Edited version of your private ruling

Authorisation Number: 1012547205243

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Ruling

Subject: GST and food

Question

Is your supply of the products (Products) listed in the facts GST-free?

Answer

Your supply of Products A, D and E is GST-free.

Your supply of Products B and C is taxable.

Relevant facts and circumstances

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

· You sell the following Products to retail outlets:

· Product A - a product substantially made from milk and rice

· Product B - small cut pieces of a certain type of bread that have been fried

· Product C - small cut pieces of a certain type of bread that have been toasted

· Product D - deep-fried balls of a certain type of food product.

· Product E - same as Product D but uncooked.

· Product D and E are refrigerated.

· Products D and E are not labelled or marketed as a prepared meal.

· Product D only requires heating before consumption.

· Product B or C do not have anything added to them such as salts, seasoning or similar.

· Products B and C have plain labelling, that is, they are labelled as products that can be used however the consumer wishes to use them.

· Product C is thin, has the crunchiness and crispness of crackers and would generally be used with dips.

· Product C does not have laminated surfaces like crackers.

· All of the Products are sold cold.

Relevant legislative provisions

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

Section 9-5

Section 38-2

Section 38-3

Section 38-4.

Reasons for decision

A supply of food is GST-free under section 38-2 of the A New Tax System (Goods and Services Tax) 1999 (GST Act) if what is being supplied satisfies the definition of food in section 38-4 of the GST Act and it is not excluded 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)) or ingredients for food for human consumption (paragraph 38-4(1)(b)). In your case, you sell the listed Products to retail outlets as food for human consumption. Hence, the Products can be treated as food for GST purposes.

Note that how any product meets the requirements of section 38-4 of the GST Act is not of importance when applying section 38-3 of the GST Act. Although a product may meet the requirements to be treated as food for GST purposes, the product will only be GST-free if the product is then not excluded from being GST-free by section 38-3 of the GST Act. Given this, it is necessary to determine if any of your Products are excluded from being GST-free by section 38-3 of the GST Act.

Foods excluded from being GST-free

The Products do not fall within any of the exclusions in section 38-3 of the GST Act except possibly paragraph 38-3(1)(c). Paragraph 38-3(1)(c) of the GST Act provides that a supply of food is not GST-free if it is food of a kind that is specified in the table in clause 1 of Schedule 1 to the GST Act (Schedule 1) or is a food that is a combination of one or more foods at least one of which is food of such a kind.

Product A

In the case of your Product A, there are no foods of a kind specified in Schedule 1. Its GST-free status is also confirmed by the Detailed food list, a publication which is available on our website and which provides details of the GST status of major food and beverage product lines. This publication has the status of a public ruling for GST purposes and states the following in relation to Product A:

Given this, your supply of Product A is GST-free under section 38-2 of the GST Act.

Products D and E

In the case of these two Products, Schedule 1 includes only the following food item that may be of relevance when considering the GST treatment of your supply of these Products:

· food marketed as a prepared meal, but not including soup (Item 4).

What is a prepared meal

The Australian Taxation Office (ATO) view on prepared meals (also often referred to as complete meals) is provided by Issue 5 of the Food Issues Register (Issue 5) which is also available from our website. Issue 5 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.

Issue 5 further provides some examples of prepared meals and includes:

· curry and rice dishes, mornays and similar dishes sold cold by a take-away or supermarket that only need reheating to be ready for consumption;

· fresh or frozen lasagne;

· sushi;

· cooked pasta dishes sold complete with sauce;

· frozen TV dinners; and

· fresh or frozen complete meals (for example, single serves of a roast dinner including vegetables and low fat dietary meals).

All of the above meals, except for the sushi, are of a kind that are duly assembled, cooked or partly cooked and require heating and completion of the cooking process for them to be ready for consumption. Sushi is by its nature ready for consumption when it is duly assembled even though part of it is raw.

Hence, 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.

Further to the above, in determining whether food is marketed as a prepared meal the activities of the seller are relevant. 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, and

· how the goods are distributed.

In this case, none of the two Products have a combination or presentation of ingredients that would normally be found in a prepared meal. Also, the Products are not labelled or marketed as prepared meals.

Given this, Products D and E are not excluded from being GST-free by Item 4 and consequently, your supply of these Products is GST-free under section 38-2 of the GST Act.

Products B and C

Schedule 1 includes only the following three food items that may be of relevance when considering the GST treatment of your supply of these Products:

· savoury snacks - potato crisps, sticks or straws, corn crisps or chip, bacon or pork crackling or prawn chips (Item 15)

· food similar to foods covered by Item 15 whether or not they consist wholly or partly of any vegetable, herb, fruit, meat, seafood, or dairy product or extract and whether or not it is artificially flavoured (Item 18), and

· biscuit goods - biscuits, cookies, crackers, pretzels, cones or wafers (Item 32).

Classification of Product B

Product B is not a product that is specifically listed in Item 15. However Item 18 includes food that is similar to those foods covered by Item 15.

Item 18 will generally include those foods that are small and have been fried so as to make them crisp and crunchy. As an example, the following two foods from the Detailed food list fall under Item 18:

In this case, Product B are thin, small pieces of a certain type of bread that have been deep-fried so that they are crisp and crunchy (not unlike pita chips), thus giving the product the main characteristics of the foods found in Item 15.

Accordingly, Product B falls under Item 18. Hence your supply of this Product is excluded from being GST-free and consequently, your supply of this Product is taxable under section 9-5 of the GST Act.

Classification of Product C

Product C is not a product that is specifically listed in Item 32 but may be a product that is food of a kind to those listed (and hence taxable under paragraph 38-3(1)(c) of the GST Act). Of all the products listed in Item 32, crackers are the relevant type of biscuit good that needs to be taken into account when determining whether Product C is a food of a kind of those specifically listed in Schedule 1.

Situations arise where a food may have the characteristics that allow it to be placed into more than one category of food. For example, products similar to Product C often display characteristics of both bread (a GST-free product) and biscuits (a taxable product).

Hence, in these situations, it is necessary to consider the decision and reasoning in the Federal Court case Lansell House Pty Ltd & Anor v FC of T [2010] FCA 329 (Lansell) which was upheld in Lansell House Pty Ltd v Commissioner of Taxation [2011] FCAFC 6.

In Lansell, the court recognised that a food product can be characterised in more than one way and therefore could be classified into more than one food category. However, Lansell further provides that for GST purposes a food product can only have one classification and this classification should be based solely on the product's characteristics. In coming to its decision, Lansell also considered (amongst other things) the product's:

· use

· in store display

· marketing

· tax treatment in the country of manufacture, and

· appearance.

In your case, Product C has been cut so as to give the size and appearance of crackers. They are thin, dry and crispy like crackers and are normally used in the same manner as crackers. It would also not be unreasonable to be expected to find this Product located alongside biscuits and crackers in retail outlets.

The Product's individual pieces do not have a laminated surface (often found in cracker biscuits). However, Lansell found that this is only one characteristic that should be taken into account when determining a product's classification.

Given this and looking at all of Product C's characteristics, the correct classification for GST purposes is that Product C is a food of a kind that consists principally of crackers. Hence your supply of this Product is excluded from being GST-free by Item 32 of Schedule 1 and consequently, your supply of this Product is taxable under section 9-5 of the GST Act.