Edited version of your written advice

Authorisation Number: 1012804228904

Ruling

Subject: GST and Salads

Question

Is the supply of your Salads 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.

Relevant facts

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

• You are a takeaway food shop located in a small food court.

• You do not have a webpage or a Facebook page to promote your range of food items.

• You previously obtained a Private Binding Ruling (PBR) from the Australian Taxation Office where it was found that the supply of your salads was a GST-free supply.

• You advise that exactly the same ordering and dining procedures are used for eat in or takeaway customers. There is no table service and no trays provided. All products are served in closed disposable containers and placed in a paper bag with a plastic fork and serviette.

• You advise that there is common seating within the food court for the use of all the shops in the food court including yourself and these tables and chairs are cleaned by the food court management, however, there is no specific seating allocated to the store itself.

• You advise that all your customers receive their food on a take away basis.

• You supply a range of salads.

• The salads appear on the menu board under a heading that states 'salad suggestions'. Below that, there is another heading that states 'create your own salad' and this lists all the salad ingredients.

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)(a)

Paragraph 38-3(1)(b)

Paragraph 38-3(1)(c)

Paragraph 38-4(1)(a)

Schedule 1

Reasons for decision

Summary

The supply of your salads is regarded as food for consumption on the premises from which it is supplied or 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. All the salads will be taxable regardless of where they are consumed.

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. Your Salads are sold in your food outlets as food for human consumption and consequently can be treated as food for human consumption.

However, subsections 38-3(1)(a), 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:

• Food for consumption on the premises from which it is supplied (which includes such things as the grounds surrounding a café or public house, or other outlet for the supply and includes food courts), or

• 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 item and its GST classification is 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 foods. For your Salads to be GST - free, we need to apply the marketing test to the salads. Where a salad is not marketed as a prepared meal, the salad will be GST-free.

Food for consumption on the premises from which it is supplied

Paragraph 38-3(1)(a) of the GST Act provides that food for consumption on the premises from which it is supplied is excluded from being GST-free. Section 195-1 of the GST Act provides the definition of premises and advises it has the meaning given by section 38-5 of the GST Act. Section 38-5 of the GST Act provides that premises in relation to a supply of food includes such things as the grounds surrounding a café or public house, or other outlet for the supply….We consider that such a definition includes food courts.

In your case you advise you are located in a small food court and accordingly your supply of Salads are therefore excluded from being GST-free by paragraph 38-3(1)(a) of the GST Act.

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 some of your salads are cold salad items which also include hot meats (such as beef, chicken or bacon) where the cold salad is supplied with the hot meats with the other salad ingredients in the one package/container.

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 Salads with hot meats are therefore excluded from being GST-free by paragraph 38-3(1)(b) of the GST Act.

Schedule 1

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

Your Salads are not specifically named in Schedule 1. Nevertheless, these 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, labelling, pricing, labelling and marketing 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 your Salads are marketed as a 'prepared meal'.

It is considered that your Salads satisfy both clauses 2 and 3 of Schedule 1 as the salads are ready for consumption when supplied and they require refrigeration for storage.

Your range of salads are indicative of that found in similar 'ready to eat' Salad concept stores and takeaway stores. Your Salads are served in closed disposable containers duly assembled and 'ready to eat' and placed in a paper bag with a plastic fork and serviette:

The location of your takeaway food shop in a food court setting where the majority of trade is for lunch purposes also indicates that your Salads compete with traditional takeaway/fast food.

Your Salads are assembled and supplied in a 'food-court' setting which indicates they are marketed as a prepared meal.

Therefore, we consider that your Salads are marketed as prepared meals listed in item 4 and are therefore excluded from being GST-free by paragraph 38-3(1)(c) of the GST Act.