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Authorisation Number: 1051235006457
Date of advice: 9 June 2017
Subject: GST and food
Is the supply of baby and toddler food (products) GST-free under section 38-2 of the A New Tax System (Goods and Service Act) Act 1999 (GST Act)?
Relevant facts and circumstances
You supply baby and toddler meals (the products). You are registered for GST.
The products are developed especially for babies and toddlers. Details about the products are found on your website, where consumers can order online and have the products delivered in some circumstances. The products are puree, textured meals and toddlers meals with labelling for each age group of babies and toddlers. The products are sold from the shops and are ready to heat up and serve to babies/toddlers. The products need to be kept in the refrigerator once opened.
Relevant legislative provisions
A New Tax System (Goods and Services Tax) Act 1999 section 38-2
A New Tax System (Goods and Services Tax) Act 1999 section 38-3
A New Tax System (Goods and Services Tax) Act 1999 section 38-4
Reasons for decision
Your supply of the products is a GST-free supply of food under section 38-2 of the GST Act. The products are neither prepared meals nor a kind of prepared meals (item 4 Schedule 1 of the GST Act).
A supply of food is GST-free under section 38-2 of the GST Act. Section 195-1 defines food by reference to section 38-4 of the GST Act. It is accepted that the products fall within the definition of food in paragraph 38-4(1)(a) of the GST Act.
Pursuant to section 38-3 of the GST Act:
(1) A supply is not GST-free under section 38-2 if it is a supply of:
(a) *food for consumption on the *premises from which it is supplied; or
(b) hot food for consumption away from those premises; or
(c) 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; or
(d) a *beverage (or an ingredient for a beverage), other than a beverage (or
ingredient) of a kind specified in the third column of the table in clause 1 of
Schedule 2; or
(e) food of a kind specified in regulations made for the purposes of this subsection.
Relevant to paragraph 38-3(1)(c) of the GST Act and the products, is the category of 'Prepared food’ in the table in clause 1 of Schedule 1 to the GST Act (Schedule 1).
Schedule 1 and more specifically, item 4 lists food that is not GST-free:
food marketed as a prepared meal, but not including soup.
Relevant to prepared food and meals, are clauses 2 and 3 of Schedule 1 which are as follows:
2. Prepared food, bakery products and biscuit goods
For the purpose of determining whether particular food is covered by any of the items in the table relating to the category of prepared food, bakery products or biscuit goods, it does not matter whether it is supplied hot or cold, or requires cooking, heating, thawing or chilling prior to consumption.
3. Prepared meals
Item 4 in the table only applies to food that requires refrigeration or freezing for its storage.
The GST Food Guide published on the Tax Office website (the food guide) lists baby food as GST-free but only to the extent that it is in tins or jars and does not require refrigeration or freezing. If a baby food is correctly classified as a prepared meal that requires refrigeration or freezing for its storage, it will not be GST-free by action of item 4 of Schedule 1.
Section 38-3 (1)( c) of the GST Act: food of a kind specified in Schedule 1
The use of the words 'of a kind’ in paragraph 38-3(1)(c) of the GST Act adds further generality to the description 'food marketed as a prepared meal’ in item 4 of Schedule 1 therefore this description should not be construed narrowly (Lansell House Pty Ltd & Anor v. FCT 2011 ATC 20-239 at paragraph 30) (Lansell House).
In the context of food, 'prepare’ is defined in the Macquarie On-line Dictionary as:
2. to get ready for eating, as a meal, by due assembling, dressing, or cooking.
And meal as:
noun 1. one of the regular repasts of the day, as breakfast, lunch, or dinner.
2. the food eaten or served for a repast.
Essentially therefore, a prepared meal would be a 'repast ready for eating’. The products would be within the meaning of this broad description.
Your products are prepared in that they are assembled, that is, no further activity apart from heating is required.
Issue 5 in Food Industry Partnership - issues register notes that The Further Supplementary Explanatory Memorandum to the A New Tax System (Goods and Services Tax) Bill 1998 ('the EM’) provides that the term 'prepared meal' is intended to cover a range of food products that:
● directly compete against take-aways and restaurants;
● require refrigeration or freezing for storage (clause 3 of Schedule 1); and
● are marketed as a 'prepared meal'.
The food guide provides guidance as to what is regarded as prepared meals.
You contend that your products are not 'prepared meals’ since they do not directly compete against take-aways and restaurants. Please note that the requirement of 'directly competes against takeaways and restaurants’ is not a legislative requirement, it is only contained in the EM and other sources you mentioned as a guide. If a product directly competes against takeaways and restaurants, this will be an indication that it is a prepared meal. However, if the product does not directly compete against takeaways and restaurants, we also look at the product as a whole. Hence we will now discuss the two requirements in the legislation:
A. Requiring refrigeration or freezing for storage:
You state that the products are the same construct and purpose as the pouches, tins and jars of baby food which have GST-free status. We consider that baby food, baked beans and spaghetti in cans or jars are not considered 'prepared meals’ as in their unopened state they do not require refrigeration or freezing for their storage - clause 3 of Schedule 1 of the GST Act. However, your products require refrigeration or freezing for storage: 'Keep refrigerated at 1-4 Celsius degrees. Use within 24 hours of opening’.
B. Marketed as a prepared meal:
The Federal Court decision of Cascade Brewery Company Pty Ltd & Anor v FCT 2006 ATC 4339 ('Cascade’) considered marketing in a GST context. Specifically, whether Ultra-C (the product at issue) was 'marketed principally as food for infants or invalids’ so that it would fall within Item 13 of Schedule 2 and be classified as GST-free.
In respect of 'marketing’ Sunberg J had this to say at paragraphs 11, and 23 to 24:
The words 'marketed principally as food for infants’ in item 13 require an examination of the content of the advertising and other marketing in fact carried out either by the taxpayer or by competitors in the market...
…consideration may be given to the name of the goods, their price, the labelling on any containers, literature or instructions accompanying the goods, how they are packaged, how they are promoted or advertised, and how they are distributed
'Of a kind’ in section 38-3(1)(c) of the GST Act
The EM at paragraph 1.33 provides examples of prepared meals as follows:
● curry and rice dishes, mornays and similar dishes sold cold that only need reheating to be ready for consumption
● fresh or frozen lasagne
● cooked pasta dishes sold complete with sauce
● frozen TV dinners, and
● fresh or frozen complete meals (for example, single serves of a roast dinner including vegetable and low fat dietary meals).
Lansell House case at  relevantly provides:
The use of the words 'of a kind’ in s 38-3(1)(c) of the GST Act adds further generality to the description of the items described in Schedule 1: Air International Pty Ltd v Chief Executive Officer of Customs (2002) 121 FCR 149 per Hill J. Thus, a new product that does not possess all of the same characteristics of known crackers may nevertheless be within the relevant item.
The Court decisions were handed down in the Lansell House case on 9 April 2010 and the Full Federal Court Case on 31 January 2011 and can be summarised as follows:
● The phrase 'of a kind’ was given its ordinary meaning and on the facts in Lansell House, the question was 'whether the product at issue came within the genus, class or description of a cracker?’
● When deciding if the Mini Ciabatte was bread or a cracker, the absence of the lamination process was not a deciding factor, rather it was taken into account in the context of all the characteristics of Mini Ciabatte and crackers.
● In United Kingdom case of Customs and Excise Commissioners v. Ferrero UK Ltd in determining if a product could be properly described as a biscuit, the question was one of fact and degree. While the product at issue had some characteristics that were not commonly found in biscuits, this did not mean that they were not capable of being regarded as biscuits.
● Air International Pty Ltd v Chief Executive Officer of Customs (2002) 121 FCR 149 per Hill J. Thus, a new product that does not possess all of the same characteristics of known crackers may nevertheless be within the relevant item. For example, in the present case, included within item 32 are products that do and do not contain yeast and products that might be produced by different manufacturing processes. The question is whether the resulting product comes within the genus, class or description of a cracker.
The marketing on the website refer to the products as meals for babies of specified age groups.
We consider that products under all above headings have the same characteristics as follows:
● The products are blended food or otherwise very soft.
● The products come in very small servings suitable for babies of specified ages only.
● The products are labelled as 'meals for babies’.
We consider that whether the products are in the fine puree form, rough puree form, or toddlers meals, the products are suitable to the babies’ ability to consume such food at the ages listed on the products. Similarly, the ingredients of the products contain the food suitable for babies of the age listed on the products. The marketing and labelling point to the products as being meals for babies at the specified ages only.
Having regard to the nutritional combinations and serving size and the texture of the products, we consider that the products do not possess all of the same characteristics of known prepared meals, nor are they characterised within the category of 'prepared meals’ (Lansell case). The products are capable of being meals in themselves for babies only, and aspects of the marketing as mentioned above are evidence of this.
On balance, we consider the products’ ingredients, marketing and perception of the products from consumers in the market, and we can distinguish the products from the types of taxable prepared meals listed in the food guide. In summary, the products are neither 'prepared meal’ nor of a kind of 'prepared meals’ and are not excluded from GST-free status. In conclusion, your supply of the products is a GST-free supply.