Edited version of your written advice

Authorisation Number: 1013133723908

Date of advice: 9 December 2016

Ruling

Subject: GST and frozen puree baby food

Question

Is your supply of frozen smooth puree baby food (products) a supply of prepared meals and hence taxable supplies?

Answer

Yes.

Relevant facts and circumstances

You are registered for GST

You sell frozen baby purees (products) for 4 month old and 6 month old babies. They are snap frozen and available in a disposable ice cube tray in a cardboard box in the freezer sections of retail outlets and the desired amount of cubes can be heated in the microwave and served for consumption.

You provided samples of the products. The products are made from natural products and contain no preservatives.

Reasons for decision:

Section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (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 will be providing the products for consideration and in the course of your enterprise. The products are supplied in Australia and you are registered for GST. Therefore, the supply of the products meets the requirements of paragraphs (a)-(d) of section 9-5 of the GST Act.

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

A supply of food is GST-free under section 38-2 of the GST Act. Section 195-1 defines food by reference to section 38-4 of the GST Act. It is accepted that the products fall within the definition of food in paragraph 38-4(1)(a) of the GST Act.

Pursuant to section 38-3 of the GST Act:

(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.

Relevant to paragraph 38-3(1)(c) of the GST Act and the products, is the category of 'Prepared food' in the table in clause 1 of Schedule 1 to the GST Act (Schedule 1).

Schedule 1 and more specifically, item 4 lists food that is not GST-free:

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

Relevant to prepared food and meals, are clauses 2 and 3 of Schedule 1 which are as follows:

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.

The GST Food Guide published on the Tax Office website (the food guide) lists baby 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 baby 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.

Section 38-3 (1)( c) of the GST Act: food of a kind specified in Schedule 1:

The use of the words 'of a kind' in paragraph 38-3(1)(c) of the GST Act adds further generality to the description 'food marketed as a prepared meal' in item 4 of Schedule 1 therefore this description should not be construed narrowly (Lansell House Pty Ltd and Anor v. FCT 2011 ATC 20-239 at paragraph 30) (Lansell House).

Prepared meals

In the context of food, 'prepare' is defined in the Macquarie On-line Dictionary as:

2.  to get ready for eating, as a meal, by due assembling, dressing, or cooking.

And meal as:

noun 1.  one of the regular repasts of the day, as breakfast, lunch, or dinner.

2.  the food eaten or served for a repast.

Essentially therefore, a prepared meal would be a 'repast ready for eating'. The products would be within the meaning of this broad description.

Your products are prepared in that they are assembled, that is, no further activity apart from heating is required.

Cooking instructions:

Microwave:

Remove required puree blocks from tray and place uncovered into a microwave suitable bowl.

Place into the microwave. Heat on HIGH at 1000w. Stir well and allow to cool for a few minutes to a suitable temperature for your child before serving.

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.

Requiring refrigeration or freezing for storage:

The products are not the same construct and purpose as the pouches, tins and jars of baby food which have GST-free status; we note that baby 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 products require freezing for storage.

Marketed as a prepared meals:

The Federal Court decision of Cascade Brewery Company Pty Ltd and Anor v FCT 2006 ATC 4339 ('Cascade') considered marketing in a GST context. Specifically, whether Ultra-C (the product at issue) was 'marketed principally as food for infants or invalids' so that it would fall within Item 13 of Schedule 2 and be classified as GST-free.

It is perhaps worth noting the use of 'principally' in Schedules 1 and 2 creates a higher test as it is included as an additional qualifier. Item 4 of Schedule 1 is not qualified by the use of 'principally' therefore a lesser standard in terms of the level marketing activity is required.

In respect of 'marketing' Sunberg J had this to say at paragraphs 11, and 23 to 24:

The words "marketed principally as food for infants" in item 13 require an examination of the content of the advertising and other marketing in fact carried out either by the taxpayer or by competitors in the market...

…consideration may be given to the name of the goods, their price, the labelling on any containers, literature or instructions accompanying the goods, how they are packaged, how they are promoted or advertised, and how they are distributed

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).

Lansell House 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 House 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.

Our opinion:

Products A contains what 6 month old babies usually consume for their meals. Similarly product B contains what 4 month old babies usually consume for their meals. The products are in the fine puree form, suitable to the babies' ability to consume such food at the ages listed on the products. The ingredients of the products (whether consisting of meat, grain and vegetable, or only fruit, or only vegetables) contain the food suitable for a meal for babies of the age listed on the products. Referring to the products as 'baby puree' does not override the fact that the balance of the marketing criteria point to the products as being meals for babies at the specified age.

Having regard to the nutritional combinations and what babies consume at the relevant ages for meals, we consider that the products, although do not possess all of the same characteristics of known prepared meals may nevertheless be characterised within the category of 'prepared meals'. The products are capable of being meals in themselves for babies, and aspects of the marketing as mentioned above are evidence of this.

We see no distinction between these products and the toddler meals or adult meals in the context of 'prepared meals' for the GST Act's purposes. There is no requirement for a prepared meal to contain distinguishable components.

The products are provided in puree form, whether fine puree or rough texture due to the needs of babies. The texture does not influence the characters of the products, being single serves of complete meals served to babies. We consider that they are complete meals for babies sold in the form of fine purees being frozen in cubes and only need heating by microwave before serving to babies.

On balance, we consider that the products' ingredients and perception of the products from consumers in the market, render the products similar to the types of taxable prepared meals listed in the food guide ('fresh or frozen complete meals, for example, single serves of a roast dinner including vegetable and low fat dietary meals').

In summary, the products are of a kind specified in Schedule 1 as a 'prepared meal' and is excluded from GST-free status by Item 4 of Schedule 1. In conclusion, your supply of the products is not a GST-free supply, it is a taxable supply.

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