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Edited version of your written advice

Authorisation Number: 1012912236709

Date of advice: 13 November 2015

Ruling

Subject: GST and Food classification

Questions

Answers

Relevant facts and circumstances

You are registered for goods and services tax (GST). You supply food products to food service distributors.

You import and sell the following products: Chicken and the Lasagna for human consumption in Australia.

The Chicken:

The Chicken is a chicken parcel filled with items, coated in a oven ready breadcrumb.

The label on the packaging lists all ingredients and the relevant proportion of each ingredient.

The cooking instructions on the label state: Oven bake ready, deep fry ready.

The Lasagna:

It is a lasagna beef mix topped with a layer encased in a crumb.

Ingredients: Beef, breadcrumbs, pasta, batter, onions, tomato paste, seasonings, capsicum, etc.

Snap frozen- Needs to be kept refrigerated/frozen for storage.

Fully cooked- simply heat and serve.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 Section 13-5

A New Tax System (Goods and Services Tax) Act 1999 Section 13-10

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

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

Reasons for decision

Summary

Your supply of the Chicken is a GST-free sale of food under section 38-2 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act). Therefore, your importation of the Chicken product is a non-taxable importation under paragraph 13-10(b) of the GST Act. Hence, GST is not payable on your importation of the Chicken product.

Your supply of the Lasagna is not GST-free as it is excluded from being GST-free under paragraph 38-3(1)(c) of the GST Act. Hence your importation of the Lasagna product is a non-taxable importation under section 13-5 of the GST Act and GST is payable on your importation of the Lasagna product.

Detailed reasoning

Questions 1 and 2

GST is payable by you on your taxable supplies.

You make a taxable supply where you satisfy the requirements of section 9-5 of the GST Act, which states:

In your case, you will satisfy the requirements of paragraphs 9-5(a) to 9-5(d) of the GST Act. That is, you will supply the Chicken and the Lasagna products for consideration and in the course or furtherance of an enterprise that you carry on. Additionally, these supplies will be connected with Australia and you are registered for GST.

There are no provisions in the GST Act under which your sales of the Chicken and the Lasagna products will be input taxed supplies.

Therefore, what remains to be determined is whether your sales of the Chicken and the Lasagna products will be a GST-free supply.

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 in section 38-4 of the GST Act to include food for human consumption (paragraph 38-4(1)(a) of the GST Act).

The Chicken and the Lasagna products satisfy the definition of food because they are sold as food for human consumption. Therefore the Chicken and the Lasagna products will be GST-free unless they fall within any of the exclusions in section 38-3 of the GST Act. Of relevance to your circumstances is the exception under paragraph 38-3(1)(c) of the GST Act.

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).

Schedule 1

We will now consider Schedule 1 for the Chicken and the Lasagna products. It is only necessary to consider Item 4 of Schedule 1, this item covers prepared meals.

The Chicken and Lasagna products are not specifically included in Schedule 1. Nevertheless, they 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 also 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 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:

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

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.

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

In determining whether food is marketed as a 'prepared meal' the activities of the seller are relevant. Consideration is given to the following:

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:

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".

In order to determine whether the Chicken and the Lasagna products you supply is a prepared meal, it is necessary to refer to the ATO view concerning prepared meals.

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

The Chicken product:

The cooking instructions on the label state: Oven bake ready, deep fry ready.

The Detailed Food list shows the supply of "chicken cordon bleu, uncooked" as being GST-free because it is food for human consumption that is not of a kind specified in Schedule 1 of the GST Act. A cordon bleu alone is not considered to constitute a meal; it would normally be served with some other items such as vegetable or salad and potatoes or chips.

Hence your supply of the Chicken product will be GST-free.

The Lasagna product:

The Macquarie Dictionary Online as at XXXX states that:

https://www.macquariedictionary.com.au/features/word/search/?word=lasagna&search_word_type=Dictionary

The Lasagna is described on your website as being topped with topping coated in a light and crispy crumb. The Lasagna product supplied by you consists of Beef, breadcrumbs, pasta, batter, Onions, Tomato paste, seasonings, Capsicum, etc. We consider that it is a lasagna product.

The website states that the Lasagna is fully cooked- simply heat and serve.

The Lasagna product is therefore duly assembled, that just requires heating to complete the cooking process ready for consumption. Therefore clause 2 of Schedule 1 is satisfied.

The website states that it is snap frozen and you confirm via email that it needs to be kept refrigerated/frozen for storage. Therefore the Lasagna product satisfies Clause 3 of Schedule 1 as the food product requires refrigeration or freezing for its storage.

Would the Lasagna fall within the terms "prepared meals" or "food marketed as a prepared meal'?

As mentioned above, frozen lasagne is listed the EM at paragraph 1.33 as prepared meals.

The information on the product and the packaging indicate this is a 'one-stop' product. There are no serving suggestions on the packaging to indicate that the Lasagna product needs to have further protein added to get it ready for eating as a meal. Further the labelling does not indicate that the Lasagna is a salad or a side-dish.

The product offers a balance of ingredients including meat and vegetables (including sauce) that are often found in prepared meals.

Further, lasagna is not a product that is usually served with accompaniments (unlike a chicken cordon bleu). Lasagna is regularly served on its own.

The very nature of a prepared meal is that it is quick and easy to get ready for consumption, as opposed to preparing the meal yourself using various different fresh food items. A prepared meal would contain all or many of the components that would be included in a complete meal, such as those provided by a restaurant or takeaway outlet, and only minimal preparation would be required for the meal to be ready for consumption.

After considering all of the above factors it is concluded that the Lasagna product is a prepared meal under item 4 and is not a supply of food that is GST-free, as it is excluded from being GST-free under paragraph 38-3(1)(c) of the GST Act. Therefore the supply of the Lasagna product is subject to GST.

Questions 3 and 4:

GST is payable on taxable importations.

Subsection 13-5(1) of the GST Act states:

You make a taxable importation if:

Section 13-10 of the GST Act states:

An importation is a non-taxable importation if:

The Chicken:

Your sale of the Chicken product is GST-free. Therefore, your importation of the Chicken product is a non-taxable importation under paragraph 13-10(b) of the GST Act. Hence, GST is not payable on your importation of the Chicken product.

The Lasagna:

Non-taxable importation is a defined under section 195-1 as follows:

The Lasagna product is not covered under Division 42 or Part 3-2 of the GST Act.

As discussed in Question 2, the supply of the Lasagna is neither input-taxed nor GST-free. As such, you are not making a non-taxable importation under paragraph 13-10(b) of the GST Act.

The importation of the Lasagna meets the positive limbs of section 13-5 of the GST Act. Furthermore, the importation is not a non-taxable importation. As such, you are making a taxable importation under section 13-5 of the GST Act and you will have to pay GST on importation of the Lasagna.

Where the importations are taxable, entities that are registered for GST may be entitled to input tax credits for GST paid on the taxable importations. An entity is entitled to an input tax credit for any creditable importations that it makes. See Goods and Services Tax ruling GSTR 2003/15.

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