Edited version of your written advice

Authorisation Number: 1051321663211

Date of advice: 9 February 2018

Ruling

Subject: GST and rice meals

Question

ls your supply of the rice meal product (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 GST-free, it is a taxable supply

Relevant facts and circumstances

You supply the frozen rice meal product (the product) to food service distributors. You are registered for GST.

Details about the products are found on your website. The product is sold frozen and is ready to heat up in ovens or microwave ovens and serve. The ingredients contain cooked grain and pasta and cooked vegetables with herbs and flavour.

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 product is not GST-free as it is excluded from being GST-free under paragraph 38-3(1)(c) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act). Therefore, your supply of the product is a taxable supply.

Detailed reasoning

A supply of food is GST-free under section 38-2 of the GST Act if the product satisfies the definition of food in section 38-4 of the GST Act and the supply is not excluded from being GST-free by section 38-3 of the GST Act.

Food is defined in section 38-4 of the GST Act to include food for human consumption (paragraph 38-4(1)(a) of the GST Act).

The product satisfies the definition of food because they are sold as food for human consumption. Therefore the product will be GST-free unless they fall within any of the exclusions in section 38-3 of the GST Act. Of relevance to your circumstances is the exception under paragraph 38-3(1)(c) of the GST Act.

Paragraph 38-3(1)(c) of the GST Act provides that a supply of food is not GST-free if it is food of a kind that is specified in the table in clause 1 of Schedule 1 to the GST Act (Schedule 1).

Schedule 1

We will now consider Schedule 1 for the product. Relevantly, Item 4 of Schedule 1 provides that “food marketed as a prepared meal, but not including soup” will be excluded from being GST-free (i.e. will be taxable).

When considering food under Item 4 we need to also consider conditions outlined in clauses 2 and 3 of Schedule 1 of the GST Act. Clause 2 of Schedule 1 provides when considering prepared food under items 1 to 7, it does not matter whether the food is sold hot, cold or frozen or require cooking, heating, thawing or chilling prior to consumption. Clause 3 of Schedule 1 provides that Item 4 only applies to food that requires refrigeration or freezing for its storage.

Prepared Meals

The term ‘prepared meal’ referred to in Item 4 is not defined in the GST Act and therefore takes its ordinary meaning.

‘Meal’ is defined in The Macquarie Concise Dictionary, 2001, revised 3rd edition Macquarie Library Pty Ltd NSW (Macquarie Dictionary) as:

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

2. 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".

In order to determine whether the product you supply is a prepared meal, it is necessary to refer to the ATO view concerning prepared meals.

The ATO view on prepared food is provided in the Food Industry Partnership - Issue Register – Issue 5 and the Detailed Food list (available from the Australian Taxation Office (ATO) website www.ato.gov.au), a public ruling for the purposes of the Taxation Administration Act 1953.

Below is an extract from the Detailed Food List which outlines the GST status of some food products. It explains the meaning on "prepared meal" where item 4 applies.

The Food Industry Partnership - Issue Register – Issue 5, notes that the term ‘marketed as a prepared meal’ will cover a range of food products. It provides that when determining if a product is marketed as a prepared meal, the activities of the seller are relevant in determining whether a food is marketed as a prepared meal. 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, including placement in the store, and

● how the goods are distributed

A lack of promotional or advertising activities by the supplier (including a wholesaler) does not result in the product not being marketed as a prepared meal. How a product is marketed is determined by the total process whereby goods are put onto the market.

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 and

● are marketed as a ‘prepared meal’.

Included in this category (according to the EM at paragraph 1.33) are things such as:

● prepared meals such as curry and rice dishes, mornay 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 dinned 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

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.

Paragraph 1.34 of the EM provides examples of food items that are not considered to be prepared meals:

● frozen vegetables

● uncooked pasta products

● fish fingers

● baby food, baked beans, spaghetti and Irish stew that do not require refrigeration or freezing.

The Commissioner considers that classification decisions for GST purposes are often questions of fact and degree, a matter of overall impression and a combination of fact finding and evaluative judgment. It is noted however, that the Commissioner considers that the following factors are highly persuasive in the analysis of whether a food is ‘marketed as a prepared meal’:

● it is not an ingredient which is intended to be used with other separately acquired ingredients that then allows for the preparation of a meal

● it is to be eaten as a repast or a meal (can include a light meal or snack)

● it is ready for consumption and as such is marketed to compete with foods sold at takeaway outlets, restaurants and other prepared meals.

Would the product fall within the terms “prepared meals” or “food marketed as a prepared meal’?

The product is sold to a number of varied food establishments (in bulk size) which cater to people who consume food outside their own homes. You state that the product is sold to restaurants and take-away and is meant to be served as a side dish or accompaniment (the recommended serving size is small) with main meals.

The information on the product (cooked ingredients) and the packaging (cooking instructions) indicate this is a ‘one-stop’ product.

Additionally, the pictures of the product on the packaging and the website show no other items as an accompaniment. The instructions do not indicate that it should be served or consumed as a side dish.

Size of the product

The size alone is not indicative of whether it is food marketed as a prepared meal or not. In the EM, there is no mention of how big/small the prepared meal has to be.

In relation to your product, there is no instruction that the consumers add anything to the product.

Meat

Similarly a product which does not contain meat or protein will not be GST-free where it is otherwise marketed as a prepared meal. The ordinary meaning of a meal does not distinguish between ingredients.

‘Of a kind’

The legislation provides that ‘food of a kind’ specified in the third column of the table in clause 1 of Schedule 1 will be food that is not GST-free.

The phrase ‘of a kind’ was considered in the Full Federal Court decision of Lansell House.8 We consider that Court decision provides assistance in interpreting the words 'of a kind' and the ATO has issued a Decision Impact Statement in response to this case.

As outlined in the Decision Impact Statement, the Court said that 'the use of the words 'of a kind'...adds further generality to the description of the items in Schedule 1

‘… Thus, a new product that does not possess all of the same characteristics of known crackers may nevertheless be within the relevant item. The question is whether the resulting product comes within the genus, class or description of a cracker.'

A food product is not classified by comparison to like products. The question at law is if the product comes within the genus, class or description of a food of a kind marketed as a prepared meal.

The very nature of a prepared meal is that it is quick and easy to get ready for consumption, as opposed to preparing the meal yourself using various different fresh food items. A prepared meal would contain all or many of the components that would be included in a complete meal, such as those provided by a restaurant or takeaway outlet, and only minimal preparation would be required for the meal to be ready for consumption.

The cooking instructions indicate that consumers only have to heat up this product and serve. There are no serving suggestions on the packaging to indicate that the product needs to have further ingredients added to get it ready for eating as a meal, and the pictures provided do not show any additional ingredients nor suggest it is a side dish to be consumed in conjunction with other food items. You market your food products in a way that indicates consumers will be ready to be served for convenience.

The product offers a variety of cooked ingredients including grains and vegetables and herbs with flavours that can be considered a vegetarian prepared meal. You have not suggested on the product information that it is a product that is usually served with accompaniments, and the packaging, instructions and marketing do not suggest this is how the product should be consumed

After considering all of the above factors it is concluded that the product is a prepared meal under item 4 and is not a supply of food that is GST-free, as it is excluded from being GST-free under paragraph 38-3(1)(c) of the GST Act. Therefore the supply of the product is subject to GST.