Edited version of your written advice

Authorisation Number: 1012664225769

Ruling

Subject: GST and food product

Question 1

Will your supply of the food product be GST-free?

Answer

No.

Relevant facts and circumstances

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

• You supply the food product.

• The food product is food for human consumption.

• The product is in a clear plastic retail tub.

• All the components for the food product are assembled.

• The label states that the food product needs to be refrigerated.

• The details on the packaging states that it is ready in X minutes.

• The labelling shows the finished food product ready to eat.

• You state that the food product is not marketed as prepared meals and no utensils are provided.

• The food product is promoted as follows:

• Perfect for the retail sector, including supermarkets, and outlets such as service stations, cafeterias and cafes

• Perfect for lunch or dinner in the office, school or at home

• Made to order

• Heat and eat

• Ready to be micro-waved in their container

• You sell the food product for around $X.

• The product is also available in a variety of flavours:

• You contend that the food products are not a prepared food as they are not a complete meal. You state that the overall intention of the food product is that they are sold as a snacking solution. You state that a discerning customer will consider the product as a snack.

• You state that in order to consume the food product for lunch or dinner, the customer would add other components to add substance and balance to the food product.

Relevant legislative provisions

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

Section 38-2

Section 38-3

Section 38-4

Clause 1 of Schedule 1 to the GST Act

Reasons for decision

Summary

Your supply of the food product is not GST-free as it is excluded from being GST-free under paragraph 38-3(1)(c) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act).

Detailed reasoning

GST is payable by you on your taxable supplies.

You make a taxable supply where you satisfy the requirements of section 9-5 of the GST Act, which states:

You make a taxable supply if:

(a) you make the supply for *consideration; and

(b) the supply is made in the course or furtherance of an *enterprise that you *carry on; and

(c) the supply is *connected with Australia; and

(d) you are *registered, or *required to be registered.

However, the supply is not a *taxable supply to the extent that it is *GST-free or *input taxed.

In your case, you will satisfy the requirements of paragraphs 9-5(a) to 9-5(d) of the GST Act. That is, you will supply the food product for consideration and in the course or furtherance of an enterprise that you carry on. Additionally, these supplies will be connected with Australia and you are registered for GST.

There are no provisions in the GST Act under which your sales of the food product will be input taxed supplies.

Therefore, what remains to be determined is whether your sales of the food product will be a GST-free supply.

A supply of food is GST-free under section 38-2 of the GST Act if the product satisfies the definition of food in section 38-4 of the GST Act and the supply is not excluded from being GST-free 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) of the GST Act).

The food product satisfies the definition of food because it is sold as food for human consumption. Therefore the food product will be GST-free unless it falls within any of the exclusions in section 38-3 of the GST Act. Of relevance to your circumstances is the exception under paragraph 38-3(1)(c) of the GST Act.

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).

Schedule 1

We will now also consider Schedule 1 for the food product. It is only necessary to consider Item 4 of Schedule1, this item covering prepared meals.

The food product is not specifically included in Schedule 1. Nevertheless, this product may be subject to GST by virtue of paragraph 38-3(1)(c) of the GST Act which refers to food of a kind to those foods listed in Schedule 1. Item 4 excludes prepared meals and food marketed as prepared meals, but not including soup from GST-free status.

When considering food under Item 4 we need to also consider conditions outlined in clauses 2 and 3 of Schedule 1 of the GST Act. Clause 2 of Schedule 1 provides when considering prepared food under items 1 to 7, it does not matter whether the food is sold hot, cold or frozen or require cooking, heating, thawing or chilling prior to consumption. Clause 3 of Schedule 1 provides that Item 4 only applies to food that requires refrigeration or freezing for its storage.

Prepared Meals

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'.

Included in this category (according to the EM at paragraph 1.33) are things such as:

• prepared meals such as curry and rice dishes, mornay 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 dinned 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

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.

Paragraph 1.34 of the EM provides examples of food items that are not considered to be prepared meals:

• frozen vegetables

• uncooked pasta products

• fish fingers

• baby food, baked beans, spaghetti and Irish stew that do not require refrigeration or freezing.

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.

The term 'prepared meal' referred to in Item 4 is not defined in the GST Act and therefore takes its ordinary meaning.

'Meal' is defined in The Macquarie Concise Dictionary, 2001, revised 3rd edition Macquarie Library Pty Ltd NSW (Macquarie Dictionary) as:

1. one of the regular repasts of the day, as breakfast, lunch, or dinner.

2. 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".

In order to determine whether the food product you supply is a prepared meal, it is necessary to refer to the ATO view concerning prepared meals.

The ATO view on prepared food is provided in "Issue 5 Prepared food" in the Food Industry Partnership Goods and Services Tax Industry Issues and the Detailed food list (available from the Australian Taxation Office (ATO) website www.ato.gov.au), a public ruling for the purposes of the Taxation Administration Act 1953.

The packaging on the food product states that it needs to be kept refrigerated and you display the product in the chilled section. Therefore the food product satisfies Clause 3 of Schedule 1 as the food product requires refrigeration or freezing for its storage.

The food product consists of a number of components. The cooking instructions state to heat in the microwave or in a pan for 3 to 4 minutes. The food product is therefore duly assembled, with cooked and uncooked parts that just require heating to complete the cooking process ready for consumption. Therefore clause 2 of Schedule 1 is also satisfied.

You have contended that your food product is to be considered as a snacking solution and a consumer would add other components to add substance and balance and therefore would not fall within the terms prepared meals or "food marketed as a prepared meal'. The information on the product and the packaging indicate this is a 'one-stop' product. There are no serving suggestions on the packaging to indicate that the food product is a snack or needs to have other food product added to get it ready for eating as a meal. Further the labelling does not indicate that the food product is meant to accompany something else for it to be a meal or be served with other dishes or that the product is a salad or a side-dish. The food product is promoted as perfect for lunch or dinner in the office, school or at home, ready to heat and eat.

The product offers a balance of ingredients that are often found in prepared meals.

The cooking instructions on the packaging indicate that the product can be cooked in its container via microwave and be eaten from the container (a heat and serve container).

The food product is also similar to take-away products that could be purchased from certain take-away franchise.

Further the price of $X for the food product is comparable to the price charged by certain take-away outlets for similar food products.

After considering all of the above factors it is concluded that the food product is a prepared meal under item 4 and is not a supply of food that is GST-free, as it is excluded from being GST-free under paragraph 38-3(1)(c) of the GST Act. Therefore the supply of the food product is subject to GST.