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Ruling

Subject: GST and prepared food provided as part of an enterprise

Question

Is the prepayment you receive for the purchase of your customers' food consideration for a taxable supply?

Answer

Yes.

Relevant facts and circumstances

You are registered for goods and services tax (GST).

You carry on an enterprise of supplying a particular type of recreational asset which is a taxable supply to your customers.

When you provide your asset, your customers can supply their own food or have the option of making a prepayment to you which you then use to purchase your customers' food.

Where a prepayment is made, you will provide prepared meals for your customers.

Any money not spent to purchase food is refunded to your customers.

Relevant legislative provisions

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

Section 9-5

Section 9-10.

Reasons for decision

Section 9-10 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) provides that a supply for GST purposes includes a supply of goods or services. Section 9-5 of the GST Act further provides that the supply is taxable if:

· you make the supply for consideration

· the supply is made in the course of your enterprise

· the supply is connected with Australia, and

· you are registered for GST.

Note that the supply is not taxable to the extent it is GST-free or input taxed.

Under section 9-5 of the GST Act, you make a taxable supply of a recreational asset to your customers. As part of your enterprise you also offer the option to your customers of making a prepayment which you then use to purchase their food. You then provide prepared meals to your customers and all the prepayment not spent in purchasing the food is refunded to your customers.

As you make a full refund of the unspent prepayment, it becomes necessary to consider whether this prepayment is consideration for a supply you make (the supply of prepared meals) or whether you are simply acting on behalf of your customers in relation to the food purchase. In the former, the prepayment would become consideration for a taxable supply as it is part of your enterprise. In the latter, you could be considered as a paying agent and consequently, the prepayment is not consideration for any supply you make.

The ATO view on agency is provided by the public ruling Goods and services tax: agency relationships and the application of the law (GSTR 2000/37) which is available from the ATO website www.ato.gov.au. Of relevance are paragraphs 49 and 50 which discuss disbursements made both as an agent and as a principal. Although these paragraphs use a solicitor and client scenario the reasoning provided by these paragraphs could just as easily be applied to any business customer relationship. These paragraphs state:

Agents may incur expenses on a client matter both as an agent of the client and as a principal in the ordinary course of providing their services to the client. For example, in most cases, even though agreements between solicitors and clients may not use the term agent or agency, it is clear that the clients have authorised the solicitors to act on their behalf in the particular matter. When the solicitor acts as an agent for the client, the general law of agency applies so that the solicitor is 'standing in the shoes' of the client.

If a disbursement is made by a solicitor and incurred in the solicitor's capacity as a paying agent for a particular client, then no GST is payable by the solicitor on the subsequent reimbursement by the client. This is because the goods or services to which the disbursement relates are supplied to the client, not to the solicitor, by a third party. Also, the reimbursement forms no part of the consideration payable by the client for the supply of services by the solicitor. However, if goods or services are supplied to the solicitor to enable the solicitor to perform services supplied to the client, GST is payable by the solicitor on any reimbursement by the client of expenses incurred on those goods or services, whether the reimbursement is separately itemised or included as part of the solicitor's overall fee. This is because the reimbursement is part of the consideration payable by the client for services supplied by the solicitor.

In your case, following the guidance provided by paragraph 50 of GSTR 2000/37, the prepayment allows you to purchase food (goods) which in turn allows you to provide prepared meals to your customers. In preparing the food you are offering more than just agency services (the purchase of food on behalf of your customers which they then prepare for themselves). You are supplying a complete package of food preparation.

Consequently, under section 9-10 of the GST Act you are making a supply of prepared meals which under section 9-5 of the GST Act is taxable (note that food consumed on the premises from where it is supplied is taxable - refer to Goods and Services Tax Determination GSTD 2000/4 which includes your recreational asset as premises. This determination is also available from the ATO website).

There are no other legislative provisions in the GST Act or any other Act that would make the supply of prepared meals GST-free or input taxed. Also, as the prepayment is connected with the supply of prepared meals it should be treated as consideration for this taxable supply.

Input tax credits (GST credits)

Note that you would be entitled to claim any GST credits on the food purchases provided the general tax invoice requirements are met.