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Edited version of your written advice

Authorisation Number: 1051335392834

Date of advice: 19 February 2018

Ruling

Subject: GST and fresh chilled baby food

Question

Is the supply of fresh chilled puree 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)?

Answer

Yes.

Relevant facts and circumstances

You supply fresh chilled 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 fine puree, rough puree, textured meals and toddlers meals with labelling for each age group of babies and toddlers. The products are sold from the refrigerator section of 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

Summary

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).

Detailed reasoning

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:

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:

Relevant to prepared food and meals, are clauses 2 and 3 of Schedule 1 which are as follows:

3. Prepared meals

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).

Prepared meals

In the context of food, ‘prepare’ is defined in the Macquarie On-line Dictionary as:

And meal as:

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. The direction is to heat the products by microwave for two minutes, or heat for three minutes in a saucepan before offering to baby.

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:

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:

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:

Lansell House case at [30] relevantly provides:

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 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:

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 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.


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