The Tribunal has handed down two decisions relating to GST. One confirming the Commissioner’s view of the taxable treatment of a flavoured yoghurt product sold in a plastic tub which included a separate compartment containing a blend of cookie pieces and white chocolate chips which were intended to be “flipped” into the yoghurt for consumption. The other addressed the meaning of a “deposit” for the purposes of Division 99 of the GST Act

Chobani Pty Ltd and Commissioner of Taxation

In Chobani Pty Ltd and Commissioner of Taxation [2023] AATA 1664 the Tribunal agreed with the Commissioner that the sale of the Chobani Flip Strawberry Shortcake flavoured yoghurt (“the Product”) was subject to GST. The Product comprised strawberry flavoured yoghurt which sits in the main compartment of a plastic tub and dry inclusions which sit in a separate smaller compartment of the same plastic tub. The dry ingredients are a blend of cookie pieces and white chocolate chips. The decision discloses that the case was a test case, given the applicant sold a range of “flip” products with different flavours and dry inclusions.

The central question was whether the Product fell within the exclusion from the GST-free treatment of “food” in s 38-3(1)(c), specifically whether the Product falls within the exclusion for “food of a kind specified in the third column of the table in clause 1 of 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 extract in bold was relevant because the dry ingredients included cookie pieces and white chocolate chips, both of which potentially fell within taxable items specified in the table, namely:

• Item 8 – confectionery, *food marketed as confectionery, food marketed as ingredients for confectionery or food consisting principally of confectionery.
• Item 32 – *food that is, or consists principally of, biscuits, cookies, crackers, pretzels, cones or wafers

The Applicant’s primary argument was that the Product was not a “combination” of foods of the kind covered by s 38-3(1)(c). The Applicant submitted that the expression referred to combinations that leave the components sufficiently distinct from one another “that one cannot be regarded as practically, economically and commercially consumed into the other”. The Commissioner submitted that the combination required by s 38-3(1)(c) refers to food “that gives the overall impression of being the product of joining together” two or more food items. That approach, reflecting characterisation cases referring to an overall impression, may conflate construction of the legislation and characterisation of the product: the outcome or product of joining together is a suggested construction of the phrase while the overall impression may inform whether the product has that character.

The Tribunal concluded that there was nothing in the text of the legislation considered in context or the policy of either the food provisions generally or s 38-3(1)(c) that warrants confining the provision in the way the Applicant submitted. Rather, the exclusion applies at least when a product meets the description: food that is a combination of foods that includes separately identifiable food or foods excluded by the table in clause 1 of Schedule 2 or foods of that kind. The Tribunal observed as follows (at [74]):

There may be cases where excluded items remain separately identifiable but nevertheless are so integrated into the overall product, or so insignificant, that they would not affect the characterisation. That is clearly not so in respect of the Product in this case. As discussed below, the dry inclusions are not integrated into the yoghurt and are significant as indicated by their physical separation in the product as sold; relative weight and cost; the marketing of the Product and consumer experience; and indeed, even its naming as a “flip” product.

The Tribunal considered a range of factors in order to form an overall impression of the Product. Ultimately, the Tribunal concluded as follows (at [144]):

Having regard to the physical composition and presentation of the Product; how it is marketed; and the significance of the dry ingredients to the marketing of the Product and the consumer experience, in my view the overall impression that the Product is a combination of strawberry-flavoured yoghurt, cookie pieces and white chocolate chips – in which the cookie pieces and chocolate chips are not insignificant; remain readily identifiable; and are not subsumed into a separate product – is inescapable. It follows that, if the dry inclusions are biscuit goods and/or confectionary, the exclusion in s 38(10(c) applies and the supply of the Product is a taxable supply.

Alternatively, the Applicant submitted that the “dry ingredients” did not fall within items 8 (confectionary) or 32 (cookies) because those ingredients should be regarded as a blend, being acquired from the supplier as a single mix of products. The Tribunal did not find this submission persuasive, observing that it surely would make no difference to the classification of the Product whether the Applicant were to procure the dry inclusions as a blend or procure them separately and undertake the blending itself (at [157]). The Tribunal also observed that the cookie prices comprised 70% of the dry ingredients by weight, suggesting that the “blend” consisted principally of cookies, which also fell within item 32 as “food that…consists principally of…cookies“.

The decision is an example of the difficulties involved in the classification of food products for GST purposes. As observed by the Tribunal (at [75]):

That is the inevitable consequence of the policy decision to exempt some but not all foods, as evidenced by the unfortunate history of sales tax, customs duty and GST litigation here and elsewhere.

Container Homes Designer Domain Pty Ltd and Commissioner of Taxation

In Container Homes Designer Domain Pty Ltd and Commissioner of Taxation [2023] AATA the Applicant entered into an arrangement for King Island Links Pty Ltd (“King Island Links”) to be supplied with 20 customised container homes at $37,300 per unit. Upon entry into the arrangement, King Island Links paid $373,000 (“the Payment”), being 50% of the agreed total price for the units, to Container Homes. Subsequently, King Island Links unilaterally withdrew from the arrangement without taking delivery of any of the homes but stated Container Homes could retain the $373,000. The question was whether a payment equal to 50% of the total price was properly characterised as a “deposit” for the purposes of Division 99. If so (as contended by the Commissioner), its forfeiture was treated as consideration for a supply by the applicant and GST was payable.

The Tribunal observed (at [7]) that the parties referred to the issue whether the Payment was a “deposit” as shorthand for the statutory question of whether it was a “deposit held as security for the performance of an obligation”. The Tribunal adopted the same convenient abbreviation of the issue in the reasons.

The Tribunal made a number of observations on the meaning of a “deposit” and Division 99:

• a deposit is regarded as “an earnest to bind the bargain”
• a deposit may be forfeited by a purchaser irrespective of a vendor having sustained any loss;
• division 99 is not limited to land transactions and is intended to also apply in analogous circumstances to supplies of things other than land
• while the percentage a deposit bears to the total purchase price is relevant, mere consideration of that aspect is not sufficient to determine whether an amount paid by the recipient of a supply is a true deposit – the Courts have accepted that a seller at greater risk between contract and completion might justify a higher deposit on that basis – the Commissioner noted the additional risk borne by Container Homes in entering into the contract to supply the homes; a risk which, as the Commissioner pointed out, came home to Container Homes in this case when it was left liable to pay significant amounts to the supplier and unable to find a buyer for the four units of which it took delivery. The length of the contract, which provided for 120 days between acceptance and completion, may also be relevant in that regard.
• the cases do acknowledge, at least in a real estate context, that a higher percentage deposit may be acceptable where the risks for the vendor are higher than usual. And there were obvious risks for Container Homes in this case. Further, the characterisation of a payment may, depending on the circumstances, be inferred from the use of the word “deposit” and the conduct of the parties.

Ultimately, the Tribunal concluded that the payment was a not a deposit, stating as follows (at [64]):

The amount involved in this case is substantial. As a deposit, it would be extraordinary as a percentage of the selling price. The contract most prominently describes the Payment not as a deposit but as an advance. The potential commercial consequences of characterising a payment as a deposit rather than an advance or part payment – forfeitable in the event of default regardless of whether the seller suffers any loss – are serious. The Tribunal should not rush to infer that the Payment was a deposit without a sound foundation for doing so.