Sales Tax Bulletin - No. 31

STB 31

Containers for use in the retail food and beverage industry

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Date of Issue: 1 December 1996

Valid from 1 December 1996

About this bulletin

This bulletin sets out general guidelines for people who deal with containers and packaging materials for use in the retail food and beverage industry. It 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.

This bulletin alters all previous advice on the classification of containers and packaging materials for use in the retail food and beverage industry from 1 December 1996. However, if a person will pay less tax because of this bulletin, it can be acted upon immediately.

Nothing in this bulletin may be taken as automatically authorising a refund of sales tax before the date of effect of the bulletin. Credit claims will be considered on their individual merits.

If after reading this bulletin you need more information on how the sales tax law affects you, contact your local Tax Office on 13 28 66 for the cost of a local call.

What are containers?

The law describes containers as:

• • packaging which you use to pack or secure the contents for marketing or delivery, in the ordinary course of a business; and

• • ancillary items packed or secured with the contents which are intended (and are reasonably necessary) to help the consumer to use those contents.

What makes containers exempt from tax?

Item 27 in Schedule 1 to the Sales Tax (Exemptions and Classifications) Act 1992 provides an exemption for goods to be used as containers. Exemption only applies if all the following conditions are satisfied :

• • all of the contents of the container are assessable goods or are assessable goods and containers for those assessable goods (assessable goods do not include goods that have been used in Australia);

• • all of the contents will be the subject of a later assessable dealing by the person who packed them. An example of an assessable dealing is the sale of foodstuffs which were manufactured by the person who makes the sale. It does not include a sale of foodstuffs by retail where you bought those goods from someone else; and

• • possession or control of the main container will pass to the purchaser or customer for that assessable dealing.

Even if all of the above conditions are met, goods to be used as containers will not qualify for exemption under Item 27 if any of the following apply:-

• • they are used for the marketing or delivery of take-away foods or beverages, no matter where these goods are consumed; or

• • they are used for the marketing or delivery of ice-cream, biscuits and similar goods where those goods are manufactured and sold by retail from the premises or vehicles where they are manufactured.

What are take-away foods or beverages?

These goods are not defined in the law. However, the term "take-away food" has been interpreted by the courts to mean food which has been prepared for consumption away from the premises where it is sold, irrespective of the place where the food itself is prepared.

Such take-away food is characterised by being freshly prepared (including cases where the food may have been prepared some time before consumption but is heated up at the time of purchase) for virtually immediate consumption.

Likewise, the term "take-away beverage" refers to a beverage which is freshly prepared for almost immediate consumption.

For the purposes of the sales tax law, consumption may be at or away from the point of sale.

Some examples of goods that are take-away foods or beverages

• • beverages such as coffee, tea, chocolate and soup;

• • cooked fish and chips, spring rolls and dim sims;

• • cooked lasagne, kebabs, tacos and souvlaki;

• • cooked whole chickens, chicken pieces and prepared salads;

• • filled or buttered sandwiches, rolls, bagels and focaccia;

• • hamburgers, hot dogs, steak sandwiches and crumbed sausages;

• • milk shakes, thick shakes and post-mix drinks;

• • pizzas and garlic bread; and

• • pies, quiche, sausage rolls and pasties.

Some examples of goods that are not take-away foods or beverages:

• • breads, unfilled or unbuttered rolls, bagels and focaccia;

• • cakes (including donuts), sweet pies, and Danish style pastries;

• • fresh seafood including fish, fish fillets, prawns, oysters and crabs;

• • frozen dinners, pizzas, pies, party pies, pasties or sausage rolls (all sizes) of the kinds sold through supermarkets and convenience stores; and

• • pre-packaged or canned fruit juices, soft drinks and flavoured milk.

Can I buy containers free of sales tax for use in my business?

Set out below are some examples of whether or not retailers in the food and beverage industry can buy containers or other packaging free of sales tax.

Butchers

Most retail butchers manufacture some of the products they sell, e.g., sausages and various cuts of meat which they produce from the carcasses of various animals. Containers used to package these goods qualify for exemption from sales tax.

However, butchers also sell by retail goods not manufactured by themselves, such as frankfurts, smoked chickens, hams and similar smallgoods bought from other suppliers. Containers used to package these goods do not qualify for exemption.

Poultry retailers

Containers bought by poultry retailers to wrap or secure chicken mince and sausages, drumsticks and similar products prepared by them from fresh or frozen poultry qualify for exemption.

Exemption isn't available for containers used for whole fresh or frozen poultry, smoked chickens and other smallgoods that are not manufactured by the poultry retailer but are bought from outside suppliers. Nor is exemption available for containers for take-away foods.

Fish and chip shops and retail seafood suppliers

Cooked fish, chips, potato scallops, hamburgers etc. are take-away foods. Containers or packaging for these goods do not qualify for exemption.

However, retail seafood suppliers and, less frequently, fish and chip shops, may manufacture fish fillets from whole fish bought by them. Containers used to market fresh fish fillets manufactured by these people will qualify for exemption. Containers used to market whole fresh fish, crabs, etc. bought from other suppliers do not qualify for exemption.

Retail bakeries, cake shops and patisseries

Containers qualify for exemption from sales tax if they are bought for use by a manufacturer of cakes (including donuts), unfilled breads, bagels, focaccia, croissants, muffins and sweet pies, to wrap or secure those goods for marketing or delivery.

Exemption is not available for containers used to wrap or secure take-away foods such as sandwiches, pies, sausage rolls, pasties, quiche or biscuits even if those goods are manufactured by the bakery, cake shop or patisserie.

Supermarkets

Supermarkets that operate retail butcheries and bakeries may buy containers free of sales tax where those containers are used to wrap up or secure goods (other than take-away foods, biscuits etc.) in the same way as independent butcheries and bakeries.

Supermarkets may also use containers for a number of other purposes. These include:

• • singlet bags used at check-out counters;

• • paper and plastic bags used in the fruit and vegetable or dairy sections;

• • plastic tubs for marketing take-away foods, e.g., salads; and

• • containers used to provide in-store samples.

None of the above containers qualify for exemption for the following reasons:

• • singlet bags do not pack or secure their contents for the purposes of the definition of "container";

• • paper and plastic bags used in the above sections are not used as containers for goods which are the subject of a later assessable dealing;

• • plastic tubs are containers for take-away foods; and

• • the giving away of samples by the supermarket is generally not regarded as an activity that is an assessable dealing.

School tuck shops

School tuck shops operated by either a non-profit or government school or by non-profit parents' and citizens' associations connected with the school, may buy all goods for their own use (and not for sale) under exemption Item 110 in Schedule 1.

Because containers for food and drink that they sell are regarded as being applied to the tuck shops' own use (e.g., disposable cups for cordial, chip cups and cling wrap for wrapping up slices of cake), the containers qualify for exemption under Item 110.

Pizza restaurants and pizza home delivery services

People who make pizza, spaghetti, garlic bread etc. for sale from retail premises cannot buy any containers for marketing such goods free of sales tax. They must also pay sales tax on pizza delivery bags of the kind designed to keep pizza warm.

Restaurants, delicatessens and take-away food outlets

These retailers are not entitled to any exemption for their packaging materials used in marketing or delivering take-away foods or beverages.

Retail fruit and vegetable shops

These shops are not entitled to any exemptions for tear-off plastic bags, produce bags, cling wrap, foam trays or string bags in which they may allow customers to pack their own goods or in which they may pre-pack fruit or vegetables before retail sale. This is because there will be no assessable dealing with the goods.

What about general purpose carry bags?

General purpose carry bags i.e., plastic or paper bags, usually with handles or cut out handles, do not qualify for exemption regardless of how they are used. They are not accepted as being used as containers because they do not pack or secure their contents for the purposes of the definition of "container".

However, exempt bodies such as non-profit schools or tuck shops will still be able to buy these goods free of sales tax provided they are not for sale.

How can I buy containers free of sales tax for use in my business?

If you are a registered person and you intend dealing with the containers so as to satisfy exemption Item 27, you should quote your sales tax registration number to your supplier at or before the time of purchase of the containers to obtain them free of sales tax.

If you are an unregistered person and you intend dealing with the containers so as to satisfy exemption Item 27, you should quote an exemption declaration to your supplier at or before the time of purchase of the containers to obtain them free of sales tax. A blank copy of the declaration is shown on page 7.

Alternatively, you can now give your suppliers a single quotation of a sales tax registration number or an exemption declaration to cover all your tax free purchases in a period where that period does not exceed one year (called a periodic quotation). A blank copy of a periodic quotation is shown on pages 8 and 9.

What happens if I can't buy all my containers free of sales tax?

Some manufacturers may only be entitled to a percentage of their containers free of sales tax, e.g., a cake shop that bakes cakes and sells take-away foods such as pies and sausage rolls must pay sales tax on containers used to market the take-away foods. The cake shop may estimate the taxable percentage of its take-away food containers by examining past usage.

Example

A hot bread shop buys the following paper bags:

• • smaller sized bags used 25% of the time to package take-away foods and 75% of the time to package unfilled rolls and cakes;

• • larger sized bags used exclusively to package breads which it manufactures; and

• • general purpose carry bags which it uses in relation to all goods it produces.

The hot bread shop may quote its sales tax registration number when it buys all the smaller size bags. It should then lodge a return and pay sales tax on a percentage of the total purchases of the bags which it estimated were used for marketing take-away foods. This should be done quarterly.

However, the hot bread shop is always entitled to quote its sales tax registration number for the larger size bags and should never quote for the general purpose carry bags.

How much sales tax do I charge if I sell containers to people who do not quote?

If you sell containers to a person who intends to resell the containers as is, (a wholesale sale), sales tax is payable on the price for which the containers are sold. If you sell containers to a person who intends to use them in packing food or beverages (a retail sale), sales tax is payable on the price for which you would normally sell the containers by wholesale.

If all your sales are by retail, you should generally pay sales tax when you buy the goods.

Goods used as containers are taxable at either the Schedule 2 rate, currently 12% or the Schedule 4 rate, currently 22%.

Examples of goods taxed at 12%

• • aluminium foil, cling wrap, lunch wrap and greaseproof paper on a roll marketed through supermarkets, convenience stores etc, in packs for household use;

• • bags - freezer, oven and food storage such as plain sandwich or lunch bags (paper or plastic) marketed through supermarkets, convenience stores etc, in packs for household use but not including bags used to market pavlovas, cheesecakes, tortes and pizza;

• • disposable drink cups of any size, including milk shake and water cooler cups;

• • disposable cutlery, including knives, forks, spoons and chop sticks;

• • doilies, serviettes, napkins and coasters;

• • drinking straws, spoon straws and stirrers (plastic and wooden);

• • paper and plastic plates;

• • portion control cups;

• • twist ties and self adhesive labels marketed principally as accessories for bags listed above.

Examples of goods taxed at 22%

• • aluminium foil, cling wrap and greaseproof paper on a roll marketed in caterers' packs for commercial use;

• • bags - glassine, foil lined, produce, greaseproof and pizza bags & boxes of any size;

• • bags which are labelled in such a way that indicates they are for use in connection with take-away foods, e.g., bags marketed with the words "Hot pie" or bags labelled with the name of a take-away food outlet;

• • bags - freezer, oven and food storage such as plain sandwich or lunch bags (paper or plastic) marketed in caterers' packs for commercial use;

• • cardboard cake boxes, circles and pizza boards and paper bags used to market pavlovas, cheesecakes and tortes;

• • cellophane toasting bags;

• • corrugated cardboard sheets and rolls;

• • foil, foam and plastic trays or tubs;

• • French stick bags and other bags for bread, perforated or plain;

• • ice-cream and sundae cups;

• • oyster or clam boxes for use in packing hamburgers, meals and the like;

• • popcorn cups and chip cups;

• • sandwich wedges;

• • sheets of plain, brown, glassine or greaseproof paper;

• • singlet and other carry style bags of any size;

• • sticky tape and sealing tape;

• • trays, including cake and meat trays, used for retail display and serving; and

• • white newspaper and butchers' paper.

Do you need more information?

If you have any questions or need more information about how sales tax applies to you, please contact your local Tax Office:

ATO references:
NO NAT 2467.09.96