Edited version of your private ruling

Authorisation Number: 1012576238610

Ruling

Subject: GST and food

Question 1

Is the food product (Product A) that you will import and sell to retail outlets subject to goods and services tax (GST)?

Answer

No.

Question 2

Is the food product (Product B) that you will import and sell to retail outlets subject to GST?

Answer

Yes.

Question 3

Is the food product (Product C) that you will import and sell to grocery stores subject to GST?

Answer

Yes.

Relevant facts and circumstances

· You are registered for GST.

· You intend to import and sell to retail outlets three food products.

· Product A

o You have provided a photograph copy of the packaging for the food product that you intend to import.

o The packaging advises that the food product comes in a serving tray.

o The intention is for accompaniments to be added to the product by the consumer.

o The packaging infers that other food products should be added to the product prior to consumption.

· Product B

o You have provided a photograph copy of the packaging of the food product.

o The packaging shows a portioned tray with the food product.

o The product will be required to be re-heated in a microwave.

o The product can be served in its packaging if eaten by one person or can be shared.

o The packaging states that the product is a meal.

· Product C

o You have provided a photograph copy of the packaging of the food product.

o The packaging describes the product as a type of cake.

o You consider product C is a not unlike a rice cake (but not a biscuit type of rice cake).

o The product does not have a sweet filling or coating and it is ready to eat requiring only heating.

o The product contains sugar.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 Section 9-5.

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.

A New Tax System (Goods and Services Tax) Act 1999 Section 182-15

A New Tax System (Goods and Services Tax) Act 1999 Schedule 1.

Reasons for decision

Question 1 - Is Product A that you will import and sell to retail outlets subject to GST?

A supply of food is GST-free under section 38-2 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) if it satisfies the definition of food in section 38-4 of the GST Act and is not excluded from being GST-free under section 38-3 of the GST Act.

The meaning of food in section 38-4 of the GST Act includes food for human consumption, whether or not requiring processing or treatment. Product A is sold as food for human consumption and consequently it can be treated as food for human consumption.

However, subsection 38-3(1) of the GST Act explains which food is not GST-free and states:

A supply is not GST-free under section 38-2 if it is a supply of:

(a) *food for consumption on the premises from which it is supplied; or

(b) hot food for consumption away from those premises; or

(c) food of a kind specified in the third column of the table in clause 1 of Schedule 1, or food that is a combination of one or more foods at least one of which is food of such a kind; or

(d) a *beverage (or an ingredient for a beverage), other than a beverage (or ingredient) of a kind specified in the third column of the table in clause 1 of Schedule 2; or

(e) food of a kind specified in regulations made for the purposes of this subsection.

Note that the asterisks denote a defined term in the GST Act.

In your case, Product A does not fall within any of the exclusions in section 38-3 of the GST Act except possibly paragraph 38-3(1)(c). Therefore, paragraphs 38-3(1)(a), (b), (d) and (e) of the GAT Act do not apply.

Under paragraph 38-3(1)(c) of the GST Act, a supply of food is not GST-free if it is food of a kind that is not 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.

Accordingly, if the food product is listed in Schedule 1, or it is food of a kind to those foods listed in Schedule 1, it will be subject to GST.

Schedule 1 includes the following food items under the category of prepared food that may be of relevance when considering the GST treatment of your supply of Product A:

· Item 4 of Schedule 1 - food marketed as a prepared meal, but not including soup.

Item 4 of Schedule 1

In your case, you advise that Product A is not marketed as a prepared meal. It also requires reheating in the microwave and the consumer needs to add other food products prior to its consumption.

For further clarification, Issue 5 of the Food Industry Partnership - Issues Register (Issue 5) discusses the issue of what is considered a prepared meal for GST purposes. It states:

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, 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".

The EM at paragraph 1.33 provides examples of prepared meals:

o prepared meals, such as 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;

o fresh or frozen lasagne;

o sushi;

o cooked pasta dishes sold complete with sauce;

o frozen TV dinners; and

o 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.

Therefore, 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.

Therefore, for food to be regarded a prepared meal under item 4 of Schedule 1, the food needs to be assembled, dressed cooked or partly cooked.

In your case, although Product A is frozen and requires reheating, product A is not marketed or sold as a prepared meal with the packaging inferring that further food products need to be added to it prior to consumption.

Taking the above facts into consideration, Product A cannot be considered as being a prepared meal.

Further to this, the GST Detailed Food List (available from our website) which sets out the GST status of food items, also states that this product (when not marketed as a prepared meal) is GST-free.

Therefore, Product A you will import and sell to retail outlets does not come under Item 4 of Schedule 1 and will therefore be a GST-free supply under section 38-2 of the GST Act when sold.

Question 2 - Is Product B that you will import and sell to retail outlets subject to GST?

As discussed above, a supply of food is GST-free under section 38-2 of the GST Act if it satisfies the definition of food in section 38-4 of the GST Act and is not excluded from being GST-free under section 38-3 of the GST Act.

The meaning of food in section 38-4 of the GST Act includes food for human consumption, whether or not requiring processing or treatment. As Product B is food for human consumption, it satisfies the definition of food in paragraph 38-4(1)(a) of the GST Act.

Product B does not fall within any of the exclusions in section 38-3 of the GST Act except possibly paragraph 38-3(1)(c). Therefore, paragraphs 38-3(1)(a), (b), (d) and (e) of the GST Act do not apply.

However, under paragraph 38-3(1)(c) of the GST Act, a supply of food is not GST-free if it is food of a kind that is specified in 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.

Schedule 1 includes the following food items under the category of prepared food that may be of relevance when considering the GST treatment of your supply of Product B:

· Item 4 of Schedule 1 - food marketed as a prepared meal, but not including soup.

Item 4 of Schedule 1

In your case, you advise that Product B contains several individual food components. Once heated, the product is ready to eat as a meal from the packaging but can also be shared.

As discussed above in Question 1, Issue 5 discusses the issue of what is considered a prepared meal for GST purposes and it was concluded that for food to be regarded as a prepared meal under item 4 of Schedule 1, the food needs to be assembled, dressed, cooked or partly cooked and marketed as a prepared meal.

In your case, the packaging clearly shows a portioned tray which contains the food components. Product B's packaging also states that it is intended to be a meal. Given this, Product B is duly assembled, dressed and ready for consumption and is therefore a complete meal which only requires reheating.

Further to this, the GST Detailed Food List also states that this type of product is taxable as it is captured by Item 4 of Schedule 1.

Therefore, Product B which you will import and supply comes under Item 4 of Schedule 1 and consequently will not be GST-free under section 38-2 of the GST Act but taxable under section 9-5 of the GST Act when sold.

Question 3 - Is Product C that you will import and sell to retail outlets subject to GST?

As discussed, a supply of food is GST-free under section 38-2 of the GST Act if it satisfies the definition of food in section 38-4 of the GST Act and is not excluded from being GST-free under section 38-3 of the GST Act.

The meaning of food in section 38-4 of the GST Act includes food for human consumption, whether or not requiring processing or treatment (paragraph 38-4(1)(a) of the GST Act). In your case as Product C is food for human consumption, it satisfies the definition of food in paragraph 38-4(1)(a) of the GST Act.

Once it has been determined that an item is food according to the definition, further consideration needs to be given again to section 38-3 of the GST Act, which applies to make certain foods subject to GST (refer to question 1).

It is accepted that unless the food products fall within one of the exceptions within section 38-3 they will be GST-free. Product C is not sold as hot food and is not for consumption on your premises. Consequently it is only necessary to look at paragraph 38-3(1)(c) of the GST Act to determine if the product is a food of a kind specified in Schedule 1, or is food that is a combination of one or more foods at least one of which is food of such a kind.

Food of a kind

The term 'of a kind' is not defined in the GST Act. The phrase was considered in Lansell House Pty Ltd & Anor v. FCT 2011 ATC 20-239 (Lansell House) where the court confirmed that there was no 'bright line' test for what is or is not a food in Schedule 1. The phrase 'of a kind' was given its ordinary meaning and on the facts in Lansell House, the question was 'whether the product at issue came within the genus, class or description of a cracker'?

Whilst a product can be characterised in more than one way, this is irrelevant for the purposes of the GST Act, as a product can only have one 'classification'. In Customs and Excise Commissioners v. Ferrero UK Ltd Lord Wolf MR concluded that where a product has the characteristics of two categories, it is placed in a category in which it has sufficient characteristics to qualify.

The court held, quoting Jacob LJ in Commissioners for Her Majesty's Revenue and Customs v. Procter & Gamble UK, that the question of classification 'is not one calling for or justifying over elaborate, almost mind-numbing, legal analysis. It is a short practical question calling for a short practical answer.'

When classifying a food for the purposes of paragraph 38-3(1)(c), the term 'food of a kind specified' is a question of whether the resulting product comes within the genus, class or description of the item listed.

Schedule 1 includes the following food items under the category of bakery products that may be of relevance when considering the GST treatment of your supply of Product C:

Item 20 of Schedule 1

In your case, you advise that Product C is a not unlike a rice cake (but not a biscuit type of rice cake). It does not have a sweet filling or coating and it is ready to eat requiring only heating.

Item 20 of Schedule 1 lists cakes, slices, cheesecakes, pancakes, waffles, crepes, muffins and puddings.

Please note that when considering food under Item 20 of Schedule 1 we have to consider the condition outlined in clause 2 of Schedule 1 which provides that it does not matter whether the food is sold hot, cold or frozen or require cooking, heating, thawing or chilling prior to consumption. Also section 182-15 of the GST Act provides that the second columns of the tables in Schedule 1, 2 and 3 of the GST Act are not operative when interpreting the items in those tables. For example when considering food of a kind listed under item 20, it is not an issue whether the food is a bakery product or not.

It is our view that the label that is ascribed to the food product by the manufacturer or supplier is not determinative. It follows therefore, that it is a product's characteristics that must be considered and understood before determining whether it is captured by Schedule 1.

Cakes

Cake is not defined in the GST Act and is therefore defined by its ordinary meaning. The Macquarie Dictionary defines cake as:

1. a sweet baked food in loaf or layer form, made with or without shortening, usually with flour, sugar, eggs, flavouring, baking powder or soda and a liquid.

…

It is argued that for a food to fall within the same 'class, genus or description of a cake', not every element of the product will be comparable. As provided by Jacob LJ in Procter & Gamble at [19]:

It was not incumbent on the Tribunal in making its multifactorial assessment not only to identify each and every aspect of similarity and dissimilarity (as this Tribunal so meticulously did) but to go on and spell out item by item how each was weighed as if it were using a real scientist's balance. In the end it was a matter of overall impression.

In the Lansell House decision, when deciding if the Mini Ciabatte was bread or a cracker, the absence of the lamination process was not a deciding factor, rather it was taken into account in the context of all the characteristics of Mini Ciabatte and crackers.

In United Kingdom case of Customs and Excise Commissioners v. Ferrero UK Ltd in determining if a product could be properly described as a biscuit, the question was one of fact and degree. While the product at issue had some characteristics that were not commonly found in biscuits, this did not mean that they were not capable of being regarded as biscuits.

The Further Supplementary Explanatory Memorandum suggests that the term refers to the type of items sold from a bakery premises, rather than being a reference to the manufacturing process and states:

Bakery products

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.

Item 20 does not exclusively include items which are baked. Other foods are subject to a range of production processes, some of which do not include baking. For example, the item includes: pancakes and crepes, which are sautéed; and slices which may be cold set.

Further it is argued that not all products that are considered to fall within the ordinary meaning of cakes are baked. For example, gateaux which are filled with custard or fruit; tortes, which are cake containing cream and other rich ingredients. Additionally and as discussed below, a cheesecake is a form of cake and cheesecakes are not necessarily baked but cold set instead.

In your case, Product C's packaging describes it as a type of cake. The product does not have a sweet filling but does contain sugar to make it sweeter.

Given this, we consider that this product is food of a kind to a cake. Therefore, the supply of Product C which you will import and sell to retail outlets will not be GST-free under section 38-2 of the GST Act but taxable under section 9-5 of the GST Act when sold.