Edited version of your written advice

Authorisation Number: 1051486465708

Date of advice: 27 February 2019

Ruling

Subject: GST and supply of food

Question

Is the supply of the Product GST-free under section 38-2 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer

Yes.

Relevant facts and circumstances

You supply the Product and other similar products to retail customers.

There are several varieties available

Your website included the ingredients of all varieties. The main ingredients of all varieties are beans and other vegetables. There are no meat ingredients.

The website also included recipes where the Product is used as ingredient.

The Product’s packaging provides preparation instructions and notes that the option of heating the Product may produce better results. The instructions also include specific heating times as guide for oven, microwave and pan fry means of heating.

The Product is intended to be served with bread, dips and/or salad (i.e. the Product is not intended to be eaten by itself).

The Product is suitable to freeze and should be kept refrigerated at a certain temperature range. Once opened, it should be consumed within a certain number of days.

The Product is wrapped and sealed in packaging and is not intended to be for consumption on the premises from which it is supplied.

The Product is placed in the refrigerated cabinets of the supermarket.

You are registered for GST.

You provided a sample of one of the varieties. The packaging includes the following:

● a statement to enjoy the Product with other ranges of your products

● the Product is cooked and ready to eat and for best results, follow the heating instructions provided. Heating instructions are provided for oven, microwave and pan fry, and

● storage instructions which state that the Product is suitable for freezing and should be keep refrigerated at a certain temperature range and once, opened the Product is to be consumed within a certain number of days.

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 Subsection 38-3(1).

A New Tax System (Goods and Services Tax) Act 1999 Paragraph 38-3(1)(c).

A New Tax System (Goods and Services Tax) Act 1999 Section 38-4.

A New Tax System (Goods and Services Tax) Act 1999 Paragraph 38-4(1)(a).

A New Tax System (Goods and Services Tax) Act 1999 Schedule 1 clause 1 table item 4.

A New Tax System (Goods and Services Tax) Act 1999 Schedule 1 clause 1 table item 18.

Further issues for you to consider

Anti-avoidance rules

Reasons for decision

Summary

The supply of the Product is a GST-free supply under section 38-2 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) because:

● the Product is food for human consumption and therefore satisfy the definition of food (paragraph 38-4(1)(a) of the GST Act) and

● the supply of the Product does not fall within any of the exclusions in section 38-3 of the GST Act.

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 to include food for human consumption (whether or not requiring processing or treatment) (paragraph 38-4(1)(a) of the GST Act). The Product satisfies the definition of food as being food for human consumption.

However, subsection 38-3 of the GST Act provides that a supply of food is not GST-free if, amongst other things, it is a supply of:

● food for consumption on the premises from which it is supplied (paragraph 38-3(1)(a) of the GST Act)

● hot food for consumption away from those premises (paragraph 38-3(1)(b) of the GST Act), or

● 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 (paragraph 38-3(1)(c) of the GST Act).

Paragraph 38-3(1)(a) and 38-3(1)(b) of the GST Act

It is your contention that as the Product is wrapped and sealed within its packaging, it is not intended to be consumed at retailer’s premises nor be supplied as hot food for consumption by customers to consume elsewhere.

Based on the information you provided, we agree with your conclusion that the supply of the Product is not excluded from being GST-free by paragraphs 38-3(1)(a) and 38-3(1)(b) of the GST Act.

Paragraph 38-3(1)(c) of the GST Act

The Product is not specifically listed in Schedule 1. As such, the issue is whether the Product is 'food of a kind' specified in Schedule 1.

The phrase 'of a kind' is not defined in the GST Act. Accordingly, it is appropriate to examine the ordinary meaning of that term. The Macquarie Dictionary (1997) does not define the entire phrase 'of a kind' however, it defines the word 'kind' to mean:

'1. A class or group of individuals of the same nature or character, especially a natural group of animals or plants. 2. Nature or character as determining likeness or difference between things: things differing in degree rather than in kind. 3. A person or thing as being of a particular character or class: he is a strange kind of hero. 4 ...'

Accordingly, something will be 'of a kind' if it is of the same nature or character (possessing the same distinguishing qualities) as the thing or group in question.

In addition, the case law Lansell House Pty Ltd & Anor v FC of T 2011 ATC 20-239 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…

In coming to its decision, Lansell also considered, among other things, the product’s

● use

● in store display

● marketing

● tax treatment in the country of manufacture, and

● appearance.

Item 4 of the table in clause 1 of Schedule 1 of GST Act (item 4)

Item 4 lists ‘food marketed as a prepared meal, but not including soup'. Clause 2 of Schedule 1 of GST Act 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 of GST Act provides that item 4 only applies to food that requires refrigeration or freezing for its storage.

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

In the context of food, ‘prepare’ is defined in the Macquarie Dictionary Online 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 ATO view on what is a ‘prepared meal’ is provided in Issue 5 of the Food Industry Partnership - Issues Register (Issue 5). This issue and all the information within it is a public ruling for the purposes of section 105-60 of Schedule 1 to the Taxation Administration Act 1953.

Issue 5 provides that 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). It is considered that making dressing available will satisfy this requirement, as it allows the consumer to add the level of dressing to meet their personal tastes.

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.

Issue 5 provides that in determining whether food is marketed as a ‘prepared meal’ the activities of the seller are relevant. 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 and

● how the goods are distributed.

Consideration is also given to the actual product specifications, labelling, pricing, labelling and marketing as well as any cooking instructions

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” (Cascade Brewery Company Pty Ltd & Anor v FCT (2006) ACT 4339 23.

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. That is the 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. (Lansell House Pty Ltd & Anor v FCT 2010 ATC 20-173, at paragraph 108)

In your submission you state that while the Product is “cooked and ready to eat” which indicate that it is ‘prepared’ you consider that the Product, on its own, is insufficient to constitute a ‘meal’ in its entirety or something of a similar nature. You stated that the Product is intended to be served with bread, dips and/or salad. The packaging of the sample product states that one can enjoy the Product with your other products. The website also included recipes where the Product is used as an ingredient. You also stated that although the Product requires refrigeration for storage, the Product is not marketed as a ‘prepared meal’.

The size of the Product in and of itself will not dictate whether it will fall within item 4. Threating that factor as determinative is akin to reading in an additional word “main” into the item such that it would read “marketed as a prepared main meal”, which is considered inappropriate and not an intended application of the law.

We do not consider that the Product is “food marketed as a prepared meal” of a kind covered by item 4. The presentation of the Product does not indicate that it is marketed as a prepared meal. The packaging, instructions and promotion of the Product do not support characterising the Product as one to which item 4 applies.

Item 18 of the table in clause 1 of Schedule 1 of GST Act (item 18)

Included under the category savoury snacks is item 18 which lists ‘food similar to that covered by item 15 or 16, whether or not it consists wholly or partly of any vegetable, herb, fruit, meat, seafood or diary product or extract and whether or not it is artificially flavoured'.

Item 15 of the table in clause 1 of Schedule 1 of GST Act (item 15) includes 'potato crisps, sticks, or straws, corn crisps or chips, bacon or pork crackling or prawn chips'. Item 16 of the table in clause 1 of Schedule 1 of GST Act (item 16) includes ‘seeds or nuts that have been processed or treated by salting, spicing, smoking or roasting, or in any other similar way’.

The word 'similar' is not a defined term in the GST Act however the Macquarie Dictionary Online defines the term as:

having likeness or resemblance, especially in a general way.

We agree with your conclusion that the Product does not have any common characteristics of the types of food listed in items 15 or 16. Accordingly, the Product is not food of a kind covered by item 18.

Conclusion

The Product is not food of a kind specified in Schedule 1. Furthermore, the supply of the Product does not fall within any of the other exclusions in section 38-3 of the GST Act. Therefore, the supply of the Product is a GST-free supply under section 38-2 of the GST Act.