Further Supplementary Explanatory Memorandum(Circulated by authority of the Treasurer, the Hon Peter Costello, MP)
Chapter 1 - Food Subdivision 38-AA
1.1 The amendments to the A New Tax System (Goods and Services Tax) Bill 1998 (the Bill) will make food for human consumption GST-free, except for:
- savoury snacks, confectionery, ice-cream food, biscuits and certain beverages that are currently subject to wholesale sales tax (WST);
- bakery products other than bread; and
- prepared food, takeaway foods and food supplied by restaurants.
1.2 The definition of food excludes live animals (except crustaceans and molluscs), unprocessed grains, cereal or sugar cane and plants under cultivation. This means that most supplies by a primary producer will be subject to GST. However, supplies of fresh fruit and vegetables by a primary producer will be GST-free.
Purpose of the amendments
1.3 The amendments will ensure that basic food for human consumption is GST-free. In addition, they will ensure that the current WST exemptions for food are, in general, maintained.
Date of effect
1.4 The amendments will apply from 1 July 2000.
1.5 The WST currently exempts food marketed for human consumption with the exception of confectionery, biscuits, savoury snacks, ice-cream goods, flavoured milk, fruit and vegetable juice, cordials and certain beverages.
1.6 On 1 July 2000 the GST will replace the WST and in the absence of these amendments all food would be subject to GST.
1.7 A supply of food is GST-free unless it is covered by one of the exclusions. [New section 38-2]
What is food?
1.8 Food is defined to mean:
- food for human consumption (whether or not requiring processing or treatment);
- ingredients for food for human consumption;
- beverages (including water);
- ingredients for beverages;
- goods to be mixed with or added to food for human consumption (including condiments, spices, seasonings, sweetening agents or flavourings);
- fats and oils marketed for culinary purposes; or
- any combination of any of the above.
[New section 38-4]
What is not food?
1.9 There are 3 exclusions from the food definition to make it clear that certain animals and plants are not food until they have been subject to further processing or treatment.
1.10 The exclusion for live animals ensures that live cows, sheep, pigs and poultry are not food. However, live crustaceans and molluscs (eg. lobsters, oysters and crabs) will be GST-free where they are sold as food for human consumption. [New paragraph38-4(1)(g)]
1.11 The exclusion for unprocessed grains, cereals or sugar cane is intended to cover sales of these products by primary producers where the grain, cereal or sugar cane has not been subject to any process or treatment resulting in an alteration of its form, nature or condition. This will ensure that grains sold as seed or sold for further processing or treatment will be subject to GST. Grains, cereals or sugar cane that have been processed or treated resulting in an alteration of its form, nature or condition will be GST-free if they are sold as food for human consumption. Grains, cereals or sugar cane subject to a cleansing treatment, have been treated resulting in a change to their condition. For example, wild rice that has had impurities removed and is then packaged for sale has been treated and will be supplied GST-free. [New paragraph38-4(1)(h)]
1.12 The exclusion for plants under cultivation will ensure that plants are not sold GST-free where they are still in a growing medium. For example, leaves of a herb plant can be picked and used as an ingredient for food even though the plant is growing in a container. Herbs when sold in bunches and not as part of a living plant will be GST-free. A lettuce that is being grown hydroponically will be GST-free when picked and sold to a customer. [New paragraph38-4(1)(i)]
1.13 Food does not include food that is marketed for animals (eg. pet food, bird seed and food for livestock) as it is not food for human consumption.
1.14 Food that is unfit for human consumption is not considered food for human consumption under this definition. For example, rotten meat or vegetables.
1.15 Food that is GST-free will be GST-free throughout the supply chain.
As the sales to the wholesale market, pet food manufacturer and retailer are GST-free there is no input tax credit that can be claimed in respect of those purchases. In the case of the vegetables purchased by the final consumer they have remained GST-free throughout the chain. The vegetables used in the manufacture of pet food only remain GST-free while they are still food for human consumption. When the vegetables are used to manufacture pet food they cease to be food for human consumption and the sale of pet food is subject to GST.
Food that is not GST-free
1.16 Food that falls into any of the following categories is not GST-free:
- restaurant, take-away and prepared food;
- bakery products;
- savoury snacks;
- ice-cream food;
- biscuit goods; or
- taxable beverages.
1.17 Food that is a combination of one or more foods, at least one of which is food of a kind specified in the table in new Schedule 1A of the Bill (prepared food, confectionery, savoury snacks, bakery products, ice-cream food and biscuit goods) is not GST-free. For example, a snack pack containing cheese and biscuits is not GST-free because it contains at least one type of food specified in new Schedule 1A (biscuits). Similarly, a package containing a mix of biscuits and chocolates would also not be GST-free as both items of food are included in new Schedule 1A . [New paragraph 38-3(1)(c)]
1.18 The exclusion in the above paragraph would not apply where a mix of packaged goods is packed and sold together (eg. a hamper containing a packet of biscuits, box of chocolates and a jar of coffee). These items would be taxed individually (ie. biscuits and chocolates subject to tax and the coffee GST-free). If there is a need to apportion the value of the hamper to each of the items to determine the GST payable the rule in section 9-80 of the Bill will be relevant.
Restaurant, take-away and prepared meals
1.19 The types of food covered by this exclusion will be:
- all food and drink supplied for consumption on the premises where it is supplied (eg. restaurant, eat-in facilities at a take-away establishment);
- all hot food and drink supplied for consumption away from premises; and
- food that is included in the category of prepared food listed in new Schedule 1A . This includes some types of food that would be sold by take-away outlets (eg. sandwiches) as well as food that is essentially the same as that sold by take-away outlets (eg. frozen pizzas). It also includes frozen meals which are sold in a form that just requires heating for consumption (eg. a TV dinner or a low fat dietary meal).
Food supplied for consumption on the premises
1.20 If you run a restaurant, cafe, snack bar or similar business you must account for GST on all food or drink you sell for consumption on the premises where you sell it [new paragraph38-3(1)(a)] . This applies not only to complete meals but also to snacks, sandwiches, hotdogs, hamburgers, tea, coffee, etc.
What are the premises?
1.21 The term premises is defined in new section 38-4A to ensure that it has a wide meaning. Premises means more than just the place where you sell the food or drink. It includes:
- the grounds surrounding a cafe, public house or other outlet where food is supplied (eg. a club or restaurant); and
- the whole of any enclosed space such as a football ground, garden, show-ground, amusement park or similar area.
1.22 Racecourses, other sport grounds and zoos are examples of places that would be premises under the category of similar area where there is a clear boundary or limit.
1.23 However, premises does not include any part of a public thoroughfare unless it is designated for use in connection with supplies of food from an outlet where food is supplied. Therefore, tables and chairs set up on the side walk as part of a cafe would fall within the definition of premises. However, seats at a bus stop outside a take-away outlet would not be premises. [New section 38-4A]
1.24 Food supplied for consumption on any part of the premises will be subject to GST. For example, any food supplied at a football ground will be taxable.
Hot food supplied for consumption away from the premises
1.25 Hot food and drink supplied for consumption away from the premises (as identified above) will be taxable [new paragraph 38-3(1)(b)] . This will include food such as soup, tea, coffee, hot chips, hamburgers, chicken pieces, pies, sausage rolls and pizzas sold from take-away outlets. It will also include complete meals which are heated and ready for immediate consumption (eg. meat, vegetable and rice dishes supplied in containers by a restaurant or take-away outlet).
1.26 Certain cold food and drinks, such as confectionery, savoury snacks and most soft drinks, are taxable even if consumed away from the premises. Other cold food purchased for consumption away from the premises, such as sandwiches, may be taxable as a prepared food (see paragraph1.31 for a discussion of prepared food).
1.27 Where other food (eg. a carton of plain milk, or a loaf of bread) is purchased with takeaway food the other food will continue to be GST-free.
What is hot food?
1.28 Hot food means food that has been heated above the room temperature or above the generally surrounding air temperature for consumption. You do not need to check the precise temperature because food or drink which has been heated so that it can be consumed while still hot will be at a higher temperature than the surrounding air temperature.
1.29 Food that you sell while it is still warm because it happens to be freshly baked and is not intended to be eaten while still hot is GST-free. For example, freshly baked bread. However, food listed in the category of bakery products in new Schedule 1A will be taxable regardless of whether it is supplied cold, hot as freshly baked or hot for immediate consumption. Any other freshly baked food that is supplied for consumption while still hot is taxable.
1.30 Hot and cold food supplied as a single item for consumption away from the premises will be subject to GST. For example, kebab rolls or sausage and onions supplied on a slice of bread or in a bread roll will be taxable.
1.31 The category of prepared food as listed in new Schedule 1A is intended to cover a range of food products that directly compete against take-aways and restaurants. These products will always be taxable. It does not matter whether they:
- are sold hot, cold or frozen; or
- require any cooking, heating, thawing or chilling before consumption.
[Clause 2 of Schedule 1A]
1.32 Prepared food specifically includes quiches, sandwiches, pizzas, hamburgers and hotdogs. Hamburgers are complete burgers including the bun. Hamburger patties sold separately will be GST-free (eg. packets of frozen hamburger patties sold at supermarkets).
1.33 New item 4 of new Schedule 1A includes in the category of prepared food, food marketed as a prepared meal but not including soup. This item will cover things such as:
- prepared meals, such as curry and rice dishes, mornays and similar dishes sold cold by a takeaway or supermarket that only need reheating to be ready for consumption;
- fresh or frozen prepared lasagne;
- cooked pasta dishes sold complete with sauce;
- frozen TV dinners; and
- fresh or frozen complete meals (eg. single serves of a roast dinner including vegetables and low fat dietary meals).
1.34 Examples of food that are not considered to be a prepared meal and will be GST-free include:
- frozen vegetables;
- uncooked pasta products;
- fish fingers; and
- baby food, baked beans, spaghetti and Irish stews that do not require refrigeration or freezing.
1.35 Item 4 of new Schedule 1A only applies to foods that require refrigeration or freezing for its storage. This test relates to the food in its unopened state. Therefore, even though a tin of baked beans would require refrigeration after it has been opened it would not be taxed as a prepared meal because in its unopened state it does not require refrigeration.
1.36 New item 5 of new Schedule 1A refers to platters or arrangements of food. Therefore, fruit and cheese and cheese and cabanossi platters will be subject to GST [new clause 3 of Schedule 1A] .
1.37 A product that is not a prepared meal, or otherwise listed in new Schedule 1A will be GST-free.
1.38 Bakery products that are listed in new Schedule 1A will be taxable. The goods included in the list of bakery products will be taxable when sold by bakeries as well as by other businesses. It will not matter whether a bakery product is sold fresh or frozen.
1.39 Bread, bread rolls and buns that have a sweet filling or coating will be taxable [new item27 of Schedule 1A] . This item will cover things such as:
- tea buns;
- finger buns; and
- cream buns.
1.40 Examples of food that are not taxable under this item and will be GST-free include:
- plain bread and rolls (white, wholemeal, multi-grain, etc);
- sesame seed or poppy seed rolls;
- cheesed topped bread;
- pumpkin bread;
- plain focaccia;
- hamburger buns;
- sour dough bread;
- rye bread;
- unleavened bread, gluten free or yeast free bread; and
- pita, Lebanese and lavash bread.
1.41 Bread that has ingredients mixed with the dough before baking will be GST-free. This includes fruit loaves without a coating or filling (a glaze is not considered to be a coating).
1.42 Other types of bakery products that are not listed in new Schedule 1A are GST-free.
Confectionery, savoury snacks, ice-cream food and biscuit goods
1.43 Most goods that are currently subject to WST will also be subject to GST.
1.44 New Schedule 1A lists certain products that will be taxed as confectionery. This list is essentially the same as the definition of confectionery used in the WST legislation.
1.45 Confectionery includes food that is marketed as confectionery, such as chocolate, boiled sweets, lollipops, sherbet, marshmallow and fruit lollies, as well as the specific types of goods included in new Schedule 1A .
1.46 However, candied peel is not confectionery. [Clause 4 to new Schedule 1A]
1.47 New Schedule 1A lists products that will be taxed as savoury snacks. This list is also based on the WST definition with some minor changes. Caviar and other fish roe products are specifically included as savoury snacks.
1.48 The treatment of seeds and nuts has been simplified [item16 of new Schedule 1A] . Seeds and nuts which have been processed or treated by salting, spicing, smoking or roasting, or in any other similar way will be taxable. Similar to the effective WST treatment, unshelled nuts and raw nuts will be GST-free.
1.49 Item 18 of new Schedule 1A would include products such as vegetable chips and dried beef snack food.
1.48 New Schedule 1A lists products that will be taxed as ice-cream food. Ice-cream food will include all goods covered by the WST definition of ice-cream goods as well as frozen yoghurt and frozen fruit products. However, it will not include frozen whole fruit.
1.51 Soft-serve ice-cream sold in cones by cafes, milk bars and take-away food outlets will be taxable as ice-cream (or ice-cream substitutes) and a cone (taxable biscuit goods).
1.52 New Schedule 1A also lists products that will be taxed as biscuit goods. The category of biscuit goods follows the WST definition except that the exclusion for crispbread has been removed. This category would tax, amongst other things, dry biscuits, savoury biscuits and chocolate biscuits.
1.53 Breakfast cereals (which may consist of biscuit type compressed, rolled or flattened cereal that is not individually wrapped) will be GST-free under the first exclusion. Rusks for infants or invalids will also be GST-free. [Clause 5 of new Schedule 1A]
1.54 The definition of food includes beverages and ingredients for beverages [new paragraphs38-4(1)(c) and (d)] . However, the only beverages and ingredients for beverages that will be GST-free are those beverages and ingredients specifically listed in new Schedule 1B [new paragraph38-3(1)(d)] .
1.55 The following types of beverages (and ingredients for beverages) will be GST-free:
- milk products, lactose, soy milk and rice milk [items 1 to 4 of new Schedule 1B] ;
- tea, coffee, etc. [items 5 to 8 of new Schedule 1B] . However, this does not include beverages marketed in a ready-to-drink form (eg. packaged iced coffee or tea and takeaway coffee or tea) [clause 2 of new Schedule 1B] ;
- dry preparations marketed for the purposes of flavouring milk; [item 9 of new Schedule 1B]
- fruit and vegetable juices if they consist of at least 90% by volume of juices of fruits or vegetables [items 10 to 12 of new Schedule 1B] ;
- non-carbonated bottled natural water without any other additives [item14 of new Schedule 1B] ; and
- beverages and ingredients for beverages marketed principally as food for infants or invalids [item13 of new Schedule 1B] .
1.56 Section 38-285 is amended to remove any inconsistencies between Subdivision 38-G and the treatment of bottled water under this Subdivision. [Amendment 9 to the Bill]
Packaging for GST-free food
1.57 The general rule is that packaging is treated in the same manner as the contents. Therefore, packaging for GST-free food will also be GST-free. [New section 38-4B]
1.58 Packaging that is more than is usual and necessary will be taxable. For example, if breakfast cereal is supplied in a plastic container intended for re-use, the container will be taxable. The supply will be partly taxable and partly GST-free and will be covered by the mixed supply rule in section 9-80 of the Bill. Where GST-free food is sold with other goods (eg. a coffee mug sold with a jar of coffee) there will also be a mixed supply.
Food supplied as part of GST-free education
1.59 Paragraph 38-90(2)(b) and section 38-105 of the Bill are both amended to make sure that only food that would be GST-free under Subdivision 38-AA will be GST-free when provided as part of a supply of GST-free education. For example, food supplied at a boarding school is not GST-free under either subsection 38-105(4) or Subdivision 38-AA (paragraph 38-3(1)(a)). [Amendments 7 and 8 to the Bill]
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