Edited version of your written advice

Authorisation Number: 1012878077048

Date of advice: 14 September 2015

Ruling

Subject: GST and supply of food to recipients that have a consumer directed care package with a care provider

Question 1

What is the GST status of the foods that are listed in the menu you have provided to us?

Answer

The foods listed in your menu under the headings 'dishes light meals, H Pack, HB, HC Pack and E Meals' are not GST-free food under section 38-2 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) as they are excluded from the GST-free status by paragraph 38-3(1)(c) of the GST Act.

The soups and side dishes listed in your menu are GST-free food under section 38-2 of the GST Act.

The foods marketed as desserts in the menu, (excluding banana custard, chocolate mousse, crème caramel and mango mousse) are not GST-free food under section 38-2 of the GST Act; they are excluded by paragraph 38-3(1)(c) of the GST Act.

The banana custard, chocolate mousse, crème caramel and mango mousse are GST-free food under section 38-2 of the GST Act.

The listed dishes and the lemon cheesecake listed in the C Pack, are not GST-free food under section 38-2 of the GST Act due to the exclusion in paragraph 38-3(1)(c) of the GST Act. The crème caramel is GST-free food under section 38-2 of the GST Act.

Question 2

Is your supply GST-free where under a service agreement with a care provider, you are to supply and deliver healthy ready meals to recipients who have a Consumer Directed Care package (CDC package) with the care provider?

Answer

Depending on the food ordered, your supply of food to the care provider and delivered to recipients who have a CDC package with the care provider is either taxable, GST-free or a mixed supply of taxable and GST-free components.

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 an Australian company that is registered for the goods and services tax (GST).

You supply healthy meals which can be ordered online or by phone. The ordered foods are delivered free to the doorstep of the recipients of the food. All foods are snap frozen with heating instructions. The foods are prepared and they can be heated in a microwave or conventional oven. There is no need to defrost the foods. The food containers are BPA free and recyclable.

You have provided us with a copy of your latest menu that outlines the food you supply to your customers. The menu is made up of dishes, soups, light meals, side dishes, desserts, C Pack, H Pack, HB, HC Pack and E Meals. Customers can select any of the food in your menu.

You supply the foods predominantly via a care provider Organisation that administer/oversee the Consumer Directed Care (CDC) package it has with the recipients of the foods. An invoice for the supplied food can be totally charged to a care provider or split between the client and the care provider.

You have a Service Agreement (Agreement) with a care provider in which you agree to provide healthy ready meals to its clients. We have received a copy of the Agreement. These clients have a Consumer Directed Care (CDC) package with the care provider.

The Agreement provides that the care provider will notify you of the Case Manager(s) for one or more of their clients, being persons who are authorised to manage and purchase services for the purposes of the Agreement.

Under the terms and conditions of the Agreement, if your services are required, the care provider will notify you of your requirements, including details of each client to whom the services are to be provided, the case manager for each client, the type, level and duration of services required and tasks to be undertaken and any other care co-ordination requirements, and if required the applicable client service plan and service schedule. The care provider can cancel the requested services at any time.

For a food order, you receive an Authority from the care provider that outlines the number of foods, frequency of ordering, dollar limit (if applicable) the client can order and the percentage paid by the care provider. The Authority may indicate whether the client is in receipt of a CDC but, no evidence to support that the client is in receipt of a CDC package is forwarded to you.

In the majority of cases a client will place their own order via the telephone, e-mail or through your web site. However, a percentage of the clients due to medical or mental conditions and so on, are unable to place their own orders and in these cases, a relative, friend, partner, care worker or case manager (appointed by care provider Agency) may place the order for the food on behalf of the client.

The care provider utilises a third party (company XYZ) for the processing, recording, administration and payment of its invoices. Company XYZ is not a care provider and it does not provide you with any evidence that the recipient of the food has a CDC package.

You invoice Company XYZ for the food you have provided to the clients (total amount or partial amount if clients have paid their portion of their order). Company XYZ makes the payments directly to your bank account on receipt of your invoices.

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

Reasons for decisions

Question 1

Summary

The foods listed in your menu under the headings 'dishes, light meals, H Pack, HB Pack, HC Pack and E Meals' are not GST-free food under section 38-2 of the GST Act as they are excluded from the GST-free status by paragraph 38-3(1)(c) of the GST Act.

The soups and side dishes listed in your menu are GST-free food under section 38-2 of the GST Act.

The foods marketed as desserts in the menu, (excluding for banana custard, chocolate mousse, crème caramel and mango mousse) are not GST-free food under section 38-2 of the GST Act; they are excluded by paragraph 38-3(1)(c) of the GST Act.

The banana custard, chocolate mousse, crème caramel and mango mousse are GST-free food under section 38-2 of the GST Act.

The listed dishes and the lemon cheesecake listed in the C Pack, are not GST-free food under section 38-2 of the GST Act due to the exclusion in paragraph 38-3(1)(c) of the GST Act. The crème caramel is GST-free food under section 38-2 of the GST Act.

Detailed reasoning

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 it does not come within any of the exclusions in section 38-3 of the GST Act.

Section 38-4 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).

The food listed in your menu is for human consumption and therefore falls within the meaning of food in section 38-4 of the GST Act.

Section 38-3 of the GST Act

Section 38-3 of the GST Act provides when food is not GST-free and relevant to the food listed in your menu is paragraph 38-3(1)(c) of the GST Act.

Under paragraph 38-3(1)(c) of the GST Act, a supply of food will not be GST-free if it is food of a kind that is 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 such a kind. As such, the issue in this case is whether it is 'food of a kind' specified in Schedule 1.

The phrase 'food of a kind' is not defined in the GST Act. However, the words 'of a kind' and their meanings were considered in Hygienic Lily Ltd v. Deputy Commissioner of Taxation (NSW) (1987) 13 FCR 399. Accordingly, it is considered that food will be 'food of a kind' listed in Schedule 1 if it is food belonging to the same class or genus as food listed in Schedule 1.

Dishes and Light meals

Under item 4 in Schedule 1 (Item 4) food marketed as a prepared meat is not GST-free but does not include soup.

Clause 3 of Schedule 1 (Clause 3) provides that only food that requires refrigeration or freezing for its storage may be covered by Item 4.

Clause 2 of Schedule 1 (Clause 2) provides that for the purpose of determining whether particular food is covered by Item 4, it does not matter whether it is supplied hot or cold, or requires cooking, heating, thawing or chilling prior to consumption.

Prepared meals are taxable. If food meets the following three conditions it is a prepared meal:

• directly compete against take-aways and restaurants;

• require refrigeration or freezing for their storage; and

• are marketed as a 'prepared meal.'

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 addition, issue 5 of the Food Industry Partnership Issues Register states further to the above, 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.

In your case the dishes and light meals in your menu require refrigeration for their storage and need to be stored chilled which satisfy the requirements in Clause 3. No further assembly is required by the client since the client is only required to heat the dish as per instruction on the package and serve. In this instance the dishes and light meals in your menu meet the criteria of 'prepared meal' in Item 4.

Accordingly, the dishes and light meals in your menu are not GST-free under section 38-2 of the GST Act. They are taxable supplies under section 9-5 of the GST Act.

Soups

Soup is excluded from being taxed under Item 4 and there are no other items in Schedule 1 that would make the soups listed in your menu subject to GST.

Accordingly, the soups listed in your menu are GST-free under section 38-2 of the GST Act.

Side Dishes

The food listed as side dishes although duly assembled, dressed and ready for consumption are not of a kind marketed as prepared meals but are marketed as side dishes in your menu. Further they are not foods that are listed in Schedule 1. Consequently the supply of these foods is GST-free under section 38-2 of the GST Act.

The rice as a side dish requires refrigeration for its storage, needs to be stored chilled and needs only to be heated to be ready for consumption. However, since the rice is marketed as a side dish and not as a meal, it is not food of kind specified in Item 4 and therefore is not excluded from being GST-free by paragraph 38-3(1)(c) of the GST Act.

Note: Where the rice is marketed as a meal rather than as a side dish, it will not be GST-free food under Item 4 and under section 38-2 of the GST Act.

Desserts

Items 20 to 27 in Schedule 1 refer to bakery products and list the foods that are not GST-free food. Therefore in order for the food to belong to the same class of food listed under items 20 to 27 it needs to be baked.

Item 20 in Schedule 1 lists 'cakes, slices, cheesecakes, pancakes, waffles, crepes, muffins and puddings'. Item 23 in Schedule 1 lists 'tarts and 'pastries'

Clause 2 in Schedule 1 provides that for the purpose of determining whether particular food is covered by any of the items in the table relating to the category of bakery products, it does not matter whether it is supplied hot or cold, or requires cooking, heating, thawing or chilling prior to consumption.

The food marketed as desserts in the menu (except for banana custard, chocolate mousse, crème caramel and mango mousse) are not GST-free food under section 38-2 of the GST Act as they are excluded by either item 20 or 23 in Schedule 1. The supply of these desserts is a taxable supply under section 9-5 of the GST Act.

The banana custard, chocolate mousse, crème caramel and mango mousse are not foods that are listed in Schedule 1 and therefore are GST-free under section 38-2 of the GST Act.

C Pack

The dishes in the C pack are prepared meals under item 4 in Schedule 1 and therefore are taxable food as they are excluded under paragraph 38-3(1)(c) of the GST Act.

The lemon cheesecake is not GST-free under item 20 in Schedule 1 and therefore is taxable food under paragraph 38-3(1)(c) of the GST Act.

The crème caramel is GST-free food under section 38-2 of the GST Act as the food is not listed in Schedule 1.

H Pack, HB Pack, HC Pack and E Meals

All the food listed in the H Pack, HB Pack, HC Pack and E Meals are considered to be 'not GST-free food' in Schedule 1 (the dishes are prepared meals under Item 4 and the desserts under item 20). The foods therefore are taxable under section 38-3 of the GST Act.

Question 2

Summary

Depending on the food ordered, your supply of food to the care provider and delivered to recipients who have a CDC package with the Council is either taxable, GST-free or a mixed supply of taxable and GST-free components.

Detailed reasoning

From the information received, there is a tripartite arrangement in place when you

• are contracted for your supply of healthy ready meals by the Care provider,

• required to provide the meals to recipients who have CDC package with the care Provider; and

• invoice the care provider's representative Company XYZ for the delivered meals (full amount or the portion of the meal payable by Company XYZ where the clients have been instructed to pay their portions to you).

In these circumstances, we need to find out to whom you are making your supply of healthy ready meals before determining the GST status of the supply.

To whom are you making your supply?

Goods and Services Tax Ruling GSTR 2006/9 provides guidance in regard to a supply that involves tripartite arrangement.

Under a tripartite arrangement, it is possible that a supply is 'made' to one entity under the terms of an agreement but the supply is 'provided' to another entity (refer to paragraphs 130 to 176 of GSTR 2006/9).

The term 'made' in the context of 'a supply made' takes its meaning form the definition of 'recipient' in section 195-1 of the GST Act:

'Recipient, in relation to a supply, means the entity to which the supply is made'.

'Provide' is used in contrast with 'made' to distinguish between the contractual flow of the supply to the recipient (the entity to which the supply is made) and the actual flow of the supply to another entity (the entity to which the supply is provided).

Example 7 of GSTR 2006/9 is an example where a supply is made to a community care provider and provided to care recipient. Example 7 appears as follows:

Example 7: community care

171. A, a community care provider, receives Health and Community Care funding to provide home and maintenance services to people living at home, who are frail and have a moderate or severe disability. A sets the fees for its services according to the care recipient's ability to pay.

172. C, a client of A, is the care recipient. C is assessed by A as being entitled to receive a lawn-mowing service every fortnight at the subsidised rate of $10. There is a contractual relationship between A and C for the supply of the lawn-mowing service at the subsidised rate of $10.

173. A engages B, an independent contractor, to provide the lawn mowing service to C. A agrees to pay B $44 for its service. B is not the recipient of funding under the Home and Community Care Act 1985.

174. C is required to pay A $10 for the service, but A directs C to pay the amount to B on A's behalf. A then pays B the balance of $34.

175. There is no contractual relationship between B and C.

176. B is making a supply of the lawn-mowing service (S1) for $44 to A but providing that service to C. A is also making a supply of a lawn mowing service (S2). A's supply is to C at the subsidised rate of $10.

From the information received, we consider you are making a supply of food to the care provider as there is a contractual relationship between you and the care provider for the supply of healthy food which is to be delivered to the care provider's clients.

The payment arrangement in place for the provision of the food (that is the clients and Company XYZ pay their portion of the delivered food or Company XYZ pays the total amount of the delivered food to you) does not change the fact that your supply of food is made to the care provider and provided to the clients. This is because under your agreement with the care provider, you must perform and supply the services specified by the care provider to the clients when requested by the care provider.

GST status of your supply of the food

Taxable supply

GST is payable on taxable supplies. Under section 9-5 of the GST Act an entity makes a taxable supply if:

a) the entity makes the supply for consideration; and

b) the supply is made in the course or furtherance of an enterprise that the entity carries on;

c) the supply is connected with the indirect tax zone; and

d) the entity is registered or required to be registered for GST.

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

From the information received, you satisfy paragraphs 9-5(a) to 9-5(d) of the GST Act when you supply your food as:

a) you make the supply for consideration;

b) the supply is made in the course of the business that you carry on;

c) the supply is connected with the indirect tax zone as the foods are delivered in Australia; and

d) you are registered for GST.

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

There is no provision under the GST Act that makes your supply of food input taxed.

GST-free supply

As discussed in question 1, some of your foods are GST-free under section 38-2 of the GST Act and some are taxable under section 9-5 of the GST Act.

Accordingly, depending on the type of food being ordered, your supply of food to the care provider may be taxable, GST-free or a mixed supply of taxable and GST-free components.

Where your supply is a mixed supply you need to apportion the consideration received between the taxable and GST-free part of the supply.