Edited version of private advice

Authorisation Number: 1052066509213

Date of advice: 6 December 2022

Ruling

Subject: GST and supply of meal kits

Question 1

Is the supply of the X meal kit and Y meal kit consisting only of GST-free food items, GST-free in accordance with section 38-2 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer

Yes.

Question 2

Does paragraph 38-3(1)(c) of the GST Act apply to tax the supply of the Z meal kit in its entirety, where it consists of both GST-free and taxable food items?

Answer

No. The supply of the Z meal kit is a mixed supply. GST is payable on the taxable part of the supply.

Question 3

Is the supply of the meal kits a composite supply of delivered goods?

Answer

Yes.

Relevant facts and circumstances

You are registered for GST.

You will be launching a new brand that will supply subscription-based meal kits delivered to a customer's home.

Customers will be able to order the meal kits online from your website.

Prices range from $A to $B per box per week depending on the plan selected.

A separate, flat delivery fee of $D will be charged per delivery. Delivery is not optional and there is no separate contract for delivery services. There is no other transport option available to the customer at the checkout (that is, the customer cannot opt to pick up or 'click and collect' the meal kits). You must deliver the meal kits to the customer and are responsible for the goods until they are delivered to the customer.

Each meal kit consists of certain ingredients (the Ingredients) to enable a customer to prepare a meal at home.

The meal kits do not contain all the necessary ingredients to prepare a meal. It is expected that a customer will also use certain staple food items in their pantry to complete the meal, including, eggs, butter, milk and flour.

The Ingredients are uncooked and would typically include fresh and raw vegetables, raw meats, dairy items, bakery items, uncooked shelf stable items (pasta, rice, etc), herbs, spices and condiments.

The ingredients requiring refrigeration (such as raw meats and dairy items) are packaged in a cooler bag which will allow the items to remain cool while the food box containing the meal kits is being delivered to the customer's home. The shelf stable items are packaged in a specified type of bag.

Recipe cards are included in the box in which the meal kits are delivered. The card includes all the steps that a customer needs to undertake to prepare a meal using the Ingredients.

You provided copies of the recipe cards and details of the three meal kits at issue.

The recipe cards list the Ingredients included in each meal kit.

The X meal kit and Y meal kit only consist of GST-free food items. The Z meal kit includes a taxable food item.

You provided images of the Ingredients included in each meal kit.

Packaging

You provided details and images showing how the Ingredients are packaged. The components of each meal kit are separately packed and placed in a cardboard box. The ambient ingredients for a meal are packed together in a specified type of bag and the chilled items are placed in a chilled bag.

Reasons for decision

Question1

Is the supply of the X meal kit and Y meal kit, consisting of only GST-free food items, GST-free in accordance with section 38-2 of the GST Act?

Summary

The supply of the X meal kit and Y meal kit is GST-free as they consist only of GST-free food items.

Detailed reasoning

Whether the Ingredient in the three meal kits at issue are food for the purposes of the GST Act

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 subsection 38-4(1) of the GST Act to include, relevantly:

(a)    food for human consumption (whether or not requiring processing or treatment);

(b)    ingredients for food for human consumption;

(e) goods to be mixed with or added to food for human consumption (including condiments, spices, seasonings, sweetening agents or flavourings);

The Ingredients included in the three meal kits at issue satisfy the definition of food in subsection 38-4(1) of the GST Act.

However, 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), or food that is a combination of one or more foods at least one of which is food of such a kind.

The Ingredients in the three meal kits at issue consist of fresh and raw vegetables, raw meats, dairy items, uncooked shelf stable items (pasta, rice, etc), herbs, spices and condiments. These are separate food items that are packed and sold together as ingredients for a meal which the customer will use to prepare a meal.

Whether the three meal kits at issue are combination food under paragraph 38-3(1)(c)

Where a food item is a combination of one or more foods at least one of which is food of a kind specified in Schedule 1, the supply is a taxable supply pursuant to paragraph 38-3(1)(c) of the GST Act.

The term 'combination' is not defined in the GST Act therefore it takes its ordinary meaning informed by the legislative context.

The Macquarie Dictionary online, www.macquariedictionary.com.au, accessed 29 November 2022 defines 'combination' relevantly as:

1)    the act of combining.

2)    the state of being combined.

3)    a number of things combined...

and 'combine' as:

1)    to bring or join into a close union or whole; unite; associate; coalesce.

Therefore, food that is a 'combination of one or more foods' could be either a number of food products joined or mixed together to make a single product or a number of food products that are merely sold together. As the word 'combine' could be interpreted in more than one way, the meaning of the phrase 'food that is a combination of one or more foods' in paragraph 38-3(1)(c) of the GST Act is unclear.

Subsection 15AB(1) of the Acts Interpretation Act 1901 (Acts Interpretation Act) provides that consideration may be given to material not forming part of an Act for particular purposes including 'to determine the meaning of the provision when the provision is ambiguous or obscure....'. Paragraph 15AB(2)(e) of the Acts Interpretation Act provides that any explanatory memorandum relating to the Bill containing the provision is extrinsic material that may be considered for this purpose.

Paragraph 1.17 of the Further Supplementary Explanatory Memorandum to the A New Tax System (Goods and Services Tax) Bill 1998 (EM) provides examples of combination food as follows:

Food that is a combination of one or more foods, at least one of which is food of a kind specified in the table in new Schedule 1A of the Bill (prepared food, confectionery, savoury snacks, bakery products, ice-cream food and biscuit goods) is not GST-free. For example, a snack pack containing cheese and biscuits is not GST-free because it contains at least one type of food specified in new Schedule 1A (biscuits). Similarly, a package containing a mix of biscuits and chocolates would also not be GST-free as both items of food are included in new Schedule 1A. [New paragraph 38-3(1)(c)]

Paragraph 1.18 of the EM clarifies the intended scope of this provision by stating:

The exclusion in the above paragraph would not apply where a mix of packaged goods is packed and sold together (eg. a hamper containing a packet of biscuits, box of chocolates and a jar of coffee). These items would be taxed individually (ie. biscuits and chocolates subject to tax and the coffee GST-free). If there is a need to apportion the value of the hamper to each of the items to determine the GST payable the rule in section 9-80 of the Bill will be relevant.

Issue 8 of the Food Industry Partnership - Issues Register differentiates a combination food from a hamper as follows:

Like a snack pack, a hamper will include various food items. It may also include things other than food. However, unlike a snack pack, the different products in a hamper are not designed to be combined or blended for simultaneous consumption.

The meal kits at issue are not a supply of a combination food that are designed for simultaneous consumption similar to the examples provided in paragraph 1.17 of the EM. Rather, each meal kit is a selection of separate and distinct food items, similar to a hamper, that are sold together. The meal kits consist of fresh and raw vegetables, raw meats, dairy items, bakery items, uncooked shelf stable items such as pasta, herbs, spices and condiments. Therefore, we consider that the three meal kits at issue are not a combination food under paragraph 38-3(1)(c) of the GST Act. The GST classification of each food item in a meal kit therefore needs to be individually determined.

Further, none of the food items in the three meal kits at issue, when considered individually, is a combination food under paragraph 38-3(1)(c) of the GST Act.

GST classification of the X meal kit and Y meal kit

None of the Ingredients in the X meal kit and Y meal kit when considered individually is food of a kind specified in Schedule 1, or a combination of one or more foods at least one of which is food of a kind listed in Schedule 1. The supply of these meal kits therefore is not excluded from being GST-free by paragraph 38-3(1)(c) of the GST Act.

In addition, the supply of the X meal kit and Y meal kit does not fall within any of the other exclusions in section 38-3 of the GST Act. Therefore, you are making a GST-free supply under section 38-2 of the GST Act when you supply the X and Y meal kits.

Packaging of food

Subsection 38-6(1) of the GST Act provides that a supply of the packaging in which food is supplied is GST-free if the supply of the food is GST-free.

However, subsection 38-6(2) of the GST Act provides that packaging of food is only GST-free to the extent that the packaging is necessary for the supply of food andis packaging of a kind in which food of that kind is normally supplied. That is, packaging that is more than what is usual and necessary is taxable.

Based on the information provided, the packaging in which the Ingredients for the X and Y meal kits are supplied is also GST-free under section 38-6 of the GST Act as the packaging is necessary for the supply of the food items and of a kind in which food of that kind is normally supplied.

GST treatment of food packaging is discussed in Goods and Services Tax Determination GSTD 2000/6 Goods and services tax: when is the supply of food packaging GST-free in terms of section 38-6 of the A New Tax System (Goods and Services Tax) Act 1999? (GSTD 200/6).

Question 2

Does paragraph 38-3(1)(c) of the GST Act apply to tax the supply of the Z meal kit in its entirety, as the meal kit consists of both GST-free and taxable food items?

Summary

The supply of the Z meal kit is a mixed supply as it contains separately identifiable taxable and GST-free food items.

GST is payable on a mixed supply to the extent that the supply is taxable. The consideration for the supply of the Z meal kit therefore needs to be apportioned between the taxable and non-taxable food items in accordance with section 9-80 of the GST Act to find the value of the taxable food items. The apportionment needs to be made on some fair and reasonable basis.

The GST payable on the taxable part is equal to 10% of the value of the taxable part.

Detailed reasoning

As explained above, the three meal kits at issue are not a combination food under paragraph 38-3(1)(c) of the GST Act. Each meal kit is a selection of separate and distinct food items, similar to a hamper. The GST classification of each food item in a meal kit therefore needs to be individually determined.

GSTR 2001/8 uses the term 'mixed supply' to describe the characteristics of a supply that contains separately identifiable taxable and non-taxable parts.

Paragraphs 12 to 14 of GSTR 2001/8 state:

12. ...where you make a supply that is a combination of separately identifiable taxable and non-taxable parts, you need to identify the taxable part of the supply. Then you can apportion the consideration for the supply and work out the GST payable on the taxable part of the supply.

13. A supply that may at first appear to be one thing may contain taxable and non-taxable parts on closer analysis...

14. On the other hand, a supply that may at first appear to be a combination of taxable and non-taxable parts is not such a combination if it is given a specific treatment under the GST Act. For example, a supply consisting of a combination of foods that comes within paragraph 38-3(1)(c) is not a mixed supply (that is, a combination of taxable and GST-free parts) because the whole supply is treated as food that is not GST-free.

The Z meal kit contains a number food items that are GST-free, as they are not food of a kind listed in Schedule 1. This meal kit also includes a specified food item that is food of a kind specified in Schedule 1 and therefore excluded from being GST-free by paragraph 38-3(1)(c) of the GST Act.

Accordingly, the supply of the Zmeal kit is a mixed supply as it contains separately identifiable taxable and GST-free food items.

For supplies that are partly taxable and partly GST-free or input taxed, the value of the taxable part is calculated under section 9-80 of the GST Act, which requires an apportionment of the consideration to determine the proportion of the value of the actual supply that the taxable part represents.

Paragraph 30 of GSTR 2001/8 states:

30. In the case of a mixed supply that has non-taxable parts that are GST-free or input taxed, the value of the taxable part is determined in accordance with section 9-80. To determine the value of the taxable part it is necessary to calculate the taxable proportion, that is, the proportion of the value of the actual supply that the taxable part represents.

GSTR 2001/8 also provides methods and examples on how to apportion the consideration for a supply that contains separately identifiable taxable and non-taxable parts. Paragraphs 81Q to 81T of GSTR 2001/8 state:

Determining the value of the taxable part

81Q. Depending on the facts and circumstances in any particular case a direct or indirect method may be appropriate to determine the value of the taxable part for the purposes of calculating the taxable proportion. This is discussed at paragraphs 97 to 111 of this Ruling.

81R. At paragraphs 92 to 113 of this Ruling guidance is provided as to what is a fair and reasonable measure of value of the taxable part of the supply in different factual situations.

81S. The value should be based on a consideration of all the facts and circumstances including the relationship that component of the supply has with the price of the actual supply and not because it gives you a particular result (see paragraph 95 of this Ruling).

81T. You need to keep records that explain the transaction and the basis of your valuation.

If follows that you need to apportion the consideration for the Z meal kit between the taxable and non-taxable food items in accordance with section 9-80 of the GST Act to determine the value of the taxable food item. The apportionment needs to be made on some fair and reasonable basis.

Further the packaging in which the Ingredients of Z meal kit are supplied is taxable to the extent that the supply of the meal kit is taxable.

Question 3

Is the supply of the meal kits a composite supply of delivered goods?

Summary

The supply of the meal kits is a composite supply of delivered goods as the delivery is integral, ancillary or incidental to the supply of the meal kits.

Detailed reasoning

Goods and Services Tax Determination GSTD 2002/3 Goods and services tax: how do I account for GST when I supply taxable goods, non-taxable goods and delivery services together? (GSTD 2002/3), provides that whether the goods and delivery are separate supplies, a mixed supply or a composite supply depends on the facts of the case.

Paragraph 2 of GSTD 2002/3 states:

...We consider that delivery is a separately identifiable part of a mixed supply where it is significant and could realistically be made as a separate supply. A delivery service is significant where it is an aim in itself. That is, your customers have a genuine choice under the contract about whether you deliver their goods. Such a choice is indicated where:

•         your customers are not obliged to use your delivery service; and

•         you provide reasonable access, at no extra charge, to customers who choose to make their own arrangements to collect the goods.

A delivery service may be a significant part of a mixed supply even if no separate amount is charged for the delivery.

Paragraphs 4 and 5 of GSTD 2002/3 explain when delivery is considered to be integral, ancillary or incidental to the supply of the goods:

Supplies of delivered goods

4. You supply delivered goods where the delivery is integral, ancillary or incidental to the supply of the goods. This will be a composite supply. In these cases, you contract to supply delivered goods only, and not a delivery service in addition to the goods. The delivery is necessary for your customer to enjoy the goods. It is not an end in itself, but merely contributes to the proper performance of the contract to supply the goods. That is, to fulfil the contract for the supply of the goods, the supplier has to deliver them and remains responsible for them until they are delivered. Identifying a separate charge for delivery does not, by itself, mean that the delivery is a significant part of the supply.

5. Many internet and mail order suppliers supply delivered goods, as do some manufacturers, importers and wholesalers. They make an integrated supply of delivered goods that includes the selection, packing and delivery of the customer's order. These aspects of the supply are not optional. While convenient for the customer, the selection, packing and delivery are not considered to be of such significance that they are separately identifiable parts of the supply. In such cases the delivery service is integral, ancillary or incidental to the composite supply of delivered goods.

In this case, the customers are charged a separate flat delivery fee of $D per delivery. Delivery is not optional and there is no separate contract for delivery services. There is no other transport option available to the customer at the checkout (that is, the customer cannot opt to pick up or 'click and collect' the meal kits). You must deliver the meal kits to the customer and are responsible for the goods until they are delivered to the customer.

Accordingly, the delivery service is integral, ancillary or incidental to the composite supply of delivered meal kits. Therefore, the supply of a meal kit is a supply of delivered goods.

Paragraph 7 of GSTD 2002/3 provides guidance on how to calculate the GST payable on the supply of delivered goods. It states:

7. Where you supply delivered goods, the character of the goods determines the GST status of the supply. If such a supply includes both taxable and non-taxable goods and it is your practice to charge a separate fee for delivery, you will need to apportion the delivery fee. The GST payable is:

Accordingly, the GST payable on the delivery services can be calculated in accordance with paragraph 7 of GSTD 2002/3, such that GST is payable on the delivery fee to the extent that the supply of a meal kit 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 9-80

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 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 Schedule 1