Edited version of private advice

Authorisation Number: 1052007759335

Date of advice: 3 August 2022

Ruling

Subject: GST and supply of frozen foods

Question

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

Answer

No.

Relevant facts and circumstances

You are registered for GST.

You supply frozen foods in small containers.

The labelling on the containers shows the ingredients and cooking instructions.

The Products are described as snacks that are ready in a few minutes as per cooking instructions.

The Products are not supplied as dine-in or hot take-away food items.

The Products are not for consumption on the premises from which they are supplied; and they are not hot food items supplied for consumption away from the premises.

The Products are placed in the supermarket freezer next to other frozen products

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

Section 38-2 of the GST Act states:

A supply of *food is GST-free.

'Food' is defined in section 38-4 of the GST Act to include 'food for human consumption (whether or not requiring processing or treatment - paragraph 38-4(1)(a) of the GST Act). In this case, the Products are food for human consumption and therefore, satisfy the definition of food in section 38-4 of the GST Act.

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. The Products are not for consumption on the premises from which they are supplied. 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 not supplied hot.

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.

Most relevant to the Products is Item 4 in the table in clause 1 of Schedule 1 (item 4), which lists 'food marketed as a prepared meal' as taxable. 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'.

Issue 5 of the Australian Taxation Office (ATO) "Food Industry Partnership" Issue Register (Issue 5) provides the ATO's view on prepared food. You may view the issue register at www.ato.gov.au.

Issue 5 states:

"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.

Marketing in a GST context

The Federal Court decision of Cascade Brewery Company Pty Ltd & Anor v Federal Commissioner of Taxation [2006] FCA 821 (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 to the GST Act and be classified as GST-free.

In respect of 'marketing' Sundberg J had this to say at [11], [23] and [24]:

11. The words "marketed principally as food for infants" in item 13 require an examination of the content of the advertising and other marketing in fact carried out either by the taxpayer or by competitors in the market. The witnesses to whom I have referred spoke somewhat generally about their aims and hopes in respect of the marketing. The relevant findings at [9] are based on the content of the marketing, that is to say, on what a reader of the labels, the Bounty bag brochure and the print advertisements or a viewer of the television advertisements would derive from them. The findings do not entirely accord with the witnesses' evidence about Cascade's aims. That evidence seems to me to have been subconsciously influenced by the existence of item 13 and the purpose of the litigation.

23. I have referred at [11] to one aspect of the word "marketed", about which the parties did not make submissions. Otherwise there does not appear to be any significant difference between their positions on the meaning of the expression "marketed principally". Cascade adopted the approach published by the Commissioner in SST11 - Sales tax: a guide to the classification of goods under the sales tax law (SST11):

"Marketing principally means the most important or the most significant of all the ways in which the product is marketed. Marketing involves an examination of the activities of the sellers of the relevant goods."

The document goes on to say that consideration may be given to the name of the goods, their price, the labelling on any containers, literature or instructions accompanying the goods, how they are packaged, how they are promoted or advertised, and how they are distributed.

24. This approach is consistent with the dictionary meanings of "marketing". Thus The Macquarie Dictionary refers to "the total process whereby goods are put onto the market". The Australian Oxford Dictionary refers to "the action or business of promoting and selling products, including market research and advertising".

It is perhaps worth noting that in Cascade the court was required to consider whether the product in question was 'principally marketed as ...'. The use of the word 'principally' creates a stricter marketing test. Item 4 is not qualified by the use of the word 'principally' therefore a lesser standard in terms of the level of marketing activity is necessary. As such when considering whether a product is 'marketed as a prepared meal', the marketing test is broader than what was considered in Cascade. Not all marketing factors may be present or indicate that the product is marketed as a prepared meal, however this is not necessarily determinative. In situations where other factors sufficiently influence the overall impression, an alternative conclusion may be reached. Therefore, whether a food is marketed as a prepared meal depends on the overall impression gained after looking at the marketing activities as a whole.

The ATO's approach to marketing is outlined in the Industry Partnership Issues Register - Issue 5 - Prepared Food and is consistent with the approach taken by Sundberg J in Cascade.That is when determining whether a food product is marketed as a prepared meal the ATO considers the total process whereby the goods are put onto the market. In doing so, consideration is given to the following:

(a)   The name of the goods

(b)   The price of the goods

(c)   The labelling on any containers for the goods

(d)   Literature or instructions packed with the goods

(e)   How the goods are packaged

(f)    How the goods are promoted or advertised

(g)   How the goods are distributed.

GST treatment of the Products

The Products are not ingredients which are intended to be used with other ingredients for the preparation of a meal. The Products are to be eaten as snacks and are capable of being meals in themselves. The price range of the Products are comparable to those of food sold from takeaway shops and restaurants

The Products are sold in sealed containers from which they are heated and consumed. The information provided in the labelling on the containers indicate that the Products are ready for consumption and as such are marketed to compete with foods sold at takeaway outlets, restaurants and other prepared meals. Furthermore, it is evident from the labelling that the aim is to present the Products as prepared meals.

Although the Products are supplied frozen, it does not stop them from being prepared meals. 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.

The Products require refrigeration or freezing for storage; therefore they satisfy the requirement of a prepared meal as provided by Clause 3 in Schedule 1 of the GST Act.

Based on the above, we take the view that the Products are prepared meals which are specified under item 14. As the Products are food of a kind specified in Schedule 1, paragraph 38-3(1)(c) of the GST Act prevents the supply of the Products from being GST-free. Accordingly, the supply of the Products is not GST-free under section 38-2 of the GST Act.

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