ascertainment of the meaning of the provision. Paragraph 15AB(2)(e) of the Acts Interpretation Act provides that any explanatory memorandum relating to the Bill containing the provision is extrinsic material that may be considered for this purpose. Therefore, it is appropriate to consider the Further Supplementary Explanatory Memorandum to the A New Tax System (Goods and Services Tax) Bill 1998 (EM). The EM states: 1.44 New Schedule 1A lists certain products that will be taxed as confectionery . This list is essentially the same as the definition of confectionery used in the WST legislation. 1.45 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 new Schedule 1A ' (emphasis added note that Schedule 1A was enacted as Schedule 1 of the GST Act). The Detailed Food List (DFL) on the Australian Taxation Office (ATO) website specifies that (a certain type of product) is taxable, by virtue of being confectionery. X is readily recognisable as confectionery. They are small articles of a very sweet, rich flavour; they contain substantial amounts of sugar (they are over (certain percentage) sugar) and they would be regarded as being in the nature of a delicacy. They taste like a sweet. They are a type of (certain type of food). They are made from confectionery type ingredients. They are suitable for eating without the consumer further processing them or cooking them (they can be used, as is, as a topping for cakes). X is in the same class of food as chocolate sweets, boiled sweets, lollipops, sherbet, marshmallows and fruit lollies. The ATO's impression from looking at, feeling and tasting X is that it is confectionery. Therefore, X is covered by item 8. | Detailed Reasoning - Item 14: Item 14 in the table in clause 1 of Schedule 1 (item 14) lists edible cake decorations. This food product comes under the column two category heading 'confectionery'. | Detailed Reasoning - Your contention: You are aware that Schedule 1 lists 'edible cake decorations' under the category heading in column two 'confectionery' and therefore, you consider that the type of edible cake decorations covered by item 14 are ones that are candy confectionery marketed exclusively as confectionery to decorate cakes. X has little or no use except when applied as an ingredient when preparing a cake or similar dessert. You consider that X is not covered by item 14 because it is not designed (in your opinion), sold or marketed as confectionery (or confection) and is not intended to be consumed other than as an ingredient in final food preparation. | Detailed Reasoning - Our contention: The DFL specifies that edible cake decorations are taxable. Subsection 15AB(1) of the Acts Interpretation Act 1901 (Acts Interpretation Act) provides that consideration may be given to material not forming part of an Act but which is capable of assisting in the ascertainment of the meaning of the provision. Paragraph 15AB(2)(e) of the Acts Interpretation Act provides that any explanatory memorandum relating to the Bill containing the provision is extrinsic material that may be considered for this purpose. Therefore, it is appropriate to consider the Further Supplementary Explanatory Memorandum to the A New Tax System (Goods and Services Tax) Bill 1998 (EM). The EM states: 1.44 New Schedule 1A lists certain products that will be taxed as confectionery . This list is essentially the same as the definition of confectionery used in the WST legislation. 1.45 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 new Schedule 1A ' (emphasis added note that Schedule 1A was enacted as Schedule 1 of the GST Act). Note that the specific types of foods listed in items 8 to 14 of Schedule 1 are not necessarily all confectionery in the ordinary sense, but are deemed to be confectionery as reflected in the EM and are taxed accordingly. The list in Schedule 1 is essentially the same, although not exactly the same, as in the previous sales tax regime. Accordingly, it is the ATO view that the second column heading of 'confectionery' was not intended to restrict the class of goods covered by item 14 to certain confectionery goods. It therefore follows that edible cake decorations do not need to be confectionery in the ordinary sense, in order to be covered by item 14, as the EM makes clear, they are taxed as confectionery. Additionally, the 'category' headings in column 2 are not operative, as explained below. 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). The ATO acknowledges the general principle that section 182-15 can be used to enable a column 2 heading in the table in clause 1 of Schedule 1 to be referred to for the purpose of providing further guidance on how the words in an item are to be interpreted. However, this can only occur for the four purposes specified in subsection 182-10(2), namely to: 1. Determine the purpose or object underlying the provision (paragraph 182-10(2)(a) of the GST Act); 2. Confirm that the provision's meaning is the ordinary meaning conveyed by its text, taking into account its context in the Act and the purpose or object underlying the provision (paragraph 182-10(2)(b) of the GST Act); 3. Determine the provision's meaning if the provision is ambiguous or obscure (paragraph 182-10(2)(c) of the GST Act); or 4. Determine the provision's meaning if the ordinary meaning conveyed by its text, taking into account its context in the Act and the purpose or object underlying the provision, leads to a result that is manifestly absurd or is unreasonable (paragraph 182-10(2)(d) of the GST Act). The ATO determines that the purpose or object underlying the provision (item 14) is clear, that being to ensure that edible cake decorations are not GST-free. Any referral to the column 2 heading provides no further assistance in this matter, hence paragraph 182-10(2)(a) of the GST Act is not relevant. The second purpose is to confirm that the provision's meaning is its ordinary meaning and not any other, taking into account its context in the GST Act and the purpose or object underlying the provision. Taking into account the excerpt from the EM, as set out above, it is the ATO view that the application of the column heading 'confectionery' was not intended to restrict the meaning of 'edible cake decorations' for the purposes of item 14 to edible cake decorations that are confectionery in the ordinary sense. The third purpose is to assist in determining the meaning of the provision where the provision is ambiguous or obscure. Thus, to accept that paragraph 182-10(2)(c) applies, it is necessary to accept that ambiguity or obscurity exists in the words that item 14 uses. The ATO considers that the words of item 14 clearly identify a class of goods, namely one that encompasses food known as edible cake decorations. Accordingly, it is the ATO view that the words of item 14 in themselves are not ambiguous or obscure, and thus paragraph 182-10(2)(c) of the GST Act is not relevant. The fourth purpose is to determine the provision's meaning if the ordinary meaning conveyed by its text leads to a result that is manifestly absurd or unreasonable. It is the ATO view that it is not manifestly absurd or unreasonable that edible cake decorations are subject to GST. Hence, it is considered that paragraph 182-10(2)(d) of the GST Act is not relevant. Therefore, we do not consider that section 182-15 of the GST Act in combination with the 'category' heading in Schedule 1 - 'Confectionery' narrows the scope of the term 'edible cake decorations' for the purposes of item 14. X is edible. X is specifically designed, and are marketed, to be used as a cake decoration - a topping for cakes (in addition to being specifically designed, and marketed, to be mixed in with a cake mixture). Therefore, X is edible cake decorations. The characterisation of a product as an edible cake decoration is not affected by the actual use to which it is put by a consumer. One of the purposes for which X is designed is to use as a cake decoration. | Detailed Reasoning - Your conclusion: You consider that X is food as it is an ingredient for food for human consumption. Additionally, you believe that X is not food of a kind listed in Schedule 1. Therefore, you believe that your sales of X are GST-free. | Detailed Reasoning - Our conclusion: X is covered by two items in Schedule 1 (items 8 and 14). Therefore, the exclusion at paragraph 38-3(1)(c) of the GST Act applies. Hence, your sales of X are not GST-free under section 38-2 of the GST Act. There are no other provisions of the GST Act under which your sales of X are GST-free. Hence, as all of the requirements of section 9-5 of the GST Act are met, GST is payable on your sales of X.