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Is the entity, a food supplier, making a GST-free supply under section 38-2 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) when it supplies processed fruit strips?

Yes, the entity is making a GST-free supply under section 38-2 of the GST Act when it supplies processed fruit strips.

The entity is a food supplier. The entity is supplying processed fruit strips.

The fruit strip is made from more than 99% dehydrated fruit paste and a very small amount of natural colour and flavour. The fruit strip contains no added sugar.

The entity is registered for goods and services tax (GST).

A supply of food is GST-free under section 38-2 of the GST Act provided that it does not come within any of the exclusions listed in section 38-3 of the GST Act.

Section 38-4 of the GST Act provides the meaning of food. Under paragraph 38-4(1)(a) of the GST Act food includes 'food for human consumption'. The processed fruit strips are food for human consumption.

However, under paragraph 38-3(1)(c) of the GST Act, 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). Item 11 of Schedule 1 (item 11) lists food known as muesli bars or health food bars and similar foodstuffs.

The term 'muesli bar' is not defined in the GST Act and therefore takes its ordinary dictionary meaning. The Macquarie Dictionary (1997) defines a muesli bar as 'a commercially prepared and packaged snack made from a muesli mixture, usually sweetened and set in a bar shape'.

The processed fruit strips are not made from a muesli mixture and are not set in a bar shape. The processed fruit strips are not muesli bars.

The term 'health food bar' is not defined in the GST Act. Furthermore, the term is not defined in The Macquarie Dictionary (1997) and there is no generally accepted description of what constitutes a 'health food bar'. Accordingly, the meaning of this term is ambiguous. Where the meaning of a provision is ambiguous, it is permissible to refer to the explanatory memorandum to the relevant Act in determining the meaning of the provision (subparagraph 15AB(1)(b)(i) and paragraph 15AB(2)(e) of the Acts Interpretation Act 1901 ).

Paragraph 1.3 of the Further Supplementary Explanatory Memorandum to the A New Tax System (Goods and Services Tax) Bill 1998 states: 'The amendments will ensure that basic food for human consumption is GST-free. In addition, they will ensure that the current WST exemptions for food are, in general, maintained.'

Under the Wholesale Sales Tax (WST) system, the following guidelines were developed to indicate the characteristics of muesli bars and health food bars. These characteristics are: (1) Muesli bars and health food bars have less than 55% real fruit content. (2) Muesli bars and health food bars contain significantly more than 10% added sugars in any form. (3) Muesli bars and health food bars have greater than 2% added fat. (4) Muesli bars and health food bars are multi component products combining products such as fruits, nuts, cereals, sugars, milk etc.

The processed fruit strips have 99% fruit and contain no added sugar. They are low in fat and are not multi-component products combining ingredients such as fruits, nuts, cereals, sugar, milk etc.

Accordingly, the processed fruit strips are not health food bars. Based on the characteristics of muesli bars and health food bars established under the WST system, nor are they a similar foodstuff to health food bars or muesli bars. Therefore, the processed fruit strips are not covered by item 11.

As such, the supply of the processed fruit strips is not excluded from being GST-free under paragraph 38-3(1)(c) of the GST Act. Furthermore, none of the other exclusions in section 38-3 of the GST Act prevent the supply from being GST-free. Therefore, the entity is making a GST-free supply under section 38-2 of the GST Act when it supplies the processed fruit strips.