Edited version of private advice

Authorisation Number: 1052192164908

Date of advice: 15 November 2023

Ruling

Subject: GST - classification of food products

Question 1

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

Answer

Yes.

Question 2

Is the supply of Y meal kit GST-free under section 38-2 of the GST Act?

Answer

No. The supply of Y meal Kit is a mixed supply. GST is payable on the taxable part of the supply.

Relevant facts and circumstances

You are an Australian entity that is registered for goods and services tax (GST).

You are about to launch X meal kit and Y meal kit into the market.

The X meal kit only consists of GST-free food items. The Y Meal kit includes a taxable food item.

You provided details of the food items included in each meal kit.

The components of each meal kit are separately packaged and placed in a box.

You provided images of the outer packaging and labelling of the meal kits.

You provided a sample of one of the meal kits.

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 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, item 25

Question 1

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

Summary

The supply of the X meal kit is GST-free as it consists only of GST-free food items.

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 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;

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

The food items included in the X meal kit 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 food items in the X meal kit are packed and sold together as components for a meal. The consumers will use to these food items to prepare the meal.

Combination food

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.

We consider that the X meal kit is not a supply of a combination food. Rather, the X meal kit is a selection of separate and distinct food items, similar to a hamper, that are sold together. Therefore, the X meal kit is not a combination food under paragraph 38-3(1)(c) of the GST Act. The GST classification of each food item in the X meal kit therefore needs to be individually determined.

None of the food items in the X 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 the X meal kit 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 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 meal kit.

Question 2

Is the supply of the Y meal kit GST-free under section 38-2 of the GST Act?

Summary

The supply of the Y 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 Y 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 Y meal kit is not a combination food under paragraph 38-3(1)(c) of the GST Act. The Y meal kit is a selection of separate and distinct food items, similar to a hamper. The GST classification of each food item in the Y meal kit therefore needs to be individually determined.

The Y meal kit includes individually packaged food items that are GST-free, as they are not food of a kind listed in Schedule 1.

This kit also includes a 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 Y meal kit is partly taxable and partly GST-free.

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.

Goods and Services Tax Ruling GSTR 2001/8: Goods and services tax: Apportioning the consideration for a supply that includes taxable and non-taxable parts (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.

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.

Accordingly, you need to apportion the consideration for the Y meal kit between the taxable and non-taxable food items in the kit 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.