Edited version of your private ruling

Authorisation Number: 1012492876192

Ruling

Subject: GST and meals provided to child care centres

Question

Is a supply of meals to child care facilities GST-free?

Answer

No

Relevant facts

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 a company registered for goods and services tax (GST).

· You will be preparing meals to be supplied to a number of Child Care Facilities to be used for the children's morning tea, lunch and afternoon tea while they attend the facilities.

· The parents of the children attending the Child Care Facilities will be paying the Child Care Facilities for the provision of the children's morning tea, lunch and afternoon tea as part of the Child Care service.

· You will prepare the food in your commercial kitchen and deliver the food on a daily basis to child care facilities.

· The food you supply will be fully prepared and ready to eat.

· The child care facility staff will serve the food to the children at the approved child care centres.

· You believe the food is GST-free under section 38-155 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act).

· You are aware of other food suppliers to child care facilities already providing GST-free food

· You are aware of a private ruling issued to another food supplier that states that the supplies are GST-free.

Relevant legislative provisions

All references are to the A New Tax System (Goods and Services Tax) Act 1999:

Section 9-5

Section 38-3

Section 38-20

Section 38-140

Section 38-145

Section 38-150

Section 38-155

Division 153

Reasons for decision

Issue 1

Question 1

Summary

The supply of food items by you to the child care centre is not GST-free. It is a taxable supply under section 38-3 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act).

Detailed reasoning

Section 38-155 of the GST Act deals with supplies directly related to child care that are GST-free and provides that:

A supply is GST-free if it is a supply that is directly related to a supply of child care that is:

(a) GST-free because of section 38-140, 38-145 or 38-150; and

(b) supplied by, or on behalf of, the supplier of the child care.

In our view there are two separate supplies:

1. A supply of prepared food by you to the child care centre, and

2. A supply of meals by the child care centre to the children (via their parents fees/membership etc).

The initial supply of the food by you is a business to business transaction and would be dealt with under the normal rules, that is, section 9-5 of the GST Act. Based on the facts provided, you have been engaged by the child care centre to provide prepared meals daily to the child care centre for consumption by the children under care. To make a supply 'on behalf of' and meet the provisions of 38-155(b) of the GST Act we would consider that you would need to be making the supply as an agent for the child care centre. We do not consider that you are acting as an agent (for the purposes of Division 153 of the GST Act) for the child care centre, rather you have merely been contracted to provide prepared meals to the child care centre to enable the centre to provide meals for the children at the child care centre.

Paragraph 18 of GSTR 2000/37 provides guidance on general agents:

18. General agents have authority arising out of, and in the ordinary course of their business, to do some act or acts on behalf of their principals in relation to that business. The term 'general agents' also refers to an agent who is authorised to act on behalf of a principal, generally in transactions of a particular kind or incidental to a particular business. That is, the principal of a general agent is bound by any acts of the agent that are incidental to the ordinary conduct of the agent's business or effective performance of his duties, even if the principal has imposed limitations on the agent's authority. Share brokers, solicitors or property managers are examples of this type of agency relationship.

Based on the facts and information provided, we do not consider that any agency arrangement exists for the purposes of Division 153 of the GST Act.

We have located an ATO view which we consider to be on-point with this scenario. The view is in relation to subsection 38-20(3) of the GST Act. The wording of that subsection and the underlying principle are predominantly the same as section

38-155 of the GST Act in relation to the principle of GST free supply and the words 'directly related'.

Section 38-20 of the GST Act is the relevant provision for GST and hospital treatment. Subsection 38-20(3) of the GST Act provides:

A supply of goods is GST-free if it is a supply that is directly related to a supply of *hospital treatment that is:

(a) GST-free because of subsection (1): and

(b) supplied by, or on behalf of, the supplier of the hospital treatment.

(emphasis added)

The ATO technical product Pharmaceutical Health Forum - issues register - Purchasing or hiring goods through a hospital provides the ATO view which we consider relates directly to your case and provides at paragraph 6.

Further, the provision of drugs and medicines provided by a hospital to a patient will be GST-free where the goods supplied are directly related to the nursing care of a patient (receiving GST-free 'hospital treatment') If the 'hospital treatment' is GST-free and the hospital contracts out to a Pharmacist the service of supplying drugs and medicines to it's patients, the drugs and medicines are being provided on behalf of the hospital and will be GST-free to the patient. However, the supply from the Pharmacist to the hospital will not be GST-free.

(emphasis added)

Depending on the types and/or contents of the food items supplied by you to the child care centre, the food items could be GST-free, taxable or a mixed supply. Based on the detail of the menu provided by you it appears to be mainly prepared food and therefore a mixed or taxable supply (refer section 38-3 of the GST Act).

The relevant provision to consider is section 38-155 of the GST Act for this case.

Based on the limited facts provided we consider that paragraph 38-155(a) of the GST Act would not be met for the reasons as follows:

(1) Section 38-140 of the GST Act is not met as you are not a registered carer (within the meaning of the relevant act).

(2) Section 38-145 of the GST Act is not met for the same reason as 38-140.

(3) Section 38-150 of the GST Act is not met as you are not a child care provider that is eligible for funding from the Commonwealth under guidelines made by the Child care Minister.

You are not a child care supplier in any event nor are you supplying on behalf of the child care centre. This means paragraph 38-155(b) of the GST Act is not satisfied.

As a consequence, the requirements under section 38-155 of the GST Act are not met and the supply of food items by you to the child care centre is not GST-free under this provision.

However, the supply of the food by the child care centre (as part of their child care operations) to the children is GST-free under section 38-155 of the GST Act.

GSTR 2000/30 particularly paragraphs 105 - 120 and the example at paragraph 112 is the principle to be applied in this case. This ruling provides some guidance on the term 'directly related'.

We have included a copy of GSTR 2000/30 for your perusal.

GSTR 2001/1 particularly paragraphs 70 -75 provide further guidance on the term 'directly related' under the sub-heading What is the meaning of 'directly related' to the supply of an education course?

We have included a copy of GSTR 2001/1 for your perusal.

Other relevant comments

Whilst you have advised that you are aware of a PBR issued to another food supplier that states that the supplies are GST-free we cannot comment on the taxation affairs of other entities. However, we have escalated your concerns to the appropriate area of the ATO for consideration.