Edited version of your written advice

Authorisation Number: 1051482619875

Date of advice: 28 February 2019

Ruling

Subject: GST and fried frozen finger food

Question

Is the supply of the Products a GST-free supply for the purposes of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer

Yes, your supply of the Products is GST-free under section 38-2 of the GST Act.

This ruling applies from the date of this ruling until 4 (four) years ended from that date.

Relevant facts and circumstances

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 registered for goods and services tax (GST). This is the website of your company.

You plan to sell the Products which are frozen finger food with savoury and sweet fillings. The Products will be listed under frozen finger foods on your website.

The Products are not packed in a container from which they can be reheated. Consumer must remove products from container and either fry in oil or cook in an oven. The Products are not ready to eat—they are par cooked, not pre-cooked.

You do not make recommendations on what to serve with the Products, the consumers can serve the Products with any other finger foods of their choice.

You do not sell the Products for consumption on the premises or as hot food for consumption away from the premises.

The Products consist of sweet or savoury filling wrapped in a thin layer of dough and then par fried and then frozen.

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

A New Tax System (Goods and Services Tax) Act 1999 Schedule 1

Reasons for decision

Summary

Your supply of the Products is GST-free under section 38-2 of the GST Act. The Products are not excluded from being GST-free by subsection 38-3(1) of the GST Act.

Detailed reasoning

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 Products satisfy the definition of food because they are sold as food for human consumption.

Paragraph 38-3(1)(a) of the GST Act provides that a supply of food for consumption on the premises from which it is supplied is not GST-free. As the Products are sold in supermarkets, we do not consider that you supply them for consumption on your premises. Therefore, the exclusion at paragraph 38-3(1)(a) of the GST Act does not apply.

Paragraph 38-3(1)(b) of the GST Act provides that a supply of hot food for consumption away from the premises from which it is supplied is not GST-free. This paragraph does not apply to the Products since they are sold frozen at the time of the supply.

Paragraph 38-3(1)(c) of the GST Act provides that a supply of food is not GST-free under section 38-2 of the GST Act if it is a supply of food of a kind specified in the third column of the table in clause 1 of Schedule 1 to the GST Act (Schedule 1), or food that is a combination of one or more foods at least one of which is food of such a kind.

‘Of a kind’

The legislation provides that ‘food of a kind’ specified in the third column of the table in clause 1 of Schedule 1 will be food that is not GST-free. The phrase ‘of a kind’ was considered in the decision of Lansell House Pty Ltd & Anor v. FC of T [2010] FCA 329 (Lansell House 2010). The decision in Lansell House 2010 was upheld in the Full Federal Court in Lansell House Pty Ltd v. Commissioner of Taxation [2011] FCAFC 6 (Lansell House 2011), We consider that Court decision provides assistance in interpreting the words 'of a kind'. The Court said that 'the use of the words 'of a kind'... adds further generality to the description of the items in Schedule 1... Thus, a new product that does not possess all of the same characteristics of known crackers may nevertheless be within the relevant item ... The question is whether the resulting product comes within the genus, class or description of a cracker' (Lansell House 2011 at para 30).

Hence the question at law is if the Products come within the genus, class or description of a food specified in Schedule 1, or food that is a combination of one or more foods at least one of which is food of such a kind.

The most relevant items in Schedule 1 to your Products are:

● item 22 – pies (meat, vegetable or fruit), pasties and sausage rolls (Item 22);

● item 23 - tarts and pastry (Item 23);

● item 25 - pastizzi, calzone and brioche (Item 25); and

● item 4 in the table in clause 1 of Schedule 1 (Item 4), which lists ‘food marketed as a prepared meal’ as taxable.

Issue 30 of the Food Industry Partnership Issues Register (Food Issue Register) states as follows:

https://www.ato.gov.au/business/gst/in-detail/gst-issues-registers/food-industry-partnership---issues-register/?page=29’

Issue 30: Pastry products

What are considered 'pastries' for the purpose of Schedule 1?

Item 22 "pies (meat, vegetable or fruit), pasties and sausage rolls

Item 23 tarts and pastries

Item 24 doughnuts and croissants

Item 25 pastizzi, calzoni and brioche"

Clause 2 of Schedule 1 operates to ensure that these items are subject to GST regardless of whether they are supplied hot or cold, or require cooking, heating, thawing or chilling prior to consumption.

The Macquarie Concise Dictionary 3rd Edition ('the dictionary') defines 'pastry' to be:

"1. food made of paste or dough, as the crust of pies, etc. 2 articles of food of which such paste forms an essential part, as pies, tarts, etc."

Pastry products that are specifically included in Schedule 1, such as pies, pasties, sausage rolls, pastries and pastizzi, are without any doubt subject to GST. However, there are a number of other products that need to be considered. These include, but are not limited to:

● dim sims

● spring rolls

● samosas

● curry puffs

● chicken filo parcels

● beef wellingtons

● vegetable (and other fillings) triangles/parcels

All of these products incorporate pastry as their outer layer. However, the issue is whether these products are captured by items 22 - 25 of Schedule 1 of the GST Act.

It is possible that these products, although not specifically included in Schedule 1 of the Act, may be subject to GST by virtue of paragraph 38-3(1)(c). Paragraph 38-3(1)(c) of the Act refers to "food of a kind specified in the third column of the table in clause 1 of Schedule 1..." (emphasis added). The inclusion of the words of a kind indicates that foods are taxable if they are of the class or genus referred to in Schedule 1

The dictionary defines the foods listed in Schedule 1 of the Act as:

Pie "a baked dish consisting of a sweet (fruit, etc.) or savoury (meat, fish, etc.) filling, enclosed in or covered by pastry, or sometimes other topping as mashed potatoes."

Pastie "a type of pie in which a circular piece of pastry is folded around a filling of vegetables, meat, etc., and baked."

Sausage roll "a roll of baked pastry filled with sausage meat."

Pastizzi not defined in the dictionary.

The following dictionary definitions are given to those products that are not listed in Schedule 1. These definitions are beneficial in determining whether particular products are of a kind referred to in Schedule 1.

Dim Sim "a dish of Chinese origin, made of seasoned meat wrapped in thin dough and steamed or fried."

Dim Sum "(in Chinese cookery) small dumplings with savoury or sweet fillings, either steamed or fried."

Spring roll "a Chinese delicacy consisting of a savoury filling wrapped in a thin dough and deep fried."

Samosa "a savoury pastry with curried meat or vegetable filling, usually triangular in shape." Recipe books indicate that samosas are fried.

Curry puffs "a small puff pastry pasty filled with spiced meat or vegetables, typical of Malay cookery." Recipe books indicate that curry puffs are generally fried.

The following four products are not defined in the dictionary, however recipe books indicate the following

In order for products to be of a kind known as 'pastizzi', they will need to be baked. Those products that are fried cannot be considered to be of the same kind. Similarly, foods such as beef wellington and chicken filo parcels, although baked, contain raw meat and are not of a kind known as 'pies', 'pasties' and 'sausage rolls' referred to in item 22 of Schedule 1, or 'pastries' referred to in item 23 of Schedule 1 of the Act.

Therefore, only vegetable (and other fillings) triangles/parcels are considered to be food of a kind known as 'pastizzi' in item 25 of Schedule 1 of the Act.

Finally, can the remainder of the products be classified as 'pastries' under item 23 of Schedule 1 of the GST Act? The answer to this is no. The reference to pastries is to those products that are sweet and might be considered similar to a tart, and are generally sold by a bakery (although they may be supplied in other stores for example, supermarkets). For example, Danish pastries, or profiteroles that are made from choux pastry and contain a custard or cream filling. Item 23 of Schedule 1 is not intended to be a catch all provision for all products that are made from pastry.

Therefore, by applying the words 'food of a kind' in paragraph 38-3(1)(c) it can be concluded that the following foods:

● dim sims

● spring rolls

● samosas

● chicken filo parcels

● vegetable (and other fillings) triangles/parcels

● curry puffs

● beef wellingtons

are not food of a kind known as 'pies', 'pasties' and 'sausage rolls' referred to in item 22 of Schedule 1, or 'pastries' referred to in item 23 of Schedule 1 of the Act.

Conclusion

The following products are subject to GST:

● pies

● pasties

● sausage rolls

● pastizzi

● vegetable (and other fillings) triangles/parcels

The following products are GST-free:

● dim sims

● spring rolls

● samosas

● curry puffs

● chicken filo parcels

● beef wellingtons

In relation to your Products:

Your Products incorporate pastry as their outer layer, however, your Products are fried and not baked. Hence they are not food of a kind known as:

● pies (meat, vegetable or fruit), pasties and sausage rolls (Item 22);

● tarts and pastry (Item 23);

● pastizzi, calzone and brioche (Item 25)

Item 4

Item 4 states:

food marketed as a prepared meal, but not including soup

The Commissioner’s view on when a product is ‘marketed as a prepared meal’ has been outlined in the following publications: GST Food Guide and Food Industry Partnership Issues Register Issue 5.

Clause 2 to Schedule 1 of the GST Act provides that a product can be a prepared meal regardless of whether it is supplied hot or cold, or requires cooking, heating, thawing or chilling prior to consumption.

Clause 3 in Schedule 1 of the GST Act states ‘Item 4 in the table only applies to food that requires refrigeration or freezing for its storage’. The Products satisfy this requirement.

The ATO view on prepared food is provided in the Food Industry Partnership - Issue Register – (Issue 5) and the Detailed Food list (DFL), a public ruling for the purposes of the Taxation Administration Act 1953.

You may view the Food Issue Register and the Detailed Food List at www.ato.gov.au

Below is an extract from the Detailed Food List which outlines the GST status of some food products. It explains the meaning on "prepared meal" where item 4 applies.

Issue 5 states:

What is a prepared meal?

Clause 1, Item 4 of Schedule 1 of the GST Act operates to subject the following to GST:

"food marketed as a prepared meal, but not including soup".

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 (clause 3 of Schedule 1); and

● 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".

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.

A prepared meal is something that is capable of being a meal in itself.

Marketed as a Prepared Meal

Issue 5 notes that the term ‘marketed as a prepared meal’ will cover a range of food products. It provides that when determining if a product is marketed as a prepared meal, the activities of the seller are relevant in determining whether a food is marketed as a prepared meal. 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, including placement in the store, and

● how the goods are distribute

Lansell House 2010 at paragraph 108 provides that 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. It is noted however, that the Commissioner considers that the following factors are highly persuasive in the analysis of whether a food is ‘marketed as a prepared meal’:

● it is not an ingredient which is intended to be used with other separately acquired ingredients that then allows for the preparation of a meal

● it is to be eaten as a repast or a meal (can include a light meal or snack)

● it is ready for consumption and as such is marketed to compete with foods sold at takeaway outlets, restaurants and other prepared meals.

Marketing:

The term ‘marketed as a prepared meal’ is a composite phrase therefore the marketing of the product is also relevant when determining if a product is taxable. 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.

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’ (Sundberg J in Cascade Brewery Company Pty Ltd & Anor v. FCT (2006) ACT 4339 23).

Meat

Similarly a product which does not contain meat or protein will not be GST-free where it is otherwise marketed as a prepared meal.

The ordinary meaning of a meal does not distinguish between ingredients.

Relating to your Products:

We will now discuss your Products following the above concepts.

The Products are sold frozen at the time of the supply. You state the Products will be listed under the finger food category on your website. The names of the Products reflect the above.

The manufacturing process and the cooking instructions are as follows….

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.

You stated that……

Please note Clause 2 to Schedule 1 of the GST Act provides that a product can be a prepared meal regardless of whether it is supplied hot or cold, or requires cooking, heating, thawing or chilling prior to consumption.

However, after considering the total process whereby the Products will be put onto the market, we consider that you are not presenting the Products as being a prepared meal. You are not marketing that the Products are to be eaten on their own as a repast or a meal. The Products in this case do not come within the genus, class or description of a food marketed as a prepared meal. They are not exclusions covered by any other items in Schedule 1 nor do they contain any foods that are covered by any items in Schedule 1. Accordingly, the supplies of the products are not excluded from being GST-free by paragraph 38-3(1)(c) of the GST Act.

Furthermore, the supply of the Products does not fall within any of the other exclusions in section 38-3 of the GST Act. Accordingly, the supply of these Products is GST-free. The supply is not a taxable supply.

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