Edited version of your written advice

Authorisation Number: 1012784345508

Disclaimer

You cannot rely on this edited version in your tax affairs. You can only rely on the advice that we have given to you or to someone acting on your behalf.

The advice in the Register has been edited and may not contain all the factual details relevant to each decision. Do not use the Register to predict ATO policy or decisions.

Ruling

Subject: GST and salad classification

Question 1

Is the supply of your X salads to be mixed by customers after the point of sale and consumed away from the premises GST-free?

Answer

No

Question 2

Is the supply of your Y salads to be mixed by the customers after the point of sale and consumed away from the premises GST-free?

Answer

No

Relevant facts and circumstances

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 GST.

• You are a food franchise offering your customers with a healthy eating alternative.

• Made to order salads are prepared on the spot, based on customers' selections.

• Pre-made salads are already assembled and dressed and displayed on platters from which the customer can choose up to a number of different salad varieties.

• Hot meat salads are prepared from meat products which, whilst still hot, mixed with the remaining refrigerated salad ingredients, to reduce the total temperature of the entire salad to below room temperature and is then packaged and served to customers.

• Made to order and pre-made salads are packaged in disposable, branded plastic or cardboard containers (almost always with lids and currently, plastic containers are being phase out).

• Hot meat salads are dressed and packaged only in cardboard containers.

• All salads are intended to be consumed away from the premises (either soon after sale or at a later time).

• The rationale for the pre-packaging menu items is to save time for convenience purposes for the consumer.

• The X salads are described as: cold salads including hot food items where it is proposed to supply cold salad with the hot food items on top of the other ingredients as at the point of sale, with the customer to mix the ingredients, including the hot food items after the point of sale.

• The Y salads are described as: a mix of various ingredients, including hot food items and/or warm food items, together with other cold salad ingredients (lettuce, tomato, onion, etc), which will be supplied in a single container for mixing by the clients after the point of sale.

• You advise that in relation to either the X salad or the Y salad, the average temperature of the salad is at or below the ambient air temperature (that is, the food must be cooked/warm for food safety purposes but it is cooling even prior to the point of sale and, it constitutes just a part of the overall salad meal which, on the whole, has an average temperature at or below the ambient air temperature).

• Your website provides further information on your background and fundamentals of your salads.

• The majority of your stores are in shopping centres.

• You do not ask customers if they wish to consume the salad 'on the premises' or to take away for consumption.

• The salads are never served at a table; in alternative containers; on trays at those premises with associated seating which would indicate that consumption will take place on the premises.

Your contentions

• You contend that you do not market the salads as prepared meals.

• You maintain that X salads are not 'hot food for consumption'.

Relevant legislative provisions

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

Section 38-2

Subsection 38-3(1)

Paragraph 38-3(1)(c)

Paragraph 38-4(1)(a)

Schedule 1

Reasons for decision

Question 1

Summary

The supply of your X salads to be mixed by customers after the point of sale and consumed away from the premises are regarded as hot food for consumption away from those premises or alternatively they are salads marketed as a prepared meal and therefore are a taxable supply and subject to GST.

Detailed reasoning

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 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.

The definition of food in section 38-4 of the GST Act includes food for human consumption, whether or not requiring processing or treatment. The X Salads will be sold in your food outlets as food for human consumption and consequently can be treated as food for human consumption.

However, subsection 38-3(1)(b) and 38-3(1)(c) of the GST Act provide, amongst other things, that a supply of food is not GST-free if it is a supply of:

• hot food for consumption away from those premises, or

• food of a kind specified in the third column of the table in clause 1 of Schedule 1 to the GST Act (Schedule 1), or food that is a combination of one or more foods at least one of which is food of a kind.

GST Food Guide and the Detailed food List

Before discussing "hot food for consumption…" and the types of food listed in Schedule 1, it is worth referring to both the GST food guide (Food Guide) and the Detailed food list (DFL) (available from the ATO website www.ato.gov.au), which contain the ATO view and are public rulings for the purposes of the Taxation Administration Act 1953.

Consistently with the Further Supplementary Explanatory Memorandum to A New Tax System (Goods and Services Tax) Bill 1998 (the EM), the Food Guide states the following in relation to Hot Food.

HOT FOOD

Hot food means food for consumption that has been heated above the surrounding air temperature.

Food you sell while it is still warm because it happens to be freshly baked is GST-free (unless it falls under another category of taxable food). For example, freshly baked bread is GST-free.

Hot and cold food supplied as a single item for consumption away from the premises (such as sausage and onion on a slice of bread) is subject to GST.[emphasis added]

The following salad items and their GST classification are listed in the DFL as follows:

The salad food (e.g. green, rice, pasta, coleslaw) that is not marketed as a prepared meal is relevant to your supplies of salad food. To determine if the X salads are GST-free, we need to apply the marketing test to the salad. Where a salad is not marketed as a prepared meal the salad food will be GST-free.

Hot food for consumption away from those premises

Paragraph 38-3(1)(b) of the GST Act provides that hot food for consumption away from the premises from which it is supplied is not GST-free.

The term hot food is not defined in the GST Act. However, the EM at paragraph 1.28 states:

Hot food means food that has been heated above the room temperature or above the generally surrounding room temperature for consumption. You do not need to check the precise temperature because food or drink that has been heated so that it can be consumed while still hot will be at a higher temperature than the surrounding air temperature.

You have advised that the X salads are cold salads including hot food items where it is proposed to supply cold salad with the hot food items on top of the other ingredients as at the point of sale,

You further contend that as the hot food item salads are prepared from meat products which, whilst still hot, that by mixing with the remaining refrigerated salad ingredients will reduce the total temperature of the entire salad to below room temperature and accordingly would not be classified as hot food for consumption away from your premises.

As stated above the Tax Office view on hot food for consumption away from premises is contained in the Food Guide. It is our view that hot and cold food supplied as a single item for consumption away from the premises (such as sausage and onion on a slice of bread) or in this case cold salad served with hot meat products, is subject to GST

Accordingly your supply of X salads are therefore excluded from being GST-free by paragraph 38-3(1)(b) of the GST Act.

Schedule 1

In considering Schedule 1 for the X salads it is only necessary to consider Item 4 of Schedule1 which covers prepared meals.

The X salads are not specifically named 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 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 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".

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 rise 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).

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.

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

Paragraph 12 of the Prepared Food ruling provides that consideration must be given to the suppliers' activities when deciding on whether a food is marketed as a prepared meal. The considerations are: which states in part:

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.

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.

Consideration is also given to the actual product specifications, as well as any cooking instructions. These are summarised as the "marketing test".

The Marketing test

The issue to consider for the marketing test is whether the X salads are marketed as a 'prepared meal'.

The X salads contain cold salads including hot food items with the hot food items on top of the other ingredients. The X salads are dressed and packaged only in cardboard containers and not intended for consumption on the premises.

Your website provides information on your salads.

The website indicates that your salads are a meal and compete with traditional takeaway/fast food outlets.

Your business practices, including the website content along with the packaging of the X salads in one container from which it is suitable for consumption support the view that your salads, including the X salads, are being marketed as prepared meals.

It is considered that your salad food satisfies both clauses 2 and 3 of Schedule 1 as the salads are ready for consumption when supplied and they require refrigeration for storage. The X salads are assembled, dressed and placed in a takeaway container and are marketed as a prepared meal.

Therefore, we consider that the X salads are prepared meals as listed in item 4 and are excluded from being GST-free by paragraph 38-3(1)(c) of the GST Act. Supplies of X salads are taxable supplies.

Question 2

Summary

The supply of your Y salads to be mixed by customers after the point of sale and consumed away from the premises are regarded as hot food for consumption away from those premises or alternatively they are salads marketed as a prepared meal and therefore are a taxable supply and subject to GST.

Detailed reasoning

As per the reasoning provided in Question 1 above we consider the Y salad is either a hot food for consumption away from the premises from which it is supplied and is a taxable supply under paragraph 38-3(1)(b) of the GST Act or alternatively a prepared meal under Item 4 and is a taxable supply under paragraph 38-3(1)(c) of the GST Act.