Edited version of your written advice

Authorisation Number: 1012793768940

Ruling

Subject: GST and food classification of salads

Question 1

Are you making a GST-free supply in accordance with section 38-2 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), when you supply take-away salads?

Answer

Yes.

Relevant facts and circumstances

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

• You prepare salads from scratch using fresh and unprocessed ingredients.

• The salads are prepared on your premises and sold over the counter directly to customers.

• Your premises are located in a small shopping strip of 4 retail stores. The street is off a main road.

• Your premises are set in what is principally a residential suburb and the street you are located in is principally residential. There are very few nearby businesses. Of those nearby, relevantly across the road and down a little there is a takeaway store and there is also a food retailer a short drive away.

• There is very limited parking and there is not obvious foot traffic.

• There are no signs (or neon lights) that indicate if your premises are a take-away food outlet (like is commonly expected for a suburban take-away, eg Chinese, pizza shop or fish shop). The store is essentially non-descript from its street view and the product range is only obvious upon entering the premises.

• Your customer base is predominately people who come in to buy parts of meals for entertaining or dinner. Most trade occurs on the weekends. Although there are wooden forks behind the counter (on a low shelf) they are rarely supplied to customers and only if the customer asks, that is, they are never offered directly to the customer.

• You have very few lunchtime customers.

• Customers ask you to recommend which salads would complement what the customer was otherwise preparing for a meal (eg. salmon or steak) and that often customers would pick up salads from you and then other food products from other stores (raw meat and seafood).

• Visually, the salads appear uncomplicated and simple in their ingredients. You do not consider the nutritional value of the salads when deciding on the composition of the salads. You do not consider that any of the salads would constitute a nutritionally balanced meal, either on their own, or even combined where up to 4 salads were included in one box together. This is because they are prepared as sides only.

• Your salad cabinet is akin to a supermarket deli, albeit on a much smaller scale.

• You do not supply platters of salads (where you would place an assortment of salads onto a customer's platter).

• There is no seating at all on site for consumption of your salads by customers.

• The salads are sold in plain white boxes. There is no refrigeration or heating instructions on the box.

• The salads do not contain any meat proteins or meat products.

• The salads are served from a cold cabinet and served in a take-away container of varying sizes.

• Your take-away containers come in three sizes: small to serve one to two people, medium for three to four people and large for five to six people.

Relevant legislative provisions

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

Section 38-2

Subsection 38-3(1)

Paragraph 38-3(1)(c)

Paragraph 38-4(1)(a)

Schedule 1

Reasons for decision

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

A supply of food is GST-free under section 38-2 if the product satisfies the definition of food in section 38-4 and the supply is not excluded from being GST-free by section 38-3.

The definition of food in section 38-4 includes food for human consumption, whether or not requiring processing or treatment. The salads you sell in your food outlet as food for human consumption and consequently can be treated as food for human consumption.

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

• 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.

Prepared Meals and Clause 1, Item 4 of Schedule 1

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

Clause 1, Item 4 of Schedule 1 of the GST Act states:

*food marketed as a prepared meal, but not including soup

The issue arises on the GST classification of the salad products that you sell and whether these salad products would fall under Clause 1, Item 4 of Schedule 1.

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

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 ATO view on prepared food is outlined in Goods and Services Tax Industry Issue - Food partnership Prepared Food (refer to Issue 5: Prepared Food) (available from the ATO website www.ato.gov.au), a public ruling for the purposes of the Taxation Administration Act 1953.

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, labelling, pricing, labelling and marketing as well as any cooking instructions. These are summarised as the "marketing test".

The Marketing Test for Prepared Meals

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

The salads contain cold salads, other ingredients and are dressed and packaged in a take-away cardboard container and not intended for consumption on the premises.

After considering the following factors:

• location of the premises:

• lack of obvious foot traffic and obvious store street presence:

• no claims that the salads are nutritionally balanced meals (and are simple in their appearance):

• lack of eating facilities (and utensils where wooden forks are never offered and rarely supplied);and

• the feel of the store being similar to a remote butcher or fruit shop or small deli.

It is accepted that you are not competing with take-aways or restaurants, nor functioning in any capacity as a commonly understood take-away or presenting or marketing your salads as prepared meals.

Therefore, your supply of salads is GST-free under section 38-2 and none of the exclusions in section 38-3 apply.