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Edited version of your written advice

Authorisation Number: 1051236098786

Date of advice: 13 June 2017

Ruling

Subject: GST and food

Question

Is the sale of the range of frozen food products listed below GST-free under section 38-2 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer

Baby purees

GST-free

Baby textured meals

GST-free

Toddler meals

GST-free

Chicken nuggets

GST-free

Meatballs

GST-free

Pasties

Taxable

Sausage rolls

Taxable

Relevant facts and circumstances

You produce and market frozen food products for babies, toddlers and kids. You are registered for GST.

You directed us to your website which contains information about the frozen food products which are Baby purees, Baby textured meals, Toddler meals and Kids’ finger foods. Your website provides information on the serving sizes, the ingredients of each product and the age range catered for.

The Baby purees range of frozen food products are blended into a smooth puree. Each product contains 100% of a single kind of fruit or vegetable. They are available in small tubs and are suitable for babies. They should be stored in the freezer. You recommend that the product be defrosted and then heated and served warm. You also recommend that the product be stored in the container in the refrigerator and consumed within a few days of thawing.

The Baby textured meals are a range of frozen food products. Baby meals are available in a particular serving size and are suitable for babies.

The Toddler meals range of frozen food products is perfect for independent eaters. Toddler meals are available in a particular serving size and are suitable for toddlers.

The frozen food products should be stored in the freezer at a certain temperature. You recommend that the products be defrosted in the fridge and then heated and served warm. You also recommend that the products be stored in the container in the refrigerator and consumed within a few days of thawing.

The Kids’ finger food range is sold frozen and require freezing for storage. The suggested preparation is to thaw the product and then cook in the oven.

Your website also includes recipes using the frozen food products as a base.

Your range of frozen food products is available for purchase from your website. The customers can pick up their orders from your shop front or avail of your delivery service. They are also available from selected stock lists.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 Section 9-5.

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 Subsection 38-3(1).

A New Tax System (Goods and Services Tax) Act 1999 Paragraph 38-3(1)(c).

A New Tax System (Goods and Services Tax) Act 1999 Section 38-4.

A New Tax System (Goods and Services Tax) Act 1999 Paragraph 38-4(1)(a).

A New Tax System (Goods and Services Tax) Act 1999 Schedule 1 clause 1 table item 4.

A New Tax System (Goods and Services Tax) Act 1999 Schedule 1 clause 1 table item 22.

A New Tax System (Goods and Services Tax) Act 1999 Schedule 1 clause 2.

A New Tax System (Goods and Services Tax) Act 1999 Schedule 1 clause 3.

Reasons for decision

Summary

The supply of the Baby puree, Baby textured meals and Toddler meals range of frozen food products is a GST-free supply under section 38-2 of the GST Act.

The supply of the Meatballs and Chicken nuggets is GST-free under section 38-2 of the GST Act.

The supply of the Pasties and the Sausage rolls is a taxable supply under section 9-5 of the GST Act.

Detailed reasoning

The supply of the frozen food products is a taxable supply if the requirements of section 9-5 of the GST Act are satisfied.

Section 9-5 of the GST Act states:

      You make a taxable supply if:

        (a) you make the supply for *consideration; and

        (b) the supply is made in the course or furtherance of an *enterprise that you *carry on; and

        (c) the supply is *connected with the indirect tax zone; and

        (d) you are *registered, or *required to be registered for GST.

      However, the supply is not a *taxable supply to the extent that it is *GST-free or *input taxed.

(* denotes a term defined in section 195-1 of the GST Act.)

In your case, the supply of the frozen food products satisfy the requirements of paragraphs 9-5(a), 9-5(b), 9-5(c) and 9-5(d) of the GST Act because:

    ● you supply the frozen food products for consideration.

    ● the supply of the frozen food products is made in the course of your enterprise.

    ● the supply of the frozen food products is connected with Australia and

    ● you are registered for GST.

The supply of the frozen food products is not input taxed. It remains to be determined if the supply of the frozen food products is GST-free.

A supply of food is GST-free under section 38-2 of the GST Act if the product satisfies the definition of food in section 38-4 of the GST Act and the supply is not excluded from being GST-free by section 38-3 of the GST Act.

Food is defined to include food for human consumption (whether or not requiring processing or treatment) (paragraph 38-4(1)(a) of the GST Act). The frozen food products satisfy the definition of food as being food for human consumption.

However, under paragraph 38-3(1)(c) of the GST Act, a supply of food is not GST-free if it is food of a kind that is specified in clause 1 of Schedule 1 to the GST Act (Schedule 1). The frozen food products are not specifically listed in Schedule 1. As such, the issue is whether the frozen food products are 'food of a kind' specified in Schedule 1.

The phrase 'of a kind' is not defined in the GST Act. Accordingly, it is appropriate to examine the ordinary meaning of that term. The Macquarie Dictionary (1997) does not define the entire phrase 'of a kind' however, it defines the word 'kind' to mean:

      '1. A class or group of individuals of the same nature or character, especially a natural group of animals or plants. 2. Nature or character as determining likeness or difference between things: things differing in degree rather than in kind. 3. A person or thing as being of a particular character or class: he is a strange king of hero. 4 ...'

Accordingly, something will be 'of a kind' if it is of the same nature or character (possessing the same distinguishing qualities) as the thing or group in question.

In addition, the case law Lansell House Pty Ltd & Anor v FC of T 2011 ATC 20-239 at [30] 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…

In coming to its decision, Lansell also considered, among other things, the product’s

    ● use

    ● in store display

    ● marketing

    ● tax treatment in the country of manufacture, and

    ● appearance.

Of relevance when considering the GST treatment of the supply of frozen food products is item 4 in the table in clause 1 of Schedule 1 of GST Act (item 4), which lists 'food marketed as a prepared meal, but not including soup'. Clause 2 of Schedule 1 of GST Act provides that prepared food can be supplied hot, cold or frozen or require cooking, heating, thawing or chilling prior to consumption and clause 3 of Schedule 1 of GST Act provides that item 4 only applies to food that requires refrigeration or freezing for its storage.

Issue 5 of the Food Industry Partnership – issues register outlines the ATO’s view on what is a 'prepared meal’. This issue and all the information within it is a public ruling for the purposes of section 105-60 of Schedule 1 to the Taxation Administration Act 1953.

      What is a prepared meal?

      Clause 1, Item 4 of Schedule 1 of the GST Act operates to subject the following to GST:

      "food marketed as a prepared meal, but not including soup".

      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 term 'prepared meal' is not defined in the GST Act and will therefore bear its ordinary meaning.

      The Macquarie Dictionary provides that 'meal' means "the food eaten or served for a repast". This definition could be applied to a single food item or to a meal consisting of several food items.

      The Macquarie Dictionary defines 'prepare' in relation to food as "to get ready for eating, as a meal, by due assembling, dressing or cooking".

      The EM at paragraph 1.33 provides examples of prepared meals:

      ● prepared meals, such as curry and rice dishes, mornays and similar dishes sold cold by a take-away or supermarket that only need reheating to be ready for consumption;

      ● fresh or frozen lasagne;

      ● sushi;

      ● 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 vegetables and low fat dietary meals).

      All of the above meals, except for the sushi, are of a kind that are duly assembled, cooked or partly cooked and require heating and completion of the cooking process for them to be ready for consumption. Sushi is by its nature ready for consumption when it is duly assembled even though part of it is raw.

      Therefore, for food to be regarded as a "prepared meal" in accordance with Item 4, the food needs to be supplied assembled and dressed (if applicable). In addition, if the food is cooked or partly cooked and is to be served hot, it should only need heating, which may include completion of the cooking process, to be ready for consumption. Heating will be interpreted to mean warmed in the microwave oven, convection oven, frying pan, wok or saucepan.

      Paragraph 1.34 of the EM provides examples of food items that are not considered to be prepared meals. They are:

      ● frozen vegetables;

      ● uncooked pasta products;

      ● fish fingers; and

      ● baby food, baked beans, spaghetti and Irish stews that do not require refrigeration or freezing.

      Uncooked pasta products are not considered a prepared meal as they are not cooked.

      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.

      Further to the above, in determining whether food is marketed as a "prepared meal" the activities of the seller are relevant. Consideration is given to the following:

      ● the name of the goods;

      ● the price of the goods;

      ● the labelling on any containers for the goods;

      ● literature or instructions packed with the goods;

      ● how the goods are packaged;

      ● how the goods are promoted or advertised; and

      ● how the goods are distributed.

The Detailed Food List (available from the ATO website www.ato.gov.au), which is a public ruling for the purposes of the Taxation Administration Act 1953, lists various foods and specifies their GST status. Included in the list are the following:

baby food (tins or jars)

GST-free

Food for human consumption that is not of a kind specified in Schedule 1 of the GST Act.

chicken nuggets (and similar food), uncooked

GST-free

Food for human consumption that is not of a kind specified in Schedule 1 of the GST Act.

frozen meals and dinners that: directly compete with takeaways and restaurants, need refrigeration or freezing for their storage and are marketed as a prepared meal

taxable

Schedule 1, item 4 of the GST Act applies.

meals (complete) that: directly compete with takeaways and restaurants, need refrigeration or freezing for their storage and are marketed as a prepared meal

taxable

Schedule 1, item 4 of the GST Act applies.

meatballs, refrigerated or frozen (not hot)

GST-free

Food for human consumption that is not of a kind specified in Schedule 1 of the GST Act.

pasta meal that: directly competes with takeaways and restaurants, needs refrigeration or freezing for its storage and is marketed as a prepared meal

taxable

Schedule 1, item 4 of the GST Act applies.

prepared meal that: directly competes with takeaways and restaurants, needs refrigeration or freezing for its storage and is marketed as a prepared meal

taxable

Schedule 1, item 4 of the GST Act applies. Examples include: curry and rice, mornays, seafood in sauce with pasta and/or vegetables, fresh or frozen prepared lasagne, sushi, cooked pasta dishes complete with sauce, frozen TV dinners, fresh or frozen complete meals that include meat and vegetables and low fat dietary meals. These types of meals are usually packaged in a container from which they can be eaten.

prepared product that does not need refrigeration or freezing for its storage

GST-free

Exclusion at Item 4, Schedule 1 does not apply. Examples include: canned baby food, baked beans, spaghetti and Irish stews, dry packed meal kits and noodle side dishes.

Baby purees

The Baby purees range of frozen food products are blended into a smooth puree. Each product contains 100% of a single kind of fruit or vegetable. They are available in small tubs and are suitable for babies. They should be stored in the freezer. You recommend that the product be defrosted and then heated and served warm. You also recommend that the product be stored in the tub in the refrigerator and consumed within a few days of thawing.

We do not consider that the Baby purees range of frozen food products, which are pureed fruits or vegetables, are prepared meals of a kind covered by item 4. Consequently, the exclusion in paragraph 38-3(1)(c) does not apply. The supply of the Baby purees range of frozen food products does not fall within any of the other exclusions in section 38-3 of the GST Act. Therefore, the supply of the Baby purees range of frozen food products is GST-free under section 38-2 of the GST Act.

Baby textured meals and Toddler meals

The Baby textured meals range of frozen food products .Baby meals are available in a particular serving size and are suitable for babies.

The Toddler meals range of frozen food products is perfect for independent eaters. Toddler meals are available in a particular serving size and are suitable for toddlers.

The frozen food products should be stored in the freezer at a certain temperature. You recommend that the products be defrosted in the fridge and then heated and served warm. You also recommend that the products be stored in the container in the refrigerator and consumed within a few days of thawing.

Your website also includes recipes using the frozen food products as a base.

The Baby meals and Toddler meals range of frozen food products come in textures and serving sizes suitable for the age group indicated on the container. Similarly, the ingredients of the products (whether consisting of meat, grain and vegetable) contain the food suitable for a meal for the age group indicated. The marketing and the labelling of the products are as meals for the age group indicated.

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’. The products are capable of being meals in themselves for babies and toddlers of a certain age group.

We do not consider that the Baby meals and Toddler meals range of frozen food products are prepared meals of a kind covered by item 4. Consequently, the exclusion in paragraph 38-3(1)(c) does not apply. The supply of the Baby meals and Toddler meals range of frozen food products does not fall within any of the other exclusions in section 38-3 of the GST Act. Therefore, the supply of the Baby meals and Toddler meals range of frozen food products is GST-free under section 38-2 of the GST Act.

Kids’ finger food

The Kids’ finger food range are sold frozen and require freezing for storage. The suggested preparation is to thaw the product and then cooked.

We do not consider the Kids’ finger food range to be of a kind covered by item 4.

However, under the category bakery products, item 22 in the table in clause 1 of Schedule 1 of GST Act (item 22) lists pies (meat, vegetable or fruit), pasties and sausage rolls

The ATO view on pastry products is provided in Issue 30 of the Food Industry Partnership – issues register (Issue 30).

Issue 30 provides that in order for products to be of a kind to the food products listed in items 22, 23 and 25, the products would need to be baked before consumption. Consequently, those products that are fried, steamed or boiled cannot be considered to be of the same kind.

The Macquarie Concise Dictionary 3rd Edition (the Macquarie Dictionary) defines 'pastry' to be:

    1. food made of paste or dough, as the crust of pies, etc. 2. articles of food of which such paste forms an essential part, as pies, tarts, etc."

The Macquarie Dictionary also provides the following definitions:

    Pie - 'a baked dish consisting of a sweet (fruit, etc) or savoury (meat, fish, etc) filling, enclosed in or covered by pastry, or sometimes other topping as mashed potatoes';

    Pastie - 'a type of pie in which a circular piece of pastry is folded around a filling of vegetables, meat etc, and baked';

    Sausage roll - 'a roll of baked pastry filled with sausage meat'.

The Pasties are made of a certain filling and wrapped in flaky pastry. They are baked before consumption. Hence, they are of a kind known as 'pasties' referred to in item 22.

The Sausage rolls even if supplied frozen and requires thawing and heating or cooking prior to consumption are of a kind listed in Item 22.

As the Pasties and the Sausage rolls are considered as food of a kind covered by item 22, the exclusion in paragraph 38-3(1)(c) applies and the supply of the pasties and the sausage rolls is not GST-free under section 38-2 of the GST Act. In addition, the supply of the Pasties and the Sausage rolls is not GST-free under any other provision of the GST Act or another Act. Therefore, as all the requirements of section 9-5 of the GST Act are satisfied, the supply of the Pasties and the Sausage rolls is a taxable supply.

The Meatballs and Chicken nuggets are not food of a kind listed in Schedule 1. In addition, the Meatballs and Chicken nuggets do not fall within any of the other exclusions in section 38-3 of the GST Act. Therefore, the supply of the Meatballs and Chicken nuggets is GST-free under section 38-2 of the GST Act.