Edited version of your written advice

Authorisation Number: 1051463755934

Date of advice: 17 January 2019

Ruling

Subject: GST and supply of certain food products

Question

Are the following food products (Products) GST-free in accordance with Section 38-2 of the A New Tax System Goods and Services Tax Act 1999?

Answer

No

Relevant facts and circumstances

You supply meals to consumers premise. The meals aim to make it easy for customers to lose weight and manage their weight. Customers choose a meal plan and calorie level which suits them.

The Products are supplied for lunch in a meal plan, together with other products. The orders are delivered in an esky to the consumers following their submitted orders. The orders are separated into bags indicating the components of the breakfast, lunch, and/or dinners to be refrigerated or frozen respectively.

The Products is supplied together with dressings and/or cheese/meat in separate packaging. The instructions are to combine the Product together with dressings and accompaniments before consuming.

The Products are not marketed separately as a prepared meal. Consumers can not order the Products as a stand alone product, they have to select the Products in a meal plan.

You contend that the Products are not a ‘prepared meal’ as the Products do not directly compete with take-aways and restaurants in convenience and they are not individually marketed as a ‘prepared meal’. Therefore the Products are not covered by Item 4.

Relevant legislative provisions

A New Tax System Goods and Services Tax Act 1999 Subdivision 38-A

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 Schedule 1, Clause 1, Item 4

Reasons for decision

Summary

The Products are a kind of food marketed as prepared meals. They are covered by the exclusion at item 4 in the table in Schedule 1 to the A New Tax System (Goods and Services Tax) Act 1999 (GST Act). The Products are not GST-free supplies in accordance with section 38-2 of the GST Act as both products are supplies of food of a kind listed under section 38-3 of the GST Act.

GST is payable on the sale of these products provided all of the requirements of section 9-5 of the GST Act are met.

Detailed reasoning

Section 38-2 of the GST Act states:

A supply of *food is GST-free.

‘Food’ is defined in section 38-4 of the GST Act to include ‘food for human consumption (whether or not requiring processing or treatment - paragraph 38-4(1)(a) of the GST Act). In your case, the Products are food for human consumption and therefore, satisfy the definition of food in section 38-4 of the GST Act.

Paragraph 38-3(1)(a) of the GST Act provides that a supply of food for consumption on the premises from which it is supplied is not GST-free. As the Products are delivered to the consumers’ premises, we do not consider that you supply them for consumption on your premises. Therefore, the exclusion at paragraph 38-3(1)(a) of the GST Act does not apply.

Paragraph 38-3(1)(b) of the GST Act provides that a supply of hot food for consumption away from the premises from which it is supplied is not GST-free. This paragraph does not apply to the Products since there is no hot ingredient in the Products.

Paragraph 38-3(1)(c) of the GST Act provides that a supply of food is not GST-free under section 38-2 of the GST Act if it is a supply of food of a kind specified in the third column of the table in clause 1 of Schedule 1 to the GST Act (Schedule 1), or food that is a combination of one or more foods at least one of which is food of such a kind.

Most relevant to your Products is Item 4 in the table in clause 1 of Schedule 1 (item 4), which lists ‘food marketed as a prepared meal’ as taxable. Item 4 states:

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

The Commissioner’s view on when a product is ‘marketed as a prepared meal’ has been outlined in the following publications: GST Food Guide and Food Industry Partnership Issues Register Issue 5.

Clause 2 to Schedule 1 of the GST Act provides that a product can be a prepared meal regardless of whether it is supplied hot or cold, or requires cooking, heating, thawing or chilling prior to consumption.

Clause 3 in Schedule 1 of the GST Act states ‘Item 4 in the table only applies to food that requires refrigeration or freezing for its storage’.

Issue 5 of the Australian Taxation Office (ATO) “Food Industry Partnership" Issue Register (Issue 5) provides the ATO's view on prepared food. You may view the issue register at www.ato.gov.au.

Issue 5 states:

"food marketed as a prepared meal, but not including soup". 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 term 'prepared meal' is not defined in the GST Act and will therefore bear its ordinary meaning.

The Macquarie 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 Macquarie Dictionary defines 'prepare' in relation to food as "to get ready for eating, as a meal, by due assembling, dressing or cooking".

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.

A prepared meal is something that is capable of being a meal in itself.

Marketed as a Prepared Meal

Item 4 in the table in clause 1 of Schedule 1 (item 4) states:

food marketed as a prepared meal, but not including soup

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 distribute

Lansell House Pty Ltd & Anor v. FCT 2010 ATC 20-173 (Lansell House) at paragraph 108 provides 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.

Marketing:

The term ‘marketed as a prepared meal’ is a composite phrase, therefore the marketing of the product is also relevant when determining if a product is taxable. The term ‘marketed’, in the context of ‘marketed as a prepared meal’ suggests the aim of the supplier, determined objectively, is to present the goods as being a prepared meal. Therefore when examining the characteristics of a product, all the relevant factors will be looked at together in deciding the proper classification of the product.

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’ (Sunberg J in Cascade Brewery Company Pty Ltd & Anor v. FCT (2006) ACT 4339 23).

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. We consider that Court decision provides assistance in interpreting the words 'of a kind' . 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.’

Hence the question at law is if the product comes within the genus, class or description of a food marketed as a prepared meal.

Relating to your Products:

Are the Products marketed as ready for consumption and as such are marketed to compete with foods sold at takeaway outlets, restaurants and other prepared meals?

When examining the characteristics of a product, all the relevant factors will be looked at together in deciding the proper classification of the product.

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

(Here we discussed the names and full description of the Products being marketed to consumers….)

You supply the Products and their condiments/accompaniments together (albeit in separate packaging). In addition, the instructions on the package of each Product link each Products together with the relevant dressing and the condiments. These are not suggestions, they are instructions for consumers. This means you supply the Products ready to be consumed as a meal.

You advertised / marketed your meals on your website as follows ….

Hence your business concept is to deliver to the clients’ premises healthy meals (breakfast, lunch, dinners) that make it easy to manage clients’ needs. You also promote the ideas of saving time and for people who are too busy to shop or cook because you prepare all the meals.

No one factor will be determinative and the above discussions are some of the factors that would be relevant to the overall impression of a product.

We consider that the Products are marketed as a prepared meal because the aim of the supplier, determined objectively from the business model and from the total process where the Products are put on the market/ marketed to the consumers, is to present the Products as being a prepared meal. There is minimum assembly and dressing required before consumption…..

There is an overall impression that the Products are marketed as a kind of prepared meals for lunch.

You contended that the Products are not ‘Directly compete with takeaways and restaurants’. In deciding whether a food product directly competes with takeaways and restaurants, it is necessary to consider whether that product is usually supplied by takeaways or restaurants with accompaniments. We consider that the Products are similar to takeaways, since the Products are supplied with dressings and accompaniments, ready to be consumed with minimal assembly. The Products are a kind of prepared meals delivered to the consumers’ premises. Consumers do make a choice in what meal plans you are offering them. The Products compete with other food suppliers at meal times such as lunch time since you market that you will deliver the Products to the consumers’ premises following a choice the consumers pick in a lunch menu.

Are the Products to be eaten as a repast or a meal, or are they ingredients for a meal?

Where a product includes ingredients that are to be used by the consumer, together with ingredients that are not supplied in conjunction with the product to prepare a meal, this is an indicator the product is not marketed as a prepared meal.

The facts indicate that the Products are supplied to clients as part of one of the lunch options for a meal plan. (Here we discussed what was supplied together with the Products on the lunch menu).

We consider that the Products are not ingredients which are intended to be used with other separately acquired ingredients that then allow for the preparation of a meal (Lansell House). We consider that you have provided the Products complete with dressings and accompaniments. You supplied the dressings and accompaniment together with the Products in an esky delivered to the consumer following their submitted orders. The orders are separated into bags indicating the components of the lunches to be refrigerated or frozen respectively. In that respect, we consider you deliver the Products to the consumers premise as take away prepared meals

We consider that the Products can be consumed as a meal on their own. The size of the Products on their own will not dictate whether the Products will fall within the item 4. Treating that factor as determinative is akin to reading in an additional word ‘main’ into the item such that it would other read ‘marketed as a prepared main meal’, which is considered inappropriate and not an intended application of the law.

If the size of the Products are small so you need to supply additional snacks with the Products to satisfy your calorie calculation, this will not stop the Products from being a meal on their own, because there is no legislation requirement for prepared meals to satisfy the calories calculation.

In addition, if you base on the size to conclude a product is a snack and not a meal, this fact will not alone change the overall impression of the product, because the term snack size is a way of differentiate serving portions. A snack can be a small portion or light meal.

The Products require minimum preparations and we do not think such preparation instructions mean the required assembly excludes the Products from being food marketed as prepared meals.

We consider that the Products are supplied in the lunch menus and that each Product is supplied completely with condiments and dressings, with minimum preparation, ready to be consumed as a meal (whether it is considered as a light meal or a snack).

In summary, the Products meet the following requirements:

● directly compete against take-aways and restaurants;

● require refrigeration or freezing for storage (per storage instructions); and

● are marketed as a 'prepared meal'.

Hence, the Products are a kind of food marketed as a prepared meal, and covered by item 4. Therefore, the exclusion at paragraph 38-3(1)(c) of the GST Act applies.

As one or more exclusions in subsection 38-3(1) of the GST Act apply, your supply of the Products are not GST-free under section 38-2 of the GST Act.