Have you ever wondered why some foods are exempt from GST while others are taxed? A recent Administrative Appeals Tribunal (AAT) encounter sheds light on the intricate balance between GST-free and taxable foods.

Origins of the Divide

Back in 2000, when the Goods & Services Tax (GST) debuted, basic food got a pass to gain support for the new tax. Fast forward 23 years, and we’re left with a tricky boundary between GST-free and taxable foods, constantly under scrutiny. Chobani Pty Ltd, the US yoghurt giant, recently danced on this line in an AAT case.

The Flip Dilemma

At the core of the matter was Chobani’s Flip Strawberry Shortcake yoghurt. Is it GST-free or taxable? If the strawberry yoghurt and the cookie-chocolate bits were sold separately, the latter would be taxable while the yoghurt stays GST-free.

Chobani initially treated the flip yoghurt as GST-free, relying on a 2001 ruling. This allowed products with multiple parts to be GST-free if the other components were under $3 or 20% of the total. In 2021, the ATO flipped the script, deeming the flip yoghurt a combination food and taxable.

ATO’s New Take

Under the GST system, ‘combination foods’ with at least one taxable component attract GST. Lunch packs like tuna and crackers are classic examples. However, GST applies individually for ‘mixed supplies,’ where items aren’t meant to be consumed together (like hampers).

The AAT sided with the ATO, considering the flip product a combination food subject to GST.

Implications Unveiled

Chobani’s case has stirred the pot, leading to a new draft GST ruling (GST 2023/D1) from the ATO. Three principles now guide determining a supply of combination food:

1. A separately identifiable taxable food must be present.

2. It must be sufficiently joined with the overall product.

3. The taxable food must not be so integrated or insignificant that it doesn’t impact the product’s essential character.

Ripple Effect

This case shakes up the ATO’s GST status list. Oddly, dip (individually wrapped biscuits included) was labelled a mixed supply, not a combination food.

Birds Eye faced a similar fate in a previous case, with their frozen veggie combos deemed taxable. This highlights the importance for food industry players to stay updated on the evolving GST landscape. It’s a moving feast, and correct classifications are the key!

If you’re looking for expert advice on navigating the complex GST landscape, we’re here to help. Contact us today to schedule a consultation and ensure your products are correctly classified to avoid compliance issues. Our team of experienced professionals will provide you with the guidance and support you need to stay on top of the evolving GST regulations.

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