Delving into the intricate world of Goods and Services Tax (GST), the recent Administrative Appeals Tribunal (AAT) case involving Chobani Pty Ltd sheds light on the subtle distinctions between GST-free and taxable foods.
Back in 2000, when GST was introduced, basic food was exempted, leading to a nuanced boundary between GST-free and taxable foods. Chobani, the US yoghurt giant, recently faced this challenge in a case before the AAT, specifically concerning its Flip Strawberry Shortcake flavoured yoghurt.
The heart of the matter revolved around whether the product, consisting of a tub of strawberry-flavoured yoghurt paired with a separate tub of baked cookie and white chocolate pieces, should be subject to GST.
Interestingly, if sold separately, the baked cookie pieces would be taxable, while the yoghurt would be GST-free.
Chobani initially treated the Flip Yoghurt range as GST-free, relying on a 2001 GST ruling that considered a supply with multiple parts as a composite supply. This allowed GST-free treatment if the other components did not exceed the lesser of $3 or 20% of the overall product.
However, in 2021, the Australian Taxation Office (ATO) changed its stance, classifying the Flip Yoghurt as a combination food, hence taxable. Combination foods, where at least one component is taxable, attract GST. This is in contrast to mixed supplies, where each item is separate and not intended to be consumed together.
The AAT ruled in favor of the ATO’s interpretation, deeming the Flip Yoghurt a combination food subject to GST on the entire product.
The implications are twofold.
Firstly, the ATO issued a new draft GST ruling (GST 2023/D1) on combination foods, outlining three principles for determining whether a supply qualifies as a combination food.
- There must be at least one separately identifiable taxable food.
- The separately identifiable taxable food must be sufficiently joined with the overall product.
- The separately identifiable taxable food must not be so integrated or insignificant within the product that it has no effect on its essential character.
Secondly, this case may lead to changes in the ATO’s GST status for certain product lines, such as the classification of dip (with biscuits, wrapped individually and packaged together).
This development underscores the importance for food manufacturers, importers, and distributors to stay abreast of the evolving GST landscape and ensure accurate classifications. It’s a dynamic field that requires vigilance to navigate successfully.
To check if other food or beverages are GST-free or taxable, you can use the food and beverage search tool. This is the quickest and easiest way to help you work out if GST applies so you get it right from the start.