Edited version of private advice

Authorisation Number: 1052066624299

Date of advice: 10 January 2023

Ruling

Subject: GST and food marketed as a prepared meal and combination food

Question

Is GST payable on Product A and Product B (the Products) produced and supplied by you?

Answer

Yes.

Relevant facts and circumstances

You produce and sell the following Products:

•         Product A

•         Product B.

The Products consist of two components:

•         component X, and

•         a topping component - component Y (in Product A), and component Z (in Product B)).

Component Y is a food product that is not of a kind specified in the third column in the table in clause 1 of Schedule 1 to the A New Tax System (Goods and Services Tax) Act 1999 (GST Act).

Component Z is a mix of a number of food products some of which are food of a kind specified in Schedule 1 to the GST Act (Schedule 1). Component Z includes a specific food product which is considered a source of food for people following a specified type of diet.

You provided a flow chart of how the Products are produced.

You provided samples of the Products.

The packaging of the Products is designed to hold the two components of the Products in separate compartments within the same single container. The container consists of a base and a top compartment that fits securely on the base acting as a lid. Each compartment is sealed separately to keep component X and the topping separated and fresh until ready to eat.

The Products are single serve products. The base contains a specified amount of component X, and the lid holds a perfectly portioned amount of topping.

The packaging of the Products includes information such as the name and description of the Products, their ingredients, nutrition information and weight.

There are no instructions on the packaging of the Products except an image depicting that the two components are to be consumed together simultaneously.

The Products require refrigeration for their storage.

The Products are sold online and in a variety of retail stores.

The packaging of the Products and your website promotes the Products as convenient meals, or snacks on-the-go.

Other retailers also promote the Products as convenient meals, or snacks on-the-go.

You provided a photograph of the display location of the Products in a store, showing the Products placed next to GST-free food products.

You sell the Products for specified prices to your retail customers.

The Products are sold to the general public for certain prices.

You provided a breakdown of the consideration charged to your retail customers for the Products but have not provided details of how the price of each component was calculated.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 section 7-1

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 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

Reasons for decision

Summary

Pursuant to section 7-1 of the GST Act, GST is payable on the sale of the Products as the sale of the Products is a taxable supply under section 9-5 of the GST Act.

The Products are covered by item 4 in Schedule 1 to the GST Act (item 4) as food of a kind that is marketed as a prepared meal. The supply of the Products therefore is excluded from being GST-free under section 38-2 of the GST Act by paragraph 38-3(1)(c) of the GST Act.

Alternatively, Product B is a combination of one or more foods at least one of which is food of a kind specified in Schedule 1. The supply of Product B therefore is excluded from being GST-free under section 38-2 of the GST Act by paragraph 38-3(1)(c) of the GST Act.

Detailed reasoning

Relevant legislation

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 Products are food for human consumption, and therefore, satisfy the definition of food in paragraph 38-4(1)(a) 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 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 approach to food classification issues established by the case law

The Federal Court (in the first instance) in Lansell House Pty Ltd v Commissioner of Taxation [2010] FCA 329 (Lansell House 2010), considered whether a product known as 'mini ciabatte' was of a kind of cracker, and therefore not GST-free. The product was described on its packaging as 'Italian flat bread'.

Sunberg J concluded at [108] and [109] that the product was not GST-free as follows:

108. Classification decisions for sales tax, GST and VAT purposes are often described as questions of fact and degree (Ferrero at 884), value judgments (Procter & Gamble at [13]), a matter of impression (Procter & Gamble at [19]) and a combination of fact finding and evaluative judgment (Procter & Gamble at [47]). In Procter & Gamble the VAT and Duties Tribunal did not "grade" the relevant factors in coming to its decision. It stood back and took all the factors of appearance, taste, ingredients, process of manufacture, marketing and packaging together in deciding the proper classification of "Regular Pringles". The Court of Appeal approved that approach. Lord Justice Jacob said at [19]:

"It was not incumbent on the Tribunal in making its multifactorial assessment not only to identify each and every aspect of similarity and dissimilarity (as this Tribunal so meticulously did) but to go on and spell out item by item how each was weighed as if it were using a real scientist's balance. In the end it was a matter of overall impression."

109. Adopting that approach, I am not persuaded that the Commissioner's classification of Mini Ciabatte as an item 32 product was wrong. In my view the Mini Ciabatte is a cracker. Its ingredients are substantially the same as those of a cracker...the manufacturing processes are largely the same... Mini Ciabatte and crackers are put to the same use. The two products are displayed in supermarkets as comparable products... the supermarkets, who know the local buying scene, treat it and sell it either as a cracker or in the company of crackers and biscuits. I find this a more powerful and independent indicator than the name Lansell attaches to the product. A supplier cannot by a label govern the classification of a product for the purposes of the Act. That is especially so where, as here, the manufacturer's website described the identical product, mini lingue, as a cracker ...

On appeal, the Full Federal Court in Lansell House Pty Ltd v Commissioner of Taxation [2011] FCAFC 6 (Lansell House 2011), upheld the Federal Court's decision. The Full Federal Court endorsed Sunberg J's approach to food classification and stated at [24]:

Where the question to be answered as to the characterisation or classification of a product is one of fact and degree, as it was for biscuits in Ferrero, Lord Wolf MR said that it is a "perfectly satisfactory statement of the approach" to be taken to consider different characteristics of the product and, if the product has the characteristics of two categories, to place it in a category in which it has sufficient characteristics to qualify (at 885). As Jacob LJ said in Procter & Gamble at [14], this sort of question, being a matter of classification, "is not one calling for or justifying over-elaborate, almost mind-numbing, legal analysis. It is a short practical question calling for a short practical answer". In a case where scientific analysis does not form part of the characterisation of the product, its classification is not a scientific question.

This approach was endorsed by the Full Federal Court in Comptroller General of Customs v Pharm-A-Care Laboratories Pty Ltd [2018] FCAFC 237 at [24(2)]:

Secondly, subject to statutory context, function or purpose, courts should be cautious of subjecting words in legislation that have an ordinary everyday meaning to intensive analysis. Decision-makers should use "their local knowledge, experience of the world and common sense, to give a sensible interpretation" to the words used; an appellate court "required to review such decisions should endorse those that have been reached and confirmed in this way": Lansell House Pty Ltd v Federal Commissioner of Taxation [2010] FCA 329; 76 ATR 19 ("Lansell House") at [57] per Sundberg J (upheld on appeal at (2011) 190 FCR 354 per Bennett, Edmonds and Nicholas JJ); Seay v Eastwood [1976] 1 WLR 1117 ("Seay v Eastwood") at 1121 per Lord Wilberforce.

Consistent with the above approach is the leading Sales Tax decision in respect of the classification of food, by the High Court in Herbert Adams Pty Ltd v. FCT 47 CLR 222. The issue in this case was whether the product at issue described as 'sponge' was 'pastry but not including cakes or biscuits'. The taxpayer sought to argue that with reference to the trade meaning, sponge was a pastry and not a cake. The High Court in finding for the Commissioner, accepted the ordinary meaning of cake which included sponge.

Evatt J at pages 229-230 said:

Samples of the appellant's manufacture were produced, and in my opinion the goods made were undoubtedly "cakes." According to the Oxford Dictionary a "sponge" is "a very light sweet cake made with flour, milk, eggs and sugar." A dictionary reference may not be necessary. Perhaps this is one of the few things that every schoolboy knows.

Accordingly, what is required in food classification cases, as the courts inform us, is a common sense, practical approach to form an overall impression. Not an overly pedantic, highly legal or scientific analysis.

GST classifications of the Products

As stated above, the sale of the Products will be GST-free unless the Products are food of a kind specified in Schedule 1 or are 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).

Relevant to paragraph 38-3(1)(c) of the GST Act and the Products, is the category of 'Prepared food' in Schedule 1 and more specifically item 4 which specifies:

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

(* Denotes a term defined in the GST Act)

Relevant also to prepared food and meals, are clauses 2 and 3 of Schedule 1 which state:

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 matterwhether 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.

Food 'of a kind' marketed as a prepared meal - Item 4

Meaning of 'of a kind'

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 online, www.macquariedictionary.com.au, (The Macquarie Dictionary),accessed 9 September 2022, does not define the entire phrase 'of a kind' however, it defines the word 'kind' to mean:

noun 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...'

The phrase 'of a kind' has been the subject of judicial consideration in a number of cases in the context of different legislative provisions.

In Lansell House 2010, Sundberg J reviewed the relevant authorities, including Air International Pty Ltd v Chief Executive Officer of Customs (2002) 121 FCR 149, and stated at [19]:

...If the intention had been simply to exclude the items in the table in the schedule, Parliament would have used the words "food specified in the third column". What then does "of a kind" add? In Air International the Full Court was concerned with a classification of goods under tariff subheadings in Schedule 3 of the Customs Tariff Act 1995 (Cth) - goods "of a kind used as replacement components in passenger motor vehicles". Tamberlin J, with whom O'Loughlin J agreed, said at [53]:

"It is helpful to look at actual use, if any, when deciding whether goods are of a kind used as replacement components. Where they are so used, then that points to a conclusion that they are 'of a kind' so used. The words 'of a kind' add a further level of generality to the expression 'used' so that even if (to use the Tribunal's expression) the goods are not so used but are within a range of goods of a type which are used, then they satisfy the required description. (Emphasis added.)

...

The description can apply where there is no actual use of a good as a replacement component if the goods are of that genus. That is to say they are of the same type of component which is used to replace components of passenger motor vehicles. The genus, in my view, is a relatively broad one and the word "kind" should be so construed." [Emphasis added.]

Sundberg J also noted, at [20], that the same approach was taken in Customs and Excise Commissioners v Mechanical Services (Trailer Engineers) Ltd [1979] 1 WLR 305, a value added tax case. The question in that case was whether the particular goods fell to be classified as 'Goods of a kind suitable for use as parts of goods within item 1 or item 5'. At [316] Megaw LJ said:

Presumably the three words 'of a kind' have not been introduced merely for elegance of prosody or to provide meaningless padding. They do affect the meaning. It is not 'the goods' - the particular articles, here the couplings and the winch - which have to be suitable for use as parts. It is the kind of goods to which those particular articles belong, their genus, which has to be thus suitable. The addition of 'of a kind' would be meaningless if goods which are themselves suitable are necessarily also goods of a kind which is suitable.

Ultimately, Sundberg J found that the mini ciabatte was a 'cracker', and thus was not GST-free. His Honour did not need to rely on the product falling within the broader description of 'of a kind'.

In Lansell House 2011, the Full Federal Court was satisfied that the mini ciabatta was 'of a kind' of the cracker genus, after taking into account the characteristics of the product as set out by Sundberg J in Lansell House 2010. The Full Federal Court held at [30] that:

... The phrase "of a kind" has been defined by the Oxford English Dictionary (online edition, Oxford University Press, 2010) as "of the same sort, not a typical or perfect specimen of the class". The word "kind" is appropriately used to denote a genus, class or description (Commonwealth of Australia v Spaul (1987) 74 ALR 513 at 516 per Davies, Lockhart and Neaves JJ). 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. 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.

In Cascade Brewery Company Pty Ltd v Federal Commissioner of Taxation [2006] FCA 821 (Cascade), Sundberg J, in the course of determining the meaning of the phrase 'of a kind' in the context of whether a beverage was 'of a kind marketed principally as food for infant', reviewed the authorities including Hygienic Lily Ltd v Commissioner of Taxation (1987) 13 FCR 396 (Hygienic Lily), being one of the authorities upon which the Commissioner relied in his submissions. In Hygienic Lily, Gummow J, in relation to the question of whether waxed paper cups used by McDonald's Restaurants were 'goods of a kind ordinarily used for household purposes', stated, at 399:

... the setting in which the phrase "goods of a kind" appears suggests it is directed not to the use for which the particular goods in question were designed or manufactured, nor to the purpose to which it is intended those particular goods shall be put, but rather to the nature, quality and adaptation of goods in the class or genus in question. Thus, goods are "of a kind ordinarily used for household purposes" if they are to be recognised as members of a class or genus which commonly or regularly (albeit not necessarily exclusively or principally) is used for household purposes; cf. Customs and Excise Commissioner v Mechanical Services (Trailer Engineers) Ltd [1979] 1 WLR 305 at 312 - 313, 315, 316 - 317. (Emphasis added.)

Accordingly, it is considered that food will be 'food of a kind' specified in Schedule 1 if it is food belonging to the same class, genus or description as the food specified in Schedule 1.

Meaning of 'prepared meal'

While the test for item 4 is whether a product is 'of a kind' of 'food marketedas a prepared meal', it is important to consider what a prepared meal is.

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

In the context of food, 'prepare' is defined in The Macquarie Dictionary as:

Verb 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 ordinary meaning of 'meal' does not impose requirements with regard to pricing, composition or nutritional value, leaving a wide range of food that could potentially qualify as a meal. Further, the size of the product in and of itself will not dictate whether it will fall within item 4. Treating that factor as determinative is akin to reading in an additional word 'main' into the item such that it would otherwise read 'marketed as a prepared main meal', which is considered inappropriate and not an intended application of the law.

A prepared meal, as ordinarily understood may be, for example: large or small; substantial or modest; contain any number of kilojoules; be high or low in fats, protein or carbohydrates; contain meat or be vegetarian; or be gluten-free. Neither the quantity nor the quality of the meal is of importance, nor is it necessary that it should be served at any particular time or in any particular place. Meals as ordinarily understood, are simply a function of individual taste, culture, health requirements and appetite. The meaning does not require any scientific or dietary analysis.

In this case, Product A consists of component X and component Y. Product A is a type of food that is generally served as a meal. Component Z in Product B is different to the topping in Product A. Component Z consists of a number of food items including a specified food product that is considered a source of food for people following a certain type of diet.

Component X and the toppings are packaged in two compartments of a single container that resembles a cup with a lid. The Products contain all the ingredients necessary. They are duly prepared and ready for eating as a repast or a meal.

We consider that the Products possess sufficient characteristics to come within the meaning of prepared meals as ordinarily understood.

Food marketed as a prepared meal

The Commissioner's view on when a product is 'marketed as a prepared meal' is outlined in Food Industry Partnership - issues register - Issue 5 (issue 5).

Issue 5 states in part:

Clause 1, Item 4 of Schedule 1 of the GST Act operates to subject the following to GST:

'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'.

Directly compete against take-aways and restaurants

The Further Supplementary Explanatory Memorandum to the A New Tax System (Goods and Services Tax) Bill 1998 (the EM) states at paragraph 1.31 that 'the category of "prepared food" ... is intended to cover a range of food products that directly compete against take-aways and restaurants. These products will always be taxable'.

Paragraph 1.33 of the EM provides examples of food that is considered food marketed as a prepared meal:

1.33 New item 4 of new Schedule 1A includes in the category of prepared food, food marketed as a prepared meal but not including soup. This item will cover things such as:

•         prepared meals, such as curry and rice dishes, mornays and similar dishes sold cold by a takeaway or supermarket that only need reheating to be ready for consumption;

•         fresh or frozen prepared lasagne;

•         sushi;

•         cooked pasta dishes sold complete with sauce;

•         frozen TV dinners; and

•         fresh or frozen complete meals (eg. single serves of a roast dinner including vegetables and low fat dietary meals).

While the EM does not displace the meaning of the statutory text, it can be used to aid its interpretation (FCT v Consolidated Media Holdings Ltd 2012 ATC 20-361 at [39]).

It is clear from the definitions of 'prepare' and the examples provided in the EM that 'prepared food' is food that has been subject to some form of process, such as assembly of ingredients and/or cooking in order to make it effectively ready for consumption as a meal.

In this case, the Products contain all the ingredients/components for the particular food product. All the components in the Products are prepared and ready for consumption. All that the consumer is required to do is to tip the content of the lid into component X and the product is ready to be consumed.

The Products are similar to food generally sold by take-aways and restaurants as meals.

Accordingly, we consider that the Products directly compete against food sold as prepared meals by take-aways and restaurants.

Require refrigeration or freezing for storage

The Products require refrigeration for their storage and therefore the requirement in clause 3 of Schedule 1 is met.

Of a kind of 'food marketed as a prepared meal'

As stated above, we consider that the Products are prepared meals. The issue becomes therefore whether the Products are food marketed as prepared meals or 'of a kind' of food marketed as prepared meals.

In Cascade the Federal Court considered the meaning of the word marketed 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 to the GST Act (Schedule 2) and classified as GST-free.

It is perhaps worth noting the use of 'principally' in Schedules 1 and 2 creates a higher test as it is included as an additional qualifier. Item 4 of Schedule 1 is not qualified by the use of 'principally' therefore a lesser standard in terms of the level of marketing activity is required.

In respect of 'marketing' Sunberg J had this to say at [11] and [23 to 24]:

11. 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. The witnesses to whom I have referred spoke somewhat generally about their aims and hopes in respect of the marketing. The relevant findings at [9] are based on the content of the marketing, that is to say, on what a reader of the labels, the Bounty bag brochure and the print advertisements or a viewer of the television advertisements would derive from them. The findings do not entirely accord with the witnesses' evidence about Cascade's aims. That evidence seems to me to have been subconsciously influenced by the existence of item 13 and the purpose of the litigation.

...

23. I have referred at [11] to one aspect of the word "marketed", about which the parties did not make submissions. Otherwise there does not appear to be any significant difference between their positions on the meaning of the expression "marketed principally". Cascade adopted the approach published by the Commissioner in SST11 - Sales tax: a guide to the classification of goods under the sales tax law (SST11):

"Marketing principally means the most important or the most significant of all the ways in which the product is marketed. Marketing involves an examination of the activities of the sellers of the relevant goods."

The document goes on to say that 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.

24. This approach is consistent with the dictionary meanings of "marketing". Thus The Macquarie Dictionary refers to "the total process whereby goods are put onto the market". The Australian Oxford Dictionary refers to "the action or business of promoting and selling products, including market research and advertising".

Sunberg J concluded at [61 to 63] as follows:

61. It will be apparent from what I have said at [46] to [60] that I have initially approached the "of a kind" issue in accordance with Cascade's submission recorded at [14]. The submission derives support from what two members of the Full Court said in Air International. See [16]. On this approach Ultra-C was not principally marketed, in the sense of mainly, chiefly, predominantly or preponderantly, as food for infants, giving that word the meaning appearing at [34].

62. Obviously Cascade's "of a kind" formulation is more advantageous to it than the Commissioner's, because it focuses on its own marketing of Ultra-C. On the Commissioner's approach, Cascade's case more clearly fails. The genus to which Ultra-C belongs is in my view either cordials or blackcurrant concentrated syrups, including in either case Ribena and Bickford's. That group of products does not fall within item 13 (findings (p), (q) and (r)). Accordingly, nor does Ultra-C. If, contrary to my view, Cascade's fall-back genus submission is sound - namely that Ultra-C is a genus of its own - its case fails because of what I have said at [61].

63. On the approach I have suggested at [22], Cascade's marketing of Ultra-C shows that the product is not of a kind marketed principally as food for infants.

Applying the above analysis, the Commissioner considers that the following factors are relevant for consideration:

• 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.

The name of the goods

The name of the Products communicates to the consumers that they consist of certain food items that are generally consumed as meals. The name of the Products also conveys that they do not require any additional ingredients and are prepared and ready for consumption as a repast or a meal.

The price of the goods

You sell the Products for specified prices to your retail customers.

The Products are sold to the general public for certain prices.

Generally speaking, pricing takes into account a profit component and the trade environment. As the producer of the Products, you compete for a share of fast/takeaway food market.

We consider that the price of the Products is comparable to similar products sold as prepared meals available on the market. However, we do not consider the pricing to be determinative.

The labelling on the containers of the goods

The labelling on the packaging of the Products indicates that they are more than just component X. They are component X with other products as toppings. They contain all the necessary ingredients that are prepared and ready for immediate consumption as a meal.

Literature or instructions packed with the goods

There are no instructions on the packaging of the Products except an image depicting that the two components are to be consumed together simultaneously.

However, it is clear that all that the consumer is required to do is to peel the seals from the two compartments and tip the contents of the lid into the component X and consume the product.

From the way the Products are packaged and presented we consider that they are marketed as prepared meals.

How the goods are packaged

The packaging of the Products consists of a container with two compartments, a base/tub and a lid that fits securely on the base.

The packaging is designed to hold the component X and the topping in separate compartments within the same single container. Each compartment is sealed separately to keep the contents fresh and preserve their qualities.

The Products are single serve products. The tubs contain around specified amount of component X and the lids hold perfectly portioned toppings of a specified amount. Component X and the toppings are to be consumed together at the same time. All that the consumer is required to do is to peel the seals of the two compartments and tip the contents of the lid in the tub containing component X.

We consider that the packaging of the Products indicates that component X and the topping are intended to be consumed together simultaneously. The packaging of the Products creates a convenient meal option on the go which allows the consumer to mix the topping with component X when desired and consume as a prepared meal.

Although not a decisive factor, the base has sufficient space for adding the topping and consuming the Products from their packaging.

How the goods are promoted and advertised

The packaging of the Products and your website promotes the Products as meals and snack food on-the-go.

Other retailers' webpages also promote the Products as a meal or snack food.

As noted above, in Cascade the court said at [11] that the words 'marketed principally as food for infants' in item 13 of Schedule 2, required 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.

While the marketing activities of the supplier are relevant, this is not the sole determinative factor. That is, 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. As confirmed in Cascade, how a product is marketed is determined by the total process whereby goods are put onto the market. As such the activities of the manufacturer/wholesalers as well as retailers are relevant as they are essentially selling the same product and therefore all the marketing is relevant to determine if the product is put to the market as being a prepared meal.

This is supported by Lansell House 2010, where the Full Federal Court held at [30] that the use of the words 'of a kind' in paragraph 38-3(1)(c) of the GST Act should not be construed narrowly and that the question is whether the product being considered comes within the genus, class or description of an item described in Schedule 1.

Based on the above, the promotional and advertising activities carried out by you and the retailers in relation to the Products are relevant in forming an overall impression of how the Products are marketed. Therefore, considering how the Products are promoted and advertised by you and the retailers, we are of the view that the overall marketing strategy is directed at promoting the Products as convenient meals.

We note that the Products are promoted as a meal or snack.

In the context of food, the Macquarie Dictionary defines 'snack' as:

Noun 1. a small portion of food or drink; a light meal.

...

-verb (i) 3. to eat small portions of food at times other than meal times.

We consider that the term snack or snack size is a way of differentiating serving portions. As the above dictionary definition points out, a snack can be a small portion of food or a light meal. That is, a light meal is still a meal. For example, breakfast for some on any particular day, may be some cereal with yoghurt or milk while for others, it could be a full English breakfast.

How the goods are distributed

The Products are sold online and in a variety of retail stores.

The Products are sold as prepared meals or snacks.

You provided a photograph of the display location of the Products in a store, showing the Products placed next to GST-free food products.

While the display location of food products may be relevant it is not a decisive factor.

We consider that the Products are distributed as prepared meals that directly compete against fast/takeaway and restaurant food.

Conclusion

Taking into consideration the genus of the Products and how they are marketed, the overall impression is that the Products are food marketed as prepared meals or 'of a kind' of food marketed as prepared meals and therefore covered by item 4.

It follows that the sale of the Products is excluded from being GST-free by paragraph 38-3(1)(c) of the GST Act. The sale of the Products therefore is not a GST-free supply under section 38-2 of the GST Act. The sale of the Products is a taxable supply under section 9-5 of the GST Act and subject to GST.

Alternative view - combination food

Our primary view is that the Products are covered by item 4 and therefore there is no need to consider any alternative arguments. However, we have also considered if the Products are excluded from being GST-free by paragraph 38-3(1)(c) of the GST Act, as food that is a combination of one or more foods at least one of which is food of a kind specified in Schedule 1.

Product A

Both components of Product A are GST-free as they are not food of a kind specified in Schedule 1.

Due to each component being GST-free, Product A is not a combination food for the purposes of paragraph 38-3(1)(c) of GST Act. As such, but for the application of item 4 of Schedule 1, the supply of Product A would have been GST-free.

Products B

Even if our view of item 4 of Schedule 1 is found to be incorrect we consider that Product B is taxable as combination food as addressed below.

The Macquarie Dictionary 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 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.

Product B is a combination of a number of food products. Product B is a single serve product consisting of component X and a perfectly portioned topping component. The topping of Product B (component Z) consists of a mix of a number of specific food products. The topping is to be mixed with component X and consumed together simultaneously. The packaging holds component X and component Z in two separate compartments within the same single container.

It is therefore relevant to determine whether Product B is a combination food that comes within paragraph 38-3(1)(c) of the GST Act.

The supply of the component X in Product B is GST-free as component X is not food of a kind specified Schedule 1.

However, some of the food products in component Z are food of a kind specified in Schedule 1 and therefore taxable.

Accordingly, Product B is a combination food that comes within paragraph 38-3(1)(c) of the GST Act.

Composite supply, mixed supply and de minimis concession

While GSTR 2001/8 distinguishes 'composite supplies' from 'mixed supplies', the distinction is only relevant in the absence of a specific statutory provision assigning a particular GST treatment to a supply. For example, where a food product is of a kind of food specified in schedule 1, or a combination of food within paragraph 38-3(1)(c), the concepts of 'composite supply', 'mixed supply' or 'de minimis concession' are not relevant for consideration for such a product.

Paragraph 14 of GSTR 2001/8 provides that some supplies which first appear to have multiple parts may not be a mixed supply due to the operation of the legislation:

...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 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. (Emphasis added.)

Paragraph 38-3(1)(c) of the GST Act does not require the taxable component of a combination food to comprise of a certain or significant amount. Where a food item is a combination of foods one of which is of a kind specified in Schedule 1, the supply is a taxable supply pursuant to paragraph 38-3(1)(c) of the GST Act, irrespective of the quantity or relative importance of that food to the overall supply. Accordingly, the concession set out in GSTR 2001/8, whereby suppliers may treat something as integral, ancillary or incidental (or in other words, as a composite supply) if the consideration apportioned to it does not exceed the lesser of $3 or 20% of the consideration for the total supply, is not applicable where a specific statutory provision applies to treat the supply in a particular way.

We also consider that, ATO ID 2010/145 is not relevant to Product B under the alternative view, as the supply of Product B is not a mixed supply. The supply is a combination of taxable and GST-free food.

In ATO ID 2010/145 the supply consists of a tub of dip and a packet of biscuits that are wrapped together by additional outer packaging. While the two products complement each other they are not a combination food for the purpose of paragraph 38-3(1)(c) of the GST Act.

The components of Product B are offered in a single container, a base and a lid that sits on the base and holds the topping. Each compartment is sealed separately to keep their contents separate. The contents of the base and the lid are designed to be consumed together simultaneously. This type of packaging is typical for this kind of food products as the nature of the products is such that certain components should not be mixed together prior to consumption to avoid spoilage and preserve the quality of the food components.

The packing of the components of Product B in separate compartments of a container with separate seals is not akin to a supply of separately packaged goods sold together as in a hamper. The overall impression is that the supply of Product B is a supply of one product that is a combination of a number of foods that are intended to be consumed simultaneously. Therefore, the supply is not a mixed supply even if the two compartments are detachable or do not share a common seal.

Conclusion - alternative view

Product A is not food that is a combination of one or more foods at least one of which is food of a kind specified in Schedule 1 under paragraph 38-3(1)(c) of the GST Act. As such, but for the application of item 4 of Schedule 1, the supply of Product A would have been GST-free.

Product B is a combination of one or more foods at least one of which is food of a kind specified in Schedule 1. The supply of Product B therefore is excluded from being GST-free by paragraph 38-3(1)(c) of the GST Act. The supply of Product B is a taxable supply under section 9-5 of the GST Act.