Private ruling: GST and sushi
Date of advice: 12 April 2017
Published: May 2017

Ruling: Q1: Is the supply of single serves of your sushi products a supply of food that is marketed as a prepared meal for the purposes of item 4 of Schedule 1 to the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)? | A1: Yes.

Relevant facts and circumstances: You are registered for GST. You sell a range of sushi products that are sold individually, rather than in boxes, packs or platters. Each of these products are selected by customers, priced on an individual basis and itemised separately on tax invoices. You have limited seating but the majority of sales are takeaway. The sushi products are sold on a takeaway basis. The packaging can be in plastic containers and small paper bags for one or two items. Customers can help themselves to chopsticks, condiments and serviettes. Each product is small and relatively low priced. They have combinations of rice and fish. They can be eaten in a few bites and would comprise a very low percentage of an Australian adult’s average daily intake of kilojoules. Taxpayer’s contentions ● Each product is insufficient to be defined as a meal. ● Each product is a component of a meal, rather than a meal in itself. ● There is very little specific marketing that is carried out in relation to whether the individual products are prepared meals. The names, prices and kilojoule content of the products are displayed in the cabinets. It is argued that since the price and kilojoule contents of each item are considerably less than those of a meal, nothing about the way the products are presented suggests that each product is marketed as a prepared meal. ● The reference to sushi in the Further Supplementary Explanatory Memorandum to the A New Tax System (Goods and Services Tax) Bill 1998 (the EM) and not in the Schedule 1 to the GST Act is important and shows Parliament did not intend for all sushi to be taxable but subject to the marketing test as a prepared meal. ● The placement of sushi alongside food such as curry and rise dishes, mornay and similar dishes fresh or frozen lasagne cooked pasta dishes sold complete with sauce shows that Parliament was putting sushi food in the same bracket as these fuller traditional meals.

Relevant legislative provisions: All references are to the A New Tax System (Goods and Services Tax) Act 1999 : Section 38-2 | Subsection 38-3(1) | Paragraph 38-3(1)(c) | Paragraph 38-4(1)(a) | Schedule 1

Reasons for decision: Summary: 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. The definition of food in section 38-4 of the GST Act includes food for human consumption, whether or not requiring processing or treatment. The products will be sold as food for human consumption. However, subsection 38-3(1)(c) of the GST Act provide, amongst other things, that a supply of food is not GST-free if it is a supply of: food of a kind specified in the third column of 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 a kind. Schedule 1 In considering Schedule 1 for your products it is only necessary to consider Item 4 of Schedule1 which covers prepared meals. Your products are not specifically named in Schedule 1. Nevertheless, these products may be subject to GST by virtue of paragraph 38-3(1)(c) of the GST Act which refers to food of a kind to those foods listed in 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 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. Prepared Meals The term ‘prepared meal ‘referred to in Item 4 is not defined in the GST Act and therefore takes its ordinary meaning. ‘Meal’ is defined in The Macquarie Dictionary, as: 1. one of the regular repasts of the day, as breakfast, lunch, or dinner. 2. the food eaten or served for a repast. You submit that each individual product is not a meal because it is not large enough to be considered what is traditionally regarded as a repast meal. This is not accepted because a single portion of sushi may be food of choice for people who prefer to have smaller and more frequent meals during the day rather than larger ones at the traditional three times a day, or weight conscious people, or small meals that are sufficiently satisfying. Also the GST legislation for food does not differentiate between adults and children so one single sushi product may be sufficient for a child. To contend that a single sushi is not a meal would be attempting to impose a differential tax treatment on a person’s appetite or eating habits. This would be an unreasonable tax outcome. The ordinary meaning of meal does not distinguish between sizes of meals. That is, a light meal can still be a meal. The Macquarie Dictionary defines 'prepare' in relation to food as ’to get ready for eating, as a meal, by due assembling, dressing or cooking‘ . 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’. Included in this category (according to the EM at paragraph 1.33) are things such as: ● prepared meals such as curry and rise dishes, mornay and similar dishes sold cold by a take-away or supermarket that only need reheating to be ready for consumption ● fresh or frozen lasagne ● sushi ● cooked pasta dishes sold complete with sauce ● frozen TV dinners and ● fresh or frozen complete meals (for example single serves of a roast dinned including vegetables and low fat dietary meals). The Commissioner considers that the products at issue are prepared meals. The issue becomes therefore whether the products are marketed as prepared meals or a kind of a prepared meal. The marketing test Our view on prepared food is outlined in Goods and Services Tax Industry Issue - Food Partnership Prepared Food (Prepared Food) (available from the ATO website www.ato.gov.au ), which is a public ruling for the purposes of the Taxation Administration Act 1953 . Paragraph 5 of the Prepared Food ruling 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, and marketing as well as any cooking instructions. These are summarised as the ’marketing test’. The issue to consider for the marketing test is whether each of your products are marketed as a 'prepared meal'. ● While each product is not specifically promoted as a meal, they are ready to eat from a bag or container with a utensil, condiments and serviette, as in a typical meal. ● They are sold amongst other Sushi which are in combinations that you admit are meals. There is no differentiation between the products as non-meals. ● The transitory nature of your clients is consistent with them having a meal on-the-go or taking it to their workplace to eat. You have limited seating so even though the products are sold on a takeaway basis, it is possible for customers to eat the products at the tables or bench. ● Each product has a combination of ingredients of fish and rice which is indicative of a repast-type meal, albeit a small one. Therefore there are enough indicators that show the products are marketed as prepared meals. Furthermore, as the products require refrigeration or freezing for storage and directly compete against takeaways and restaurants (for those seeking a smaller and cheaper food alternative to the more expensive and larger takeaway and restaurant meals), we consider they are marketed as prepared meals listed in item 4 and are therefore excluded from being GST-free by paragraph 38-3(1)(c) of the GST Act.