Edited version of your written advice

Authorisation Number: 1012899868887

Date of advice: 27 October 2015

Ruling

Subject: Goods and services tax (GST) and food

Question 1

Is GST payable on your sale of (brand name) Crumbed food product?

Answer

Yes.

Question 2

Is GST payable on your importation of (brand name) Crumbed food product?

Answer

Yes.

Relevant facts and circumstances

You are registered for GST.

You will import a product called (brand name) Crumbed food product.

The product is food for human consumption.

You will sell the product to foodservice distributors/wholesalers.

The product will be imported as a frozen product packed in a (number) kg carton, containing many portions of food, each of (number) grams.

A (number) gram portion looks like a large croquette. The product has a roll shape.

The product is made to a sushi recipe and it has the ingredients and characteristics of sushi. The product looks exactly like sushi in breadcrumbs. The product is a version of sushi.

Ingredients:

• The product is coated in breadcrumbs.

• The ingredients inside the crumb coating are nori along with rice, various types of seafood (W, X, Y, Z) and vegetables.

• The rice in your product is Japanese rice and it is flavoured with a vinegar (which is made from a sake product, rice and various other ingredients).

• The seafood and vegetables are chopped into very small sushi style pieces.

• The nori is wrapped around the rice, seafood and vegetables in the same manner as nori is wrapped around sushi filling.

• Salt.

Details of cooking by manufacturer prior to packaging:

• The rice is completely cooked, by boiling, by the manufacturer

• The W and X are completed cooked by the manufacturer.

• The Y and Z are raw at the time of packaging.

• Some of the vegetable ingredients would either be raw or only partially cooked before packaging.

• The breadcrumbs are not par-fried prior to packaging.

The product must be deep fried at (number) degrees Celsius or oven baked before consumption.

Your website says the following about the product:

'Deep fry or oven bake the product, serve as a whole or slice and serve'.

You market the product as alternatively a meal component or something to be served alone. In your discussions with customers, you promote the product as an entrée or main or light meal. You envisage that the product would have accompaniments of some sort even as an entrée, but this is always up to the end consumer.

You envisage that your product would be served in restaurants as well as cafes and perhaps take-away shops. You have no control over where the product is sold to end consumers.

You will not be making retail sales of the product.

You estimate that a roll would be sold to the end consumer at (price) to (price) plus anything served with it.

The labelling on the product says (brand name) Crumbed food product. The cartons will only carry your logo, the name of the product, storage and cooking requirements, ingredients and nutritional information.

Your decision to distribute the product was arrived at as a result of research into the take-away food industry.

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

A New Tax System (Goods and Services Tax) Act 1999 Schedule 1

A New Tax System (Goods and Services Tax) Act 1999 section 13-5

A New Tax System (Goods and Services Tax) Act 1999 section 13-10

Reasons for decisions

Question 1

Summary

The (brand name) Crumbed food product are food marketed as prepared meals. They are covered by item 4 in the table in Schedule 1 to the A New Tax System (Goods and Services Tax) Act 1999 (GST Act). They are not GST-free food under section 38-2 of the GST Act.

GST is payable on the sale of this product because all of the requirements of section 9-5 of the GST Act are met.

Detailed reasoning

GST is payable 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 the indirect tax zone; 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.

(*Denotes a term defined in the GST Act)

The indirect tax zone is Australia.

You meet the requirements of paragraphs 9-5(a) to 9-5(d) of the GST Act. This is because:

• you supply the product for consideration

• you supply the product in the course or furtherance of an enterprise that you carry on

• the supplies are connected with Australia, and

• you are registered for GST.

There are no provisions of the GST Act under which your sales of the product would be input taxed.

Therefore, what remains to be determined is whether your sales of the product would be GST-free.

GST-free food

Section 38-2 of the GST Act states:

A supply of *food is GST-free.

'Food' is defined in section 38-4 of the GST Act to include 'food for human consumption (whether or not requiring processing or treatment)(paragraph 38-4(1)(a) of the GST Act). In your case, the (brand name) Crumbed food product is food for human consumption and therefore, satisfies the definition of food in section 38-4 of the GST Act.

Paragraph 38-3(1)(c) of the GST Act provides that a supply of food is not GST-free under section 38-2 of the GST Act 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 such a kind.

Item 4 in the table in clause 1 of Schedule 1 (item 4) states:

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

Clause 2 in Schedule 1 to the GST Act provides that for the purposes 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.

Clause 3 in Schedule 1 states 'Item 4 in the table only applies to *food that requires refrigeration or freezing for its storage'

The ATO considers that item 4 should be interpreted as applying to food products that are marketed as 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 (clause 3 of Schedule 1); and

• are marketed as a 'prepared meal'.

The term 'prepared meal' is not defined in the GST Act and will therefore bear its ordinary meaning.

The Macquarie Dictionary provides that 'meal' means "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 EM at paragraph 1.33 provides examples of prepared meals:

• prepared meals, such as curry and rice dishes, mornays 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 dinner 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. Sushi is by its nature ready for consumption when it is duly assembled even though part of it is raw.

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.

A prepared meal is something that is capable of being a meal in itself.

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.

We consider that a food product directly competes with takeaways and restaurants, if the type of food would usually be supplied by takeaways or restaurants without accompaniments. For example, sushi would usually be supplied by take-away shops without accompaniments.

In accordance with the Detailed Food List on the ATO website, the ATO considers that a sale of sushi is taxable because it is food marketed as a prepared meal.

Sushi is any of various preparations of boiled Japanese rice flavoured with sweetened rice vinegar and combined with toppings or fillings of raw seafood, vegetables, etc., and wrapped in nori.

Sushi commonly comes in the form of a hand roll when supplied to a take-away consumer.

Sushi coated in breadcrumbs/batter and deep fried is a version of sushi.

Your product is a version of sushi.

We consider that your product would directly compete with takeaway and restaurant meals and is food marketed as a prepared meal because:

• your product is duly assembled

• your product only needs heating, which includes completion of the cooking process, to be ready for consumption

• your product is a version of sushi and sushi is a prepared meal

• takeaways and restaurants would usually supply sushi without accompaniments

• the name of your product includes the words 'X", and some take-away sushi shops label their sushi products 'X".

• your website states 'serve as a whole or slice and serve' (this is promoting the product as something that can be eaten on its own)

• you promote the product to customers as an entrée or main or light meal and you envisage that your product would be served in restaurants as well as cafes and perhaps take-away shops

• you estimate that an (brand name) Crumbed food product would be sold by take-away shops for (price) to (price), which is a typical price of a sushi roll sold in a take-away shop (and therefore, an (brand name) Crumbed food product is of a suitable size to be served as a take-away meal), and

• your decision to distribute the product was arrived at as a result of research into the take-away food industry.

In accordance with clause 2 in Schedule 1 to the GST Act, the fact that your product requires frying or baking prior to consumption does not prevent it from being covered by item 4.

Additionally, your product is not soup and it requires freezing for its storage in its unopened state.

Hence, your product is covered by item 4. Therefore, the exclusion at paragraph 38-3(1)(c) of the GST Act applies.

Therefore your sales of the product are not GST-free under section 38-2 of the GST Act. Your sales of these products are not GST-free under any other provision of the GST Act. Therefore, as all of the requirements of section 9-5 of the GST Act are met, GST is payable on your sales of (brand name) Crumbed food product.

Question 2

GST is payable on taxable importations.

Subsection 13-5(1) of the GST Act states:

You make a taxable importation if:

(a) goods are imported; and

(b) you enter the goods for home consumption (within the

meaning of the Customs Act 1901).

However, the importation is not a taxable importation to the extent

that it is a *non-taxable importation.

Section 13-10 of the GST Act states:

An importation is a non-taxable importation if:

(a) it is a non-taxable importation under Part 3-2 of the GST Act, or

(b) it would have been a supply that was *GST-free or *input taxed if it had been a supply.

An importation is a non-taxable importation under Part 3-2 of the GST Act if any of certain specified Custom Duty concessions apply. Your importation of the product is not a non-taxable importation under paragraph 13-10(a) of the GST Act.

The sale of your product is not GST-free or input taxed. Therefore, your importation of the product is not a non-taxable importation under paragraph 13-10(b) of the GST Act.

Hence, GST is payable on your importation of the product.

Additional information

You can claim an input tax credit for the GST paid to the Department of Immigration and Border Protection on the importation of the product.