Private ruling: Goods and services tax - Food classification- supply of delivered fresh food for web-based sales
Date of advice: 22 December 2015
Published: March 2016

Ruling: Q1: Is the supply of food bags GST-free? | A1: Yes.

Relevant facts and circumstances: You are registered for the goods and services tax (GST). You are a qualified professional and have created your own website for your clinic. In addition, you develop recipes for your clients and supply a web-based grocery delivery service. This service is done through the internet website (the food website). Your clients view the recipes and place the order for the ingredients of the meals on the food website. You source the ingredients for the recipes and package them in the food bags and deliver to the clients. The meals fall into 3 categories, vegetarian meals based on around $X a meal, standard meals at $XX, and premium meals at $XXX each. The cost of food bags is a minimum of $Y per order/per box. This may include provisions for 1 person for 5 meals a week or 2 people for 3 meals a week. Packaging includes the containers for the condiments, the cardboard boxes and the cooler bags which you packed your fresh meat, seafood and milk products in. As the boxes are finalised they are place into your delivery van and delivered to your clients No fees are charged for your packaging and delivery services. All the recipes are developed and approved by you. The food in the food bags are not cooked or processed in any way, you are just acting as meal planners that source fresh food and deliver to your clients' door for convenience. Apart from fresh meat, fresh herbs and vegetables, there are smallgoods and condiments in the food bags. The food bags contain the ingredients for meals which follow sample recipes on your website.

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 paragraph 38-3(1)(c) 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 | A New Tax System (Goods and Services Tax) Act 1999 section 38-6

Reasons for decision: Summary: The food items in your food bags are food for human consumption. They are not food listed, or of a kind listed, at any of the items in Schedule 1. Additionally, they are not food that is a combination of one or more foods at least one of which is food of such a kind. They are not prepared meals. Therefore, the food bags are GST-free under section 38-2 of the GST Act. The food packaging (jars and bottles, cardboard boxes, cooler bags) is normal and necessary for the supply of your food products because such outer containers are necessary to contain and protect the food products that are supplied. Hence the packaging is GST-free under Section 38-6 of the GST Act. The supply of the food bags and delivery is a composite supply (where the delivery is ancillary to the supply of the food bags) and the supply of the food bags is a GST-free supply, hence no GST is payable on the supply. | Detailed Reasoning - Detailed reasoning:: The supply of food : Under section 38-2 of the GST Act a supply of food is GST-free. The meaning of the term food for GST purposes is defined in section 38-4 of the GST Act. This definition of food includes food for human consumption, whether or not it requires processing or treatment. The food items in your food bags consist of fresh meat and seafood, smallgoods such as sausages or salami, fresh vegetable and herbs, and condiments such as spice and sauce. The food items in your food bags are food for human consumption and therefore satisfy the definition of food under section 38-4 of the GST Act. However, under paragraph 38-3(1)(c) of the GST Act, certain supplies of food are not GST-free if it is food of a kind specified in the third column of the table in Schedule 1 of 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. | Detailed Reasoning - Schedule 1:: Item 4 excludes prepared meals and food marketed as prepared meals, but not including soup from GST-free status. When considering food under Item 4 we need to also consider conditions outlined in clauses 2 and 3 of Schedule 1 of the GST Act. Clause 2 of Schedule 1 provides when considering prepared food under items 1 to 7, it does not matter whether the food is sold hot, cold or frozen or require cooking, heating, thawing or chilling prior to consumption. Clause 3 of Schedule 1 provides that Item 4 only applies to food that requires refrigeration or freezing for its storage. | Detailed Reasoning - Prepared Meals: 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 and • are marketed as a 'prepared meal'. Further, 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). We do not consider that the food bags directly compete against take-aways and restaurants since the food items in the food bags are not cooked or prepared in any way. The clients will prepare and cook the food for serving according to your recipes. Hence the food bags will not satisfy the criteria for prepared meals and are not excluded from being GST-free by paragraph 38-3(1)(c) of the GST Act. Additionally, the food bags are not excluded from being GST-free by virtue of any of the other paragraphs of subsection 38-3(1) of the GST Act. Therefore, the supply of the food items in the food bags are GST-free under section 38-2 of the GST Act. The supply of packaging services: Section 38-6 of the GST Act provides: (1) A supply of the packaging in which foods is supplied is GST-free if the supply of the food is GST-free. (2) However, the supply of the packaging is GST-free under this section only to the extent that the packaging: (a) is necessary for the supply of the food; and (b) is packaging of a kind in which food of that kind is normally supplied. Goods and Services Tax Determination (GSTD) 2000/6 discusses when the supply of food packaging is GST-free in terms of section 38-6 of the GST Act. Paragraphs 1 to 2 of GSTD 2000/6 state: 1. A supply of packaging in which food is supplied will be GST-free to the extent that it is necessary for the supply of GST-free food, and it is of a kind in which the food is normally supplied. 2. Where the purpose of the packaging is simply to contain, protect and promote the food within, it will be a normal and necessary part of the supply of the food. For individual items, normal and necessary packaging includes tins, bottles, jars and boxes. For a group of items, normal and necessary packaging includes the carton or box that contains a number of individual items. Thus, the general rule is that packaging is GST-free if the food is GST-free. However, to the extent that the packaging is more than is normal and necessary for that food, it will be taxable. Your packaging includes the cardboard boxes which are packed with jars and bottles of condiments and fresh vegetables and herbs and the cooler bags which contain the fresh meat and seafood and milk products. The jars and bottles are necessary to contain the condiments. The cardboard boxes and cooler bags are outer containers in which your GST-free food items together with their packaging are placed. All the above packaging is normal and necessary for the supply of your food products because such outer containers are necessary to contain and protect the food items in the food bags. Hence the packaging is GST-free under Section 38-6 of the GST Act. The supply of delivery services We need to consider whether your supply of food and delivery services is a mixed supply or a composite supply. Goods and Services Tax Ruling (GSTR) 2001/8 discusses mixed supply and composite supply. | Detailed Reasoning - Mixed supply: 16. In this Ruling the term 'mixed supply' is used to describe a supply that has to be separated or unbundled as it contains separately identifiable taxable and non-taxable parts that need to be individually recognised. | Detailed Reasoning - Composite supply: 18A. You need to consider all of the circumstances of a supply to work out whether the supply is mixed or composite. GST is only payable on the taxable part of a mixed supply. If a composite supply is taxable, then GST is payable on the whole supply. If a composite supply is non-taxable, then no GST is payable on the supply. 43. A mixed supply is a single supply made up of separately identifiable parts, where one or more of the parts is taxable and one or more of the parts is non-taxable, and these parts are not integral, ancillary or incidental in relation to a dominant part of the supply. On the other hand, a composite supply is a single supply made up of one dominant part and other parts that are not treated as having a separate identity as they are integral, ancillary or incidental to the dominant part of the supply. 44. In working out whether you are making a mixed or composite supply, the key question is whether the supply should be regarded as having more than one separately identifiable part, or whether it is essentially a supply of one dominant part with one or more integral, ancillary or incidental parts. 59. No single factor (by itself) will provide the sole test you use to determine whether a part of a supply is integral, ancillary or incidental to the dominant part of the supply. Having regard to all the circumstances, and taking a common sense and practical approach, indicators that a part may be integral, ancillary or incidental include where: • you would reasonably conclude that it is a means of better enjoying the dominant • thing supplied, rather than constituting for customers an aim in itself; or • it represents a marginal proportion of the total value of the package compared to • the dominant part; or • it is necessary or contributes to the supply as a whole, but cannot be identified as • the dominant part of the supply; or • it contributes to the proper performance of the contract to supply the dominant part. In your case, you contract to supply delivered food bags containing meal ingredients for a price through your internet web-site and you neither identify nor make any additional charges in relation to the delivery of those food bags. We consider that the whole supply is characterised as a supply of goods. In these circumstances, delivery is an agreed and expected element of the supply of the goods. The element of delivery represents a marginal proportion of the total value of the package compared to the dominant part of the supply. Since the supply of the food bags and delivery is a composite supply and the supply of the food bags as discussed above is a GST-free supply, no GST is payable on the supply.