Private ruling: GST and Food classification– mixed nuts fruit and chocolate pack (product)
Date of advice: 18 October 2017
Published: March 2018

Ruling: Q1: ls your supply of the product GST-free? | A1: No, your supply of the product is not GST-free under section 38-2 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act). It is a taxable supply

Relevant facts and circumstances: You are registered for Goods and Services Tax. You sell the product. The product is packaged and marketed as a health food and sold to consumers in a variety of sizes. When the product is sold to retailers and wholesalers, it is sold in cartons that contain multiple packs. You sent a sample for the product. On the labelling of the product, the ingredients include nuts, fruits, white chocolate. The nuts included in the product have not been salted, spiced, smoked or roasted or treated in any other similar way.

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 | 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 Schedule 1 clause 1 table item 8

Reasons for decision: Summary: The supply of the product is a supply that is not GST-free under section 38-2 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) as the product is excluded from being GST-free by paragraph 38-3(1)(c) of the GST Act (food of a kind that is specified in Schedule 1 of 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). The product ingredients include the white chocolate which is a taxable food under item 8 (confectionery) in the table in Schedule 1. Hence the supply of the product is a taxable supply. | 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. Food is defined in section 38-4 of the GST Act to include food for human consumption (paragraph 38-4(1)(a). The product satisfies the definition of food because it is sold as food for human consumption. Therefore the next thing to consider is whether it falls within any of the exclusions in section 38-3 of the GST Act. Of relevance to your product is paragraph 38-3(1)(c) of the GST Act, which provides 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 (1997) 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 and when determining the phrase ‘of a kind’, the Courts have 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 & Anor FC of T 2010 ATC 10851 ( Lansell 2010 ) did not provide an essential character test, rather it provided an overall impression test. Sunberg 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. In this regard, the case law Lansell House Pty Ltd & Anor v FC of T 2011 ATC 20-239 (Lansell 2011 ) at [30] relevantly provides: 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. Please note that this Relevant Court decision has been upheld by the Relevant Court, hence this quote from the Court decision is still relevant. Accordingly, something will be 'of a kind' if it is of the same nature or character (possessing the same distinguishing qualities) as the thing or group in question | Detailed Reasoning - Item 8 of Schedule 1:: 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. Therefore, if a food is not marketed as confectionery, but has the characteristics of confectionery it is still covered by item 8. Aickin 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” 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). In determining whether food is marketed as confectionery or as an ingredient for confectionery, it is also relevant to look at the uses to which the product is put. The ingredients of the white chocolate include sugar , milk solids, vegetable fat, emulsifier (soy), lecithin(492), flavours. Issue 29 of the Food Industry Partnership Issues Register outlines the GST treatment of different types of chocolate. In describing the various types of chocolates, the following statements are made: Compound chocolate Made with fats other than cocoa butter. They look a lot like chocolate, their taste is similar to chocolate, but they don't necessarily feel or act like chocolate. They may not have the shine of real chocolate or melt in your mouth. You may have to chew them. They may also be referred to as 'compound coatings' or 'summer coatings'. They are simpler to use than real chocolate in candy making. Instead of having to temper them, as you do real chocolate, you can use them as a coating by simply melting. White chocolate Not actually chocolate because it contains no chocolate liquor, which gives chocolate its colour and flavour. It may be made with vegetable fats, colourings and flavourings. From these descriptions, the white chocolate could be either compound chocolate, or white chocolate. In respect of compound chocolate, the Detailed Food List states: https://www.ato.gov.au/Calculators-and-tools/Host/?anchor=GSTFBSearch#GSTFBSearch/questions compound chocolate confectionery (e.g. Easter Eggs) Taxable Schedule 1, item 8 of the GST Act applies. 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. The white chocolate are not ingredients for food in the context of this product. They are not being used to make other food, such as for baking purposes. Therefore, the DFL entry for compound chocolate (not marketed as an ingredient for confectionery) does not apply. We consider that they are in the same class of food as the DFL listing “compound chocolate confectionery (e.g. Easter Eggs). White chocolate in the product are readily recognisable as confectionery. The white chocolate are small articles of sweet flavour; they contain sugar and they would be regarded as being in the nature of a delicacy. They taste like a sweet. They are made from confectionery type ingredients. Sugar content alone is not enough to determine whether a product is confectionery but in this case the white chocolate consists of three main ingredients which have been listed and are confectionery type ingredients. The white chocolate is suitable for eating without the consumer further processing. White chocolate in the snack packs are 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 white chocolate is that they are of a kind of confectionery. From our Detailed Food List: https://www.ato.gov.au/Calculators-and-tools/Host/?anchor=GSTFBSearch#GSTFBSearch/questions snack pack (containing Taxable and GST-free foods, e.g. cheese and biscuits, dip and crackers) Taxable Combination of foods, at least one of which is Taxable. Paragraph 38-3(1)(c) of the GST Act applies… This is also discussed in ATOID 2010/145, and issue 8 of the Food Industry Partnership Issues Register – both discuss the distinction between a ‘hamper’ and a ‘snack pack’. The GST treatment of a product comprising of a mixture of taxable and non-taxable components was also considered in ATOID 2003/857: GST and the supply of mixed fruit with glace cherries. This states: “As the dried fruits and glace cherries in the mixture retain their separate identities, they are a combination of foods. Therefore it is necessary to consider whether one or more of those foods is food of a kind specified in Schedule 1” Similarly, as the nuts, dried berries and white chocolate retained their separate identities in your product, we must consider whether one or more of those foods is food of a kind specified in Schedule 1, rather than whether the product as a whole is listed as being taxable. Since the product is food that is a combination of one or more foods, at least one of which is food of a kind specified in Schedule 1 (item 8), your supply of the product is not a GST-free supply under paragraph 38-3(1)(c) of the GST Act. | Detailed Reasoning - Conclusion:: The supply of the product is a supply that is not GST-free under section 38-2 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) as the product is excluded from being GST-free by paragraph 38-3(1)(c) of the GST Act (food that is a combination of one or more foods at least one of which is food of such a kind). The product ingredients include the white chocolate which is a taxable food under item 8 (confectionery) in the table in Schedule 1 of the GST Act (Schedule 1). Hence the supply of the product is a taxable supply.