Sales Tax Determination

STD 95/6

Donut production equipment used in retail food shops

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FOI status:

may be releasedFOI number: I 1015928

Background

Donuts are often made in both specialised donut shops and other retail food establishments.

Under the sales tax law, manufacturers are generally entitled to exemption from sales tax on their production equipment. However special rules apply where a person manufactures bread, cakes or pastry for sale in a retail establishment . In these circumstances, only an eligible manufacturer is entitled to exemption on production equipment that is for use mainly in connection with the manufacture of these goods.

A manufacturer who is not an eligible manufacturer , pays sales tax on production equipment that is used to make bread, cakes or pastry in a retail establishment .

Issue

When does donut production equipment used in retail food shops qualify for exemption from sales tax?

Decision

Donut production equipment (including mixers, proving ovens, deep-frying equipment, utensils and parts for these goods) qualifies for exemption from sales tax where:

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the donut maker is an eligible manufacturer , that is, where the predominant activity of the shop is the production and sale of bread, cakes or pastry ; and

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the equipment is used mainly (that is, more than 50%) in the production of those goods.

In practice this means that production equipment used by specialised donut shops will qualify for exemption. This decision overturns private rulings which previously denied sales tax exemption for production equipment used by specialised donut shops.

Where tax has been paid on donut production equipment used in circumstances that would qualify for exemption under this determination, tax will have been overpaid within the meaning of the credit provisions in both the current and previous sales tax legislation. Entitlement to a credit would be subject to a claimant satisfying the normal requirements of the relevant credit provisions.

Date of effect

This determination is effective immediately.

Reasons

We have based our decision on the following legislative provisions: Sales Tax (Exemptions and Classifications) Act 1992, section 12; Item 18, Schedule 1.

Where donuts are produced in a retail establishment for sale, the donut maker must be an eligible manufacturer in order to qualify for exemption from sales tax on equipment used mainly in the production of donuts.

In the sales tax law:

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an eligible manufacturer means a confectioner, baker, pastry-cook, or a person who carries on a business of manufacturing savoury snacks;

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a retail ... establishment includes a retail shop, retail outlet (including a vehicle) or any similar establishment or outlet ; and

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pastry does not include pizzas or similar goods.

The expressions baker and pastry-cook are not defined in the sales tax law and therefore take their ordinary meaning. The Macquarie Dictionary defines them as follows:

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a baker is one who bakes; one who makes and sells bread, cake, etc.;

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a pastry-cook is a maker or seller of pastries, cakes, etc.; and

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a donut is a small ring-shaped cake of sweetened or, sometimes, of unsweetened dough fried in deep fat.

The expressions baker and pastry-cook (in the definition of eligible manufacturer ) refer to the general character of a particular business. A baker or pastry-cook normally produces a range of breads, cakes or pastries. Therefore a business is characterised as a baker or pastry-cook if the production and sale of bread, cakes or pastries is the predominant activity.

As donuts are cakes , a donut maker will be an eligible manufacturer if the production and sale of donuts is the predominant activity of the business. This is the case with specialised donut shops.

On the other hand a hotel, restaurant or snack bar may, for example, also produce donuts. None of these businesses would normally be characterised as a baker or pastry-cook . Accordingly the hotel, restaurant or snack bar would not be an eligible manufacturer and would pay sales tax on purchase of any donut production equipment.

Communication of the Decision

This determination is a public ruling for the purposes of section 77 of the Sales Tax Assessment Act 1992 and may be relied upon by any person to whom it applies. The document has been made available for publication by the sales tax publishing houses.

Commissioner of Taxation
15 June 1995

References

ATO references:
NO NAT 95/4021-1

Subject References:
donut production equipment;
eligible manufacturer, generally - excluded property;
sales tax classifications;
sales tax exemptions

Legislative References:
Sales Tax (Exemptions and Classifications) Act 1992 section 12
Item 18, Schedule 1