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Ruling

Subject: GST and food product

Question

Will the sale of your product be subject to goods and services tax (GST)?

Answer

Yes

Relevant facts

This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.

You are a company registered for GST.

You have been providing food products to your clients since 199X.

You provide your products through an on-line ordering service with a delivery service.

You state that 90% of your products are sold through your home delivery service where you deliver your frozen products to a home or place of work.

You also provide your products for purchase through supermarket stores throughout Australia and which you calculate as being approximately 10% of your supplies.

The product is advertised in your paper advertisement menu brochure in the section 'Side Dishes' and in your on-line menu under 'Meals - Small' with a serving size of 160 - 200 grams.

The product is individually packaged in paperboard with a Polyethylen-terephthalat (PET) lining and sealed with a plastic film.

You state your meals are freshly made meals, prepared by certified chefs using the finest ingredients, and delivered frozen to the purchasers door or can be purchased in selected shops and products are sold frozen.

Your target market is elderly people as an alternative to meals on wheels.

Your products are available in snack, lunch and dinner sizes.

Every dish has specific heating instructions written on the base of the container and your website

Your product is displayed on your website menu including nutritional and ingredient information.

Relevant legislative provisions

All references are to the A New Tax System (Goods and Services Tax) Act 1999:

Schedule 1

Section 38-2

Section 38-3

Section 38-4

Reasons for decision

Issue 1

Question 1

Summary

The supply of the product will be taxable under paragraph 38-3(1)(c) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act).

Detailed reasoning

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 it is not excluded by section 38-3 of the GST Act.

Food is defined in section 38-4 of the GST Act to include food for human consumption and ingredients for food for human consumption.

In your case, you sell a food product. The product is sold frozen in supermarkets and through your home delivery service advertised in magazines and your on-line website.

The product satisfies the definition of food because it is sold as food for human consumption. The product does not fall within any of the exclusions in section 38-3 of the GST Act except some may possibly be captured by paragraph 38-3(1)(c). Paragraph 38-3(1)(c) of the GST Act provides that 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).

Detailed food List

Before discussing the types of food listed in Schedule 1, it is worth referring to the Detailed food list (available from the ATO website www.ato.gov.au), which contains the ATO view and is a public ruling for the purposes of the Taxation Administration Act 1953.

The Detailed food list shows the supply of a meal that: directly competes with takeaways and restaurants, needs refrigeration or freezing for its storage and is marketed as a prepared meal as being taxable. Consequently, the supply of the product will be a taxable supply.

Schedule 1

We will now also consider Schedule 1 for the product. It is only necessary to consider Item 4 of Schedule1, this item covering prepared meals.

The product is not specifically included in Schedule 1. Nevertheless, this product may be subject to GST by virtue of paragraph 38-3(1)(c) of the GST Act which refers to food of a kind to those foods listed in Schedule 1. Item 4 excludes prepared meals and food marketed as prepared meals, but not including soup from GST-free status.

When considering food under Item 4 we need to consider conditions outlined in clauses 2 and 3 of Schedule 1 of the GST Act. Clause 2 of Schedule 1 provides when considering prepared food under items 1 to 7, it does not matter whether the food is sold hot, cold or frozen or require cooking, heating, thawing or chilling prior to consumption. Clause 3 of Schedule 1 provides that Item 4 only applies to food that requires refrigeration or freezing for its storage.

Prepared Meals

The term 'prepared meal 'referred to in Item 4 is not defined in the GST Act and therefore takes its ordinary meaning.

'Meal' is defined in The Macquarie Concise Dictionary, 2001, revised 3rd edition Macquarie Library Pty Ltd NSW (Macquarie Dictionary) as:

· one of the regular repasts of the day, as breakfast, lunch, or dinner.

· 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 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 and

· are marketed as a 'prepared meal'.

Included in this category (according to the EM at paragraph 1.33) are things such as:

· prepared meals such as curry and rise dishes, mornay 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 dinned including vegetables and low fat dietary meals).

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

· frozen vegetables

· uncooked pasta products

· fish fingers

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

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 Australian Taxation Office (ATO) view on prepared food is provided in "Issue 5 Prepared food" in the Food Industry Partnership Goods and Services Tax Industry Issues (available from the ATO website www.ato.gov.au), a public ruling for the purposes of the Taxation Administration Act 1953 which states in part that::

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…

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.

The product is a product range of food supplied by you under a trading name.

The product needs to be kept frozen. The food is packed in a box and each box contains a serving size of 160 - 200 grams. The instructions on the packaging outline the method for the food preparation as follows.

1. Remove meal from freezer,

2. Place meal into microwave or oven and heat as per instructions,

3. Simply peel of the film from the top and enjoy your gourmet meal

Therefore the product satisfies clause 2 and 3 of Schedule 1.

According to your marketing on both the website and in the print advertisement the product can be seen to be marketed as a meal and there are not any serving suggestions on the packaging to indicate that the product is meant to be served with other dishes.

Conclusion

Therefore the product is supplied as a prepared meal under Item 4 and is a taxable supply under paragraph 38-3(1)(c) of the GST Act.

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