Edited version of your written advice

Authorisation Number: 1051355043714

Date of advice: 13 April 2018

Ruling

Subject: GST and frozen food products

Question

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

Answer

Yes.

Relevant facts and circumstances

You provided the background facts in your letter:

● You operate a commercial bakery and you produce food products under various brand names.

● You have recently launched a number of new products in Australia.

● This product range is intended to be sold wholesale to commercial food outlets. The frozen food products sold will be packaged and sold in commercial quantities.

● All of these products will be sold by you frozen, and will be required to be stored in a frozen state. Instructions are provided in relation to how these products are to be re-heated/cooked prior to consumption.

● You provided further descriptive information regarding the frozen food products.

● None of the frozen food products will be sold by you directly to end consumers, as these sales will be made by your customers. You sell the products frozen on a wholesale basis.

● As a broad description, each item is a “bite size” individual portion, sold by you frozen and therefore requiring reheating prior to sale to an end consumer for immediate consumption, or are to be stored frozen and resold frozen by a supermarket to an end consumer.

Included in the private ruling application are further descriptive materials (including photographs) regarding the frozen food products.

The frozen food products are categorised as either savoury, on the go mini snacks or perfect for entertaining, party or snack.

Reasons for decision

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 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 Products are not specifically listed in Schedule 1. As such, the issue is whether the 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 kind 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.

Item 4 of the table in clause 1 of Schedule 1 of GST Act (item 4)

Item 4 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.

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

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

2. to get ready for eating, as a meal, by due assembling, dressing, or cooking.

And meal as:

noun 1. one of the regular repasts of the day, as breakfast, lunch, or dinner.

2. the food eaten or served for a repast.

Essentially therefore, a prepared meal would be a ‘repast ready for eating’.

The ATO view on what is a ‘prepared meal’ is provided in Issue 5 of the Food Industry Partnership - Issues Register (Issue 5). 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.

Issue 5 provides that 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). It is considered that making dressing available will satisfy this requirement, as it allows the consumer to add the level of dressing to meet their personal tastes.

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.

Issue 5 provides that 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.

Consideration is also given to the actual product specifications, labelling, pricing, labelling and marketing as well as any cooking instructions

A lack of promotional or advertising activities by the supplier (including a wholesaler) does not result in the product not being marketed as a prepared meal. How a product is marketed is determined by “the total process whereby goods are put onto the market” (Cascade Brewery Company Pty Ltd & Anor v FCT (2006) ACT 4339 23.

The term ‘marketed’, in the context of ‘marketed as a prepared meal’ suggests the aim of the supplier, determined objectively, is to present the goods as being a prepared meal. Therefore when examining the characteristics of a product, all the relevant factors will be looked at together in deciding the proper classification of the product. That is the classification decisions for GST purposes are often questions of fact and degree, a matter of overall impression and a combination of fact finding and evaluative judgment. (Lansell House Pty Ltd & Anor v FCT 2010 ATC 20-173, at paragraph 108)

The Products are categorised as savoury, on the go mini snacks. They are also perfect for entertaining and as party snacks. They are frozen raw and cooked from frozen. They have to be heated to a core temperature before consumption.

In your submission you state that the marketing of the Products indicate that they are designed and meant to be eaten as a snack, not as a substantial meal in their own right.

The size of the product in and of itself will not dictate whether it will fall within item 4, treating that factor as determinative is akin to reading in an additional word “main” into the item such that it would read “marketed as a prepared main meal”, which is considered inappropriate and not an intended application of the law.

Referring to a product as a snack will not alone change the overall impression of the product where it is otherwise marketed as a prepared meal. The term “snack size” is a way of differentiating portions. A snack can be a small portion or light meal.

Therefore no one factor will be determinative and as such it follows that the classification of a product will not be governed by one factor alone including:

● where it is sold next to other GST-free products

● ingredients included in the product e.g. meat

● the name given to the product; or

● the size of the product.

The Products are intended to be sold wholesale to commercial food outlets and retailers. Products sole to commercial food outlets are packed and sold in commercial quantities with instructions on how the Products are to be re-heated/cooked.

Whilst the Products have some of the factors that would indicate that a product is food marketed as a prepared meal, on balance, we do not consider that the Products are “food marketed as a prepared meal” of a kind covered by item 4. The presentation of the Products does not give the overall impression that they are marketed as a prepared meal. The packaging, instructions and promotion of the Products do not support characterising the Products as one to which item 4 applies.

In relation to the Pasta item it is relevant to consider the exclusion in paragraph 38-3(1)(c) for food that is a combination of one or more foods at least one of which is food of such a kind.

You contend that although the Pasta item contains the same core ingredients as a pasta meal, it is not a prepared “pasta meal” as it does not possess the essential characteristic of the pasta meal.

We note that the traditional pasta meal components have been incorporated as ingredients into the Pasta item and no longer retain a separate identity as a pasta meal.

We do not consider that the Pasta item is food that is a combination of one or more foods at least one of which is food of such a kind.

Item 18 of the table in clause 1 of Schedule 1 of GST Act (item 18)

Included under the category savoury snacks is item 18 which lists ‘food similar to that covered by item 15 or 16, whether or not it consists wholly or partly of any vegetable, herb, fruit, meat, seafood or diary product or extract and whether or not it is artificially flavoured'.

Item 15 of the table in clause 1 of Schedule 1 of GST Act (item 15) includes 'potato crisps, sticks, or straws, corn crisps or chips, bacon or pork crackling or prawn chips'

The word 'similar' is not a defined term in the GST Act however the Macquarie

Dictionary Online defines the term as:

having likeness or resemblance, especially in a general way.

We agree with your conclusion that the Products do not have any common characteristics of the types of food listed in item 15. Accordingly, the Products are not food of a kind covered by item 18.

Item 19 of the table in clause 1 of Schedule 1 of GST Act (item 19)

Item 19 includes ‘food consisting principally of food covered by items 15 to 18’.

We agree with your conclusion that the Products do not consist principally of food covered by items 15 to 18. Hence, the Products are not food of a kind covered by item 19.

Conclusion

The Products are not food of a kind specified in Schedule 1. Furthermore, the supply of the Products does not fall within any of the other exclusions in section 38-3 of the GST Act. Therefore, the supply of the Products is a GST-free supply under section 38-2 of the GST Act.

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 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

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