Edited version of your written advice

Authorisation Number: 1051192109726

NOTICE

This is an edited version of a revised private ruling. It replaces the edited version of the private ruling with the authorisation number 1012877051253

Date of advice: 31 March 2017

Ruling

Subject: GST and fresh chilled baby and toddler food

Question

Is the supply of frozen puree baby and toddler food (products) GST-free under section 38-2 of the A New Tax System (Goods and Service Act) Act 1999 (GST Act)?

Answer

No.

Relevant facts and circumstances

You supply fresh chilled baby and toddler meals (the products). You are registered for GST.

The products are developed especially for babies and toddlers. Details about the products are found on your website, where consumers can order online and have the products delivered in some circumstances. You refer to the products as meals. The products are fine puree, rough puree, textured meals and toddlers meals with labelling for each age group of babies and toddlers. The products are sold from the refrigerator section of shops and are ready to heat up and serve to babies/toddlers. The products need to be kept in the refrigerator once opened.

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

Reasons for decision

Summary

Your supply of the products is a supply of prepared meals and is excluded from GST-free status by Item 4 of Schedule 1 to the GST Act. Accordingly, your supply of the products is not a GST-free supply under section 38-2 of the GST Act, it is a taxable supply under section 9-5 of the GST Act.

Detailed reasoning

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 of 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. The direction is to heat the products by microwave for two minutes, or heat for three minutes in a saucepan before offering to baby.

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.

You contend that your products are not 'prepared meals' since they do not directly compete against take-aways and restaurants. Please note that the requirement of 'directly competes against takeaways and restaurants' is not a legislative requirement, it is only contained in the EM and other sources you mentioned as a guide. If a product directly competes against takeaways and restaurants, this will be an indication that it is a prepared meal. However, if the product does not directly compete against takeaways and restaurants, we also look at the product as a whole. Hence we will now discuss the two requirements in the legislation:

A. Requiring refrigeration or freezing for storage:

You state that the products are the same construct and purpose as the pouches, tins and jars of baby food which have GST-free status. We consider 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 refrigeration or freezing for storage: 'Keep refrigerated at 1-4 Celsius degrees. Use within 24 hours of opening'.

B. Marketed as a prepared meal:

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.

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

This is the vision of the business: creating delicious and nutritious meals with all natural meal options that babies actually loved eating. The website refers to the products as meals.

We consider that you market your products as prepared meals.

'Of a kind' in section 38-3(1)(c) of the GST Act

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.

The marketing on the website refer to the products as meals. The products under range A contain what six month old plus babies usually consume for their meals. Similarly, other products under range B contain what seven month old plus babies usually consume for their meals, and other products under the range C contain what 10 month old plus toddlers usually consume for their meals.

We note that the EM provides examples of prepared meals such as: 'curry and rice dish', 'cooked pasta dishes sold complete with sauce', and 'fresh or frozen complete meal'. Some of your products would be prepared meals as cooked pasta dishes sold complete with sauce. Others are fresh/frozen complete meal.

Whether the products are in the fine puree form, or rough puree form, or toddlers meals (which are more like a grown up version of meals), the products are characterised as meals, suitable to the babies' ability to consume such food at the ages listed on the products. Similarly, the ingredients of the products (whether consisting of meat, grain, fruit and vegetable, or only fruit, or only vegetables) contain the food suitable for a meal for babies of the age listed on the products. The marketing points 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 they do not possess all of the same characteristics of known prepared meals may nevertheless be characterised within the category of 'prepared meals' (Lansell case). The products are capable of being meals in themselves for babies, and aspects of the marketing as mentioned above are evidence of this. We consider that the concept underlying your business model is to provide a range of easy meals (nutritious, full of flavour) for busy mums to give to their children 'just like you were making it yourself' (as distinguished from the baby food in tins or jars on the shelves).

In the context of 'prepared meals' for the GST Act's purpose, we see no distinction between these baby and toddler meal products and adult meals. There is no requirement for a prepared meal to contain distinguishable components.

The texture of the products does not influence the characters of the products, which are single serves of complete meals served to babies or toddlers. We consider that they are complete refrigerated meals for babies or toddlers sold in the form of ready-made meal option and only need heating before serving to babies or toddlers.

On balance, we consider that the products' ingredients, marketing 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') and are similar to other kinds of frozen ready meals in supermarkets.

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.