Edited version of your written advice

Authorisation Number: 1013046772424

Date of advice: 7 July 2016

Ruling

Subject: GST and salads

Question

Are you making a GST-free supply when you supply your range of salad products?

Answer

No, the supply of the salads is subject to GST.

Relevant facts and circumstances

You are registered for GST. You supply food including salads as part of your healthy eating theme.

Your products contain nutritional and ingredient information.

Your salads are identified by various names. They are one size and served in plastic containers with plastic cutlery and serviette in a separate plastic bag.

The salads are not pre-packaged but are prepared on the premises according to the customer's choice of salad ingredients, sauces and various meats the latter of which can be either cold or heated. They are not served with bread.

The price of each salad resembles the price of its bread roll equivalent. Prices depend on the products and ingredients. Pricing is generally in the same range as food options available in competing fast food and restaurant eateries.

There is no labelling of the food product on the container or lid. Your logo is on the lid.

Your outlets are set up as a kiosk and/or situated in food courts or other places. Some outlets may provide designated tables outside the public area and some are in an enclosed retail space with private seating. The ordering process and serving process does not differ between the different types of outlets.

Where there are designated tables, returnable trays are stacked up at the counter which the customer can use to take the food away.

In response a request by the ATO for further information, the following was provided:

● Salads are made from the same ingredients as your other food-type products. They contain the same protein quantity as other food products and have the same portions of vegetables except for lettuce as there is more of this in the salads.

● Salad names are used merely to identify the Salads and are not used to advertise the Salads.

● The ingredients vary depending upon the customer's request. Accordingly, each Salad is customised for each customer. Ingredients can typically include: Lettuce, Meat, Tomato, Cucumber, Pickle, Capsicum, Olives, Onion, Carrot.

● There are no specific campaigns running for Salads across any media format.

● You do not consider that Salads are marketed online.

● With regard to in-store marketing, salads may be pictured in some stores on menu panels.

● The customer receives the same plastic container (with the same plastic cutlery) in all instances.

● There is a bag designed for Salads which is larger than the normal bags. Salads may be placed in a bag if requested by the customer.

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

A New Tax System (Goods and Services Tax) Act 1999 (GST Act) imposes GST on taxable supplies. A supply is not a taxable supply to the extent it is GST-free or input taxed (sections 7-1 and 9-5). Section 195-1 of the GST Act defines food by reference to section 38-4. The products at issue fall within the definition of food.

Food is GST-free (section 38-2) unless section 38-3 applies. Under this section, food is not GST-free where:

1) A supply is not GST-free under section 38-2 if it is a supply of:

(a) *food for consumption on the *premises from which it is supplied; or

(b) hot food for consumption away from those premises; or

(c) food of a kind specified in the third column of the table in clause 1 of Schedule 1, or food

that is a combination of one or more foods at least one of which is food of such a kind; or (d) a *beverage (or an ingredient for a beverage), other than a beverage (or ingredient) of a

kind specified in the third column of the table in clause 1 of Schedule 2; or

(e) food of a kind specified in regulations made for the purposes of this subsection.

(2) However, this section does not apply to a supply of *food of a kind specified in regulations

made for the purposes of this subsection.

(3) The items in the table in clause 1 of Schedule 1 or 2 are to be interpreted subject to the other

clauses of Schedule 1 or 2, as the case requires.

food for consumption on the premises from which it is supplied

Paragraph 38-3(1)(a) of the GST Act ensures that all food sold, which is to be consumed on a supplier's premises will be subject to GST. This is the case irrespective of whether the item of food sold would otherwise be GST-free.

Premises

The term 'premises' is defined in section 38-5 of the GST Act. This section states:

Premises in relation to a supply of *food, includes:

(a) the place where the supply takes place; or

(b) the grounds surrounding a cafe or public house, or other outlet for the supply; or

(c) the whole of any enclosed space such as a football ground, garden, showground,

amusement park or similar area where there is a clear boundary or limit;

but does not include any part of a public thoroughfare unless it is an area designated for use in connection with supplies of food from an outlet for the supply of food.

Further explanation of the meaning of 'premises' is provided in Goods and Services Tax Determination GSTD 2000/4.

Paragraph 1 of the GSTD 2000/4 provides that food courts and footpaths, where tables are supplied for customers of food retailers, will satisfy the definition of premises in relation to a supply of food as a place where the supply takes place.

However, where your outlet is located in an area which is a public thoroughfare, your premises do not include any part of a public thoroughfare unless you have a designated area for use in connection with your outlets.

For consumption on the supplier's premises

Goods and Services Tax Determination GSTD 2000/5 explains when is a supply of food, in terms of paragraph 38-3(1)(a) of the GST Act, 'for consumption on the premises from which it is supplied'.

Paragraph 2 of GSTD 2000/5 provides that you supply food for consumption on the premises from which it is supplied if the food is to be consumed in grounds surrounding the food supply outlet, for example, at tables on a footpath or in a food court.

Paragraph 3 of GSTD 2000/5 deals with situations where the supplier provides food for consumption both on the premises (dine-in) and away from the premises (takeaway). This paragraph provides that if your business operations identify takeaway supplies from dine-in supplies, the takeaway food is not supplied for consumption on the premises. You will be able to identify takeaway food from dine-in food if you:

● have separate ordering and/or serving processes for dine-in and takeaway customers (for example dine-in customers may order and receive their meals at their tables or food could be served on a plate or on a returnable tray);

This does not apply to your salads. They are served in the same sealed plastic container and are not served at tables, on a plate or on returnable trays (although the customer may use a returnable tray to take the salads away for consumption).

● provide different packaging for dine-in and takeaway food (for example, dine-in customers may receive their water or fruit juice in a glass rather than in a sealed disposable container); or

The salads are provided in the same packaging.

● have different menus or product lines for dine-in and takeaway customers.

Paragraph 4 of GSTD 2000/5 provides that if your business operations do not identify takeaway supplies from dine-in supplies, food will remain GST-free if:

● it is served in its original or takeaway form (for example, an unprocessed apple or unopened bottle of water); and

● it is not served in circumstances indicating that consumption will take place on the premises (for example, the food is not served at a table).

In your case you do not make a distinction between dine-in and takeaway supplies as you do not have separate ordering and/or serving processes for dine-in and takeaway customers - all salads have same menus, are served the same way, not on a plate, in plastic containers with lids on and are not served at tables. If the salads are not served on a returnable tray at point of sale, there is no indication they will be consumed inside the store or in immediate vicinity outside the store therefore they are not taxable on the basis that they are 'food for consumption on the premises from which it is supplied'.

However, if they are served on a returnable tray, there is a reasonable inference and expectation that they will be consumed in the store or vicinity as the tray is not disposable and expected to be used to take to table or vicinity and returned or left there then they will be taxable.

hot food for consumption away from those premises

The view that hot meat served with a salad reduces in temperature so it no longer is hot food when consumed is not accepted. This is not in accordance with the ordinary meaning of hot food and would necessitate a scientific analysis to determine tax consequences. Commonly understood, hot food contains elements of a meal that are served hot (eg hot meat). Meat in some salads is served hot at the time of sale. However, at this point, it is not known whether the salads containing heated meat (hot food) will be eaten away from the premises or those in the vicinity as even with the lid on, the customer may eat it inside the store or in an adjacent food court or in the service station etc.

Meat that is room temperature is not hot however if it is heated, it is hot food irrespective whether it returns to room temperature after a while when mixed with the cooler vegetable ingredients. However GST applies at point of sale where the supplier knows or reasonably infers that the heated food will be consumed away from the premises. Since the packaging is the same, the customer may eat it inside the store or near vicinity and still be on the premises.

Although the salads can be hot food, there is no indication or reasonable inference that the salads will be consumed away from the premises as they are supplied in the same packaging and method. Even if returnable trays are not provided, a customer is at liberty to eat at the table provided or outside in the vicinity of the store so no reasonable inference can be made either way. The salads will not be taxable as hot food for consumption away from those premises.

a *beverage (or an ingredient for a beverage), other than a beverage (or ingredient) of a kind specified in the third column of the table in clause 1 of Schedule 2

There are no relevant regulations and beverages are not an issue

food of a kind specified in the third column of the table in clause 1 of Schedule 1, or food that is a combination of one or more foods at least one of which is food of such a kind;

Relevant to paragraph (c) and the food products at issue is the category of 'Prepared food' in Schedule 1 and more specifically, item 4 which states:

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

Regarding prepared food and meals, clauses 2 and 3 of Schedule 1 state:

2 Prepared food, bakery products and biscuit goods

For the purpose of determining whether particular *food is covered by any of the items in the table relating to the category of prepared food, bakery products or biscuit goods, it does not matter whether it is supplied hot or cold, or requires cooking, heating, thawing or chilling prior to consumption.

3 Prepared meals

Item 4 in the table only applies to *food that requires refrigeration or freezing for its storage.

It follows that the supplies of the products will be GST-free unless the food is a kind of food marketed as a prepared meal or is a combination of one or more foods which are a kind of a food marketed as prepared meal (paragraph 38-3(1)(c)).

Meal

A food must be a 'meal' before the issue of its preparation is considered for the purposes of item 4. The term 'prepared meal' is not a defined term in the GST Act and will therefore bear its ordinary meaning.

The Macquarie Dictionary (Dictionary) states that the term 'meal' means 'the food eaten or served for a repast' and 'one of the regular repasts of the day, as breakfast, lunch, or dinner.' This definition could be applied to a single food item or to a meal consisting of several food items.

The term 'repast' as breakfast, lunch, or dinner implies more substantial than snacks or side dishes. 'Snack' is defined in the Dictionary as: 'a small portion of food or drink; a light meal' and 'to eat small portions of food at times other than meal times'.

The salads in question are considered to be meals and not snacks.

Prepared meal

Once a food is accepted as being a meal, its status as a 'prepared meal' under item 4 must satisfy the conditions outlined in clauses 2 and 3 of Schedule 1 of the GST Act. Clause 2 of Schedule 1 provides that prepared food can be supplied hot, cold or frozen or require cooking, heating, thawing or chilling prior to consumption and clause 3 of Schedule 1 provides that prepared food requires refrigeration or freezing for its storage.

The salads are prepared meals as although not in a ready-made condition, they are prepared in front of the customer to their specifications. The foods at issue satisfy both clauses 2 and 3 of Schedule 1 as they are ready for consumption when supplied and require refrigeration for storage.

Goods and Service Tax Industry Issue - Food partnership Prepared Food (Prepared Food) ruling and paragraph 2 of the ruling provides that the term "prepared meal" is intended to cover a range of food products that:

● directly compete against takeaways and restaurants

● require refrigeration or freezing for storage, (already accepted above) and

● are marketed as a prepared meal.

directly compete with takeaways and restaurants

You compete with other fast-food restaurants and takeaway eateries by offering products as healthy choices and alternatives to other meals.

Your meals are in direct competition with other takeaways and restaurants in food courts and beyond. Competition is not limited by close proximity of takeaways and restaurants and can apply to the purchaser taking the meal away for consumption at another location.

marketed as a prepared meal

Paragraph 12 of the 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 and our findings are:

(a) the name of the goods;

Your salad names in isolation are not enough to suggest that they are marketed as prepared meals or a kind of prepared meals.

(b) the price of the goods;

The price of each salad resembles the price of your other food products which contain vegetables. Pricing is generally in the same range as the competing food options available in other takeaways and restaurants.

(c) the labelling on any containers for the goods;

There is no labelling of the food product on the container or lid. There is nothing to suggest they are marketed as prepared meals or a kind of prepared meals.

(d) literature or instructions packed with the goods;

There is no literature or instructions packed with the goods and there is no suggestion they are marketed as prepared meals or a kind of prepared meals.

(e) how the goods are packaged;

There is only one size salad available. The plate of salad is accompanied with plastic cutlery which evidences the salad is able to be consumed as a meal - immediately or taken away.

(f) how the goods are promoted or advertised;

The salads are not specifically promoted as side dishes.

The salads are not excluded from your promotion of supplying healthy foods.

(g) how the goods are distributed

Your outlets operate as kiosks and in food courts or similar areas. The salads and other food are distributed as meals and compete with other fast/take away food stores that serve meals, whether in food courts or to be taken out for consumption nearby (eg parks, open spaces, study/work places etc) or at home.