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Ruling

Subject: Goods and services tax (GST) and supplies of food products

Question 1

Is the product that you prepare and sell to third parties subject to goods and services tax (GST)?

Answer

Yes.

Question 2

Are the products that you prepare and sell to third parties subject to GST?

Answer

No.

Relevant facts and circumstances

You are registered for GST.

You sell a product of various varieties and products to third parties who then on sell to consumers or other parties.

You cook the fillings and prepare the product and the products prior to sale, they are refrigerated and sold cold to the third parties.

You advise that although the fillings of the product are cooked, they cannot be eaten cold. Consequently, you recommend that the product be microwaved or toasted prior to consuming.

The product and the products are not marketed or labelled as a prepared meal by you.

The product and the products are usually packed in boxes with ingredients listed. No advertising concerning the product or products is on the boxes.

The ingredients of the products are not fully cooked. The products are not ready to be eaten when you supply them to the third parties. You advise that before they are consumed they definitely need further cooking.

The products need to be either pan fried or heated prior to consuming.

The products are not accompanied with other food items, for example a roll like a burger bun or other food items such as salad.

Occasionally, the products are supplied frozen to your third parties.

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

Question 1

Is the filled product that you prepare and sell to third parties subject GST?

Summary

The filled product which you prepare for sale to third parties, is not a GST-free supply. The supply of the filled product is subject to GST.

Detailed reasoning

A supply of food is GST-free under section 38-2 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) if it satisfies the definition of food in section 38-4 of the GST Act and is not excluded from being GST-free under section 38-3 of the GST Act.

The meaning of food in section 38-4 of the GST Act includes food for human consumption, whether or not requiring processing or treatment. Your product is sold as food for human consumption, consequently it can be treated as food for human consumption.

However, subsection 38-3(1) of the GST Act explains which food is not GST-free and states:

(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.

In your case, the product does not fall within any of the exclusions in section 38-3 of the GST Act except possibly paragraph 38-3(1)(c). Therefore, paragraphs 38-3(1)(a), (b), (d) and (e) do not apply.

Under paragraph 38-1(c) of the GST Act, a supply of food is not GST-free if it is food of a kind that is specified in the table in clause 1 of Schedule 1 to the GST Act (Schedule 1) or is a food that is a combination of one or more foods at least one of which is food of such a kind.

Accordingly, if the food products are listed in Schedule 1 they will be subject to GST.

Schedule 1 includes the following food items under the category of prepared food that may be of relevance when considering the GST treatment of your supply of the product:

§ Item 2 of Schedule 1 - sandwiches (using any type of bread or roll)

The Macquarie Dictionary provides that 'bread' means "a food made of flour or meal, milk or water, etc., made into a dough or batter, with or without yeast or the like, and baked."

Therefore, your product is a type of bread for the purpose of the GST Act.

Item 2 of Schedule 1

Under the category of Prepared Food, Item 2 of Schedule 1 provides that sandwiches (using any type of bread or roll) is subject to GST.

Please note that Clause 2 of Schedule 1 states:

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.

Further the GST Detailed food list, which sets out the GST status of a list of food items, also states that the filled product is taxable. The Detailed food list is available from our website www.ato.gov.au.

Therefore, in your case, the filled product which you prepare for sale to third parties, whether you supply them hot or cold, or if they require cooking or heating or whether they are frozen or refrigerated, are subject to GST.

Question 2

Are the products that you prepare and sell to third parties, subject to GST?

Summary

The sale of your products which you prepare for sale to third parties, whether they are frozen or refrigerated will be a GST-free supply under section 38-2 of the GST Act. Accordingly, your supply of the products to third parties is not subject to GST.

Detailed reasoning

As discussed above, a supply of food is GST-free under section 38-2 of the GST Act if it satisfies the definition of food in section 38-4 of the GST Act and is not excluded from being GST-free under section 38-3 of the GST Act.

The meaning of food in section 38-4 of the GST Act includes food for human consumption, whether or not requiring processing or treatment.

As per the reasons given in question 1, the products are a food for human consumption. Also, the products do not fall within any of the exclusions in section 38-3 of the GST Act except possibly paragraph 38-3(1)(c). Therefore, paragraphs 38-3(1)(a), (b), (d) and (e) do not apply.

However, under paragraph 38-1(c) of the GST Act, a supply of food is not GST-free if it is food of a kind that is specified in the table in clause 1 of Schedule 1 or is a food that is a combination of one or more foods at least one of which is food of such a kind.

Schedule 1 includes the following food items under the category of prepared food that may be of relevance when considering the GST treatment of your supply of the products:

§ Item 4 of Schedule 1 - food marketed as a prepared meal, but not including soup.

§ Item 6 of Schedule 1 - hamburgers, chicken burgers and similar food

Item 4 of Schedule 1

In your case, you advise that you assemble, dress and make the products ready for consumption. Although they are ready to eat, you advise they are not marketed as a prepared meal.

For further clarification, Issue 5 of the Food Industry Partnership - Issues Register, discusses the issue of what is considered a prepared meal for GST purposes.

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:

o directly compete against take-aways and restaurants

o require refrigeration or freezing for storage, and

o 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:

o 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;

o fresh or frozen lasagne;

o sushi;

o cooked pasta dishes sold complete with sauce;

o frozen TV dinners; and

o 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.

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.

Therefore, for food to be regarded as a prepared meal under item 4 of Schedule 1, the food needs to be assembled, dressed, cooked or partly cooked.

In your case, although the products require refrigeration and are duly assembled, dressed and ready for consumption they are not similar to the examples listed above. Further, the products are not marketed as a prepared meal.

Therefore, the products you provide do not come under Item 4 of Schedule 1 of the GST Act which provides for food marketed as a prepared meal.

Item 6 of Schedule 1

Item 6 of Schedule 1 provides that hamburgers, chicken burgers and similar food is subject to GST. (As advised above, the Detailed food list is available from our website www.ato.gov.au).

In your case, you provide similar food, being products, that are not hot, or not sold as a burger complete with a bun.

Therefore, the sale of your products which you prepare for sale to third parties, whether they are frozen or refrigerated will be a GST-free supply under section 38-2 of the GST Act. Accordingly, your supply of the products to third parties is not subject to GST. 

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