Chobani plain yoghurt is GST-free, but Chobani’s ‘flip’ range is taxable? A recent case before the AAT demonstrates how fine the dividing line is between GST-free and taxable foods.
Back in 2000, when the Goods & Services Tax (GST) was first introduced, basic food was excluded to secure the support of the Democrats for the new tax regime. Twenty-three years later, this exclusion results in an unwieldy dividing line between GST-free and taxable foods that are consistently tested and altered. It is this dividing line that US yoghurt giant Chobani Pty Ltd recently tested in a case before the Administrative Appeals Tribunal (AAT).
At the centre of the case was Chobani’s Flip Strawberry Shortcake flavoured yoghurt and whether the product, composed of a tub of strawberry-flavoured yoghurt with a separate tub of baked cookie and white chocolate pieces, is subject to GST. If the two components were sold in isolation, the baked cookie pieces and the yoghurt GST-free would be taxable.
Chobani had initially treated the flip yoghurt range as GST-free, relying on a 2001 GST ruling that allowed “a supply that appears to have more than one part but is essentially a supply of one thing” to be a composite supply. A composite supply product could be treated as GST-free if the other components did not exceed the lesser of $3 or 20% of the overall product. In Chobani’s case, this meant that they could treat the flip yoghurt as GST-free.
Then, in 2021, the ATO advised Chobani that its position had changed, and it intended to treat the flip yoghurt as a combination food and, therefore, taxable.
Under the GST system, ‘combination foods’, where at least one of the food components is taxable, are subject to GST. For example, lunch packs of tuna and crackers are a combination food. Therefore, GST applies to the whole product because the tuna and crackers are intended to be eaten together. But, where the food is a ‘mixed supply’, where each item is separate from the other and not intended to be consumed together, the GST will apply (or not) to each individual product. An example would be a hamper.
In the Chobani case, the AAT found in favour of the Commissioner’s interpretation that the flip product was a combination food and, therefore, subject to GST on the whole product.
The outcome of the Chobani test case has many implications. The first is that the ATO has issued a new draft GST ruling on combination foods (GST 2023/D1), replacing the previous guidance. The guidance states that three principles apply when determining whether there is a supply of a combination food:
- There must be at least one separately identifiable taxable food.
- The separately identifiable taxable food must be sufficiently joined together with the overall product.
- The separately identifiable taxable food must not be so integrated into the overall product or be so insignificant within that product that it does not affect the essential character of that product.
The second implication is that at least one classification on the ATO’s GST status of major product lines list will change. Weirdly, dip (with biscuits, wrapped individually and packaged together) was listed as a mixed supply, not a combination food.
In a previous case, Birds Eye (Simplot Australia) was also unsuccessful in its appeal to the Federal Court that their frozen vegetable products that combined omelette, rice or grains were GST-free. The Court determined that the foods were either prepared meals or a combination of foods and, therefore, taxable.
For food manufacturers, importers and distributors, it is important to keep up to date with the changing GST landscape and ensure that you are utilising the correct classifications – it’s a moving feast!