Edited version of your written advice

Authorisation Number: 1013028311883

Date of advice: 3 June 2016

Ruling

Subject: GST and fresh/frozen food

Question

Is your supply of the product GST-free under section 38-2 of the A New Tax System (Goods and Service Act) Act 1999 (GST Act)?

Answer

No, your supply of the product is not a GST-free supply, it is a taxable supply.

Relevant facts and circumstances

You are registered for GST. You supply the product online and at independent supermarkets. A sample is provided. The product is sold fresh from refrigerators.

Storage Instructions:

Store below 4 degrees. This is a fresh product and is best consumed within 2 days of opening.

Relevant legislative provisions

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 section 9-5

Reasons for decision

Summary:

The supply of the product is not GST-free under section 38-2 of the GST Act because it is classified under prepared food in Schedule 1 of the GST Act.

Detailed reasoning:

Section 9-5 of the GST Act 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.

In your situation, you sell the product for consideration and in the course of your enterprise. The product is supplied in Australia and you are registered for GST. Therefore, the supply of the product meets the requirements of subsections (a)-(d) of 9-5 of the GST Act.

It is necessary to determine if your supply of the product is GST-free. There are no provisions under the GST Act that would treat the supply the product as input taxed.

A supply of food is GST-free under section 38-2 of the GST Act. However certain types of prepared food are not GST-free. Item 4 of Schedule 1 to the GST Act (Schedule 1) provides that food marketed as a prepared meal, but not including soup is not a GST-free supply of food. Clause 3 to Schedule 1 provides that item 4 only applies to food that requires refrigeration or freezing for its storage. You have advised that the product requires refrigeration or freezing for storage. Clause 2 of Schedule 1 of the GST Act provides that for the category of prepared food, it does not matter whether the food is supplied hot or cold, or require cooking, heating… prior to consumption.

The GST Food Guide published on the Tax Office website (the food guide) lists this specific food as GST-free but only to the extent that it is in tins or jars and does not require refrigeration or freezing. If a food is correctly classified as a prepared meal that requires refrigeration or freezing for its storage, it will not be GST-free by action of Item 4 of Schedule 1.

The term 'prepared meal' is not defined in the GST Act and will therefore bear its ordinary meaning. The Macquarie Dictionary, 3^rd edition (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 dictionary defines 'prepare' in relation to food as 'to get ready for eating, as a meal, by due assembling, dressing or cooking'.

Issue 5 in Food Industry Partnership - issues register notes that 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 food guide provides guidance as to what is regarded as prepared meals. Please note that the requirement of "directly competes against takeaways and restaurants" is not a legislation requirement, it is only contained in the EM as a guide.

We note that specific food, baked beans and spaghetti in cans or jars are not considered "prepared meals" as in their unopened state they do not require refrigeration or freezing for their storage - clause 3 of Schedule 1 of the GST Act. However, your product, being freshly cooked food, requires refrigeration or freezing for storage.

Schedule 1 item 4 lists prepared food as "food marketed as a prepared meal, but not including soup". Your product is prepared in that it is assembled, ie no further activity apart from heating is required.

In determining whether food is marketed as a 'prepared meal', the food guide says consideration should be given to how the goods are promoted or advertised, and the name, price, labelling, instructions, packaging and placement of the goods in the store.

Some of the characteristics of the product are consistent with those of prepared meals e.g. instructions, the packaging, the size of the product, being a small meal size servings and the labelling.

In addition, the EM at paragraph 1.33 provides examples of prepared meals as follows:

• curry and rice dishes, mornays and similar dishes sold cold 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 vegetable and low fat dietary meals).

On balance, we consider that the product, which is specific food and only needs reheating to be ready for consumption as a meal, is similar to the types of taxable prepared meals listed in the food guide. We note that the EM states that 'cooked pasta dishes sold complete with sauce' are prepared meals. In addition, we note your marketing of the product as a meal for a specific age group.

In reply to your contention that the product is very much targeted at this age group, it does not look like a pasta meal in takeaways or restaurants; we apply subsection 38-3(1)(c) of the GST Act and consider the product is food of a kind specified in in clause 1 of Schedule 1.

LANSELL HOUSE PTY LTD & ANOR v FC of T 2011 ATC 20-239 (Lansell case) at [30] relevantly provides:

The use of the words "of a kind" in s 38-3(1)(c) of the GST Act adds further generality to the description of the items described in Schedule 1: Air International Pty Ltd v Chief Executive Officer of Customs (2002) 121 FCR 149 per Hill J. Thus, a new product that does not possess all of the same characteristics of known crackers may nevertheless be within the relevant item.

The Court decisions were handed down in the Lansell case on 9 April 2010 and the Full Federal Court Case on 31 January 2011 and can be summarised as follows:

• The phrase 'of a kind' was given its ordinary meaning and on the facts in Lansell House, the question was 'whether the product at issue came within the genus, class or description of a cracker'?

• When deciding if the Mini Ciabatte was bread or a cracker, the absence of the lamination process was not a deciding factor, rather it was taken into account in the context of all the characteristics of Mini Ciabatte and crackers.

• In United Kingdom case of Customs and Excise Commissioners v. Ferrero UK Ltd  in determining if a product could be properly described as a biscuit, the question was one of fact and degree.  While the product at issue had some characteristics that were not commonly found in biscuits, this did not mean that they were not capable of being regarded as biscuits.

• Air International Pty Ltd v Chief Executive Officer of Customs (2002) 121 FCR 149 per Hill J. Thus, a new product that does not possess all of the same characteristics of known crackers may nevertheless be within the relevant item. For example, in the present case, included within item 32 are products that do and do not contain yeast and products that might be produced by different manufacturing processes. The question is whether the resulting product comes within the genus, class or description of a cracker.

Hence the product, which does not look like a meal in takeaways or restaurants, still comes within the description of cooked pasta dishes sold complete with sauce, and is classified in the prepared meal exclusion. The product is prepared food and is excluded from GST-free status by Item 4 of Schedule 1. In conclusion, your supply of the product is not a GST-free supply, it is a taxable supply.