Private ruling: GST and classification of food products
Date of advice: 15 November 2017
Published: May 2018

Ruling: Q1: Is the sale of the Salad base a taxable supply under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)? | A1: Yes.

Relevant facts and circumstances: You operate a takeaway food business. You have a number of stores located in a capital city. You are registered for GST. Your website provides information about your food products. Among your products are a number of Salad bowls which are combinations of a Salad base and a protein. There is a variety of choices for the base. There is also a variety of proteins and dressings. You provided photos of the menu boards in your stores. The Salad base is prepared in store daily and kept in the fridge. You provided photos of the fridge in your stores which contain the Salad bases. You also provided photos of the different types of Salad bases. The fridge in your store shows the ingredients of the Salad bases. They include a variety of vegetables and noodles. The proteins are cooked freshly instore and kept in a heated display cabinet. You provided the approximate weight of the Salad bases and the Salad bowls. The Salad Bowls are supplied in a takeaway container as a standard service. There is a round logo sticker on the container but no other labelling. There are no literature or service instructions provided to the customer. The customer picks the Salad base from the fridge then takes it to the counter to order the protein which is then placed on top of the Salad base. The sauce is in a separate container and given to the customer with cutlery or chopsticks and serviettes in a takeaway bag, if required. The Salad Bowls are sold on a takeaway basis and intended to be consumed away from the premises. You have limited seating for customers wanting to stay and enjoy the food on your premises. You have a few seats indoors but mostly on the footpath outside your store. You do not have serving trays or table service. The Salad base is not listed in the store menu but can be purchased on its own if the customer prefers. There is a sign in the fridge that says that the Salad base is sold for a certain amount. You currently include GST on the sale of the Salad Bowls but do not include GST on the sale of the Salad base. You have previously received a private ruling which provides that GST is payable on the supply of the Salad bowls. However, GST is not payable on the supply of the Salad base.

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 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)(a). | A New Tax System (Goods and Services Tax) Act 1999 paragraph 38-3(1)(b). | 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 4.

Reasons for decision: Summary: The supply of the Salad base is a taxable supply. The supply of the Salad base is not GST-free because it is food marketed as a prepared meal. | Detailed Reasoning - Detailed reasoning: The supply of the Salad base is a taxable supply if the requirements of section 9-5 of the GST Act are satisfied. Section 9-5 of the GST Act states: You make a taxable supply if: (a) you make the supply for *consideration; and (b) the supply is made in the course or furtherance of an *enterprise that you *carry on; and (c) the supply is *connected with the indirect tax zone; and (d) you are *registered, or *required to be registered for GST. However, the supply is not a *taxable supply to the extent that it is *GST-free or *input taxed. (* denotes a term defined in section 195-1 of the GST Act.) In your case, the supply of the Salad base satisfies the requirements of paragraphs 9-5(a), 9-5(b), 9-5(c) and 9-5(d) of the GST Act because: ● you supply the Salad base for consideration. ● the supply of the Salad base is made in the course of your enterprise. ● the supply of the Salad base is connected with Australia and ● you are registered for GST. The supply of the Salad base is not input taxed. It remains to be determined if the supply of the Salad base is GST-free. 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 paragraph 38-4(1)(a) of the GST Act to include 'food for human consumption (whether or not requiring processing or treatment)'. The Salad base satisfies the definition of food as it is food for human consumption. However, subsection 38-3 of the GST Act provides that a supply of food is not GST-free if, amongst other things, it is a supply of: ● food for consumption on the premises from which it is supplied (paragraph 38-3(1)(a) of the GST Act) ● hot food for consumption away from those premises (paragraph 38-3(1)(b) of the GST Act), or ● food of a kind specified 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 a kind specified in Schedule 1. You sell the Salad base from your takeaway shop. It is the base for your Salad Bowl, which includes a protein ingredient. Therefore, it needs to be determined if the supply of the Salad base falls within any of the exclusions in section 38-3 of the GST Act such that the Salad base is taxable. | Detailed Reasoning - Food for consumption on the premises from which it is supplied: Paragraph 38-3(1)(a) of the GST Act provides that food for consumption on the premises from which it is supplied is not GST-free. Section 38-5 of the GST Act defines premises as meaning amongst other things, the place where the supply takes place or the grounds surrounding a cafe or public house, or other outlet for the supply. The Commissioner’s views in respect of ‘food for consumption on the premises from which it is supplied’ are set out in Goods and Services Tax Determinations GSTD 2000/4 and 2000/5. GSTD 2000/4 provides that a restaurant will satisfy the definition of premises in relation to a supply of food as a place where the supply takes place. However, premises do not include public thoroughfare unless an area has been designated for use in connection with the food supply outlet. Paragraph 2 of GSTD 2000/5 provides that you supply food for consumption on the premises from which it is supplied if the food is to be consumed in grounds surrounding the food supply outlet, for example, at tables on a footpath or in a food court. Paragraph 3 of GSTD 2000/5 deals with situations where the supplier provides food for consumption both on the premises (dine-in) and away from the premises (takeaway). This paragraph provides that if your business operations identify takeaway supplies from dine-in supplies, the takeaway food is not supplied for consumption on the premises. You will be able to identify takeaway food from dine-in food if you: ● have separate ordering and/or serving processes for dine-in and takeaway customers (for example dine-in customers may order and receive their meals at their tables or food could be served on a plate or on a returnable tray) ● provide different packaging for dine-in and takeaway food (for example, dine-in customers may receive their water or fruit juice in a glass rather than in a sealed disposable container) or ● have different menus or product lines for dine-in and takeaway customers. Paragraph 4 of GSTD 2000/5 provides that if your business operations do not identify takeaway supplies from dine-in supplies, food will remain GST-free if, among others, it is not served in circumstances indicating that consumption will take place on the premises (for example, the food is not served at a table). In your case, you only have one menu. The Salad base is provided in a plastic container and is not served at tables, on a plate or on returnable trays. You have limited seating in store which customers can use. However, you do not make a distinction between dine-in and takeaway supplies as you do not have separate ordering and/or serving processes. We do not consider that you supply the Salad base for consumption on your premises. Hence, the exclusion in paragraph 38-3(1)(a) of the GST Act does not apply. | Detailed Reasoning - Hot food for consumption away from your cafe: The Salad base is displayed in the fridge and does not contain any hot items. Hence, the exclusion in paragraph 38-3(1)(b) of the GST does not apply. | Detailed Reasoning - Food marketed as a prepared meal: Item 4 of Schedule 1 (item 4) provides that food marketed as a prepared meal will be taxable, but does not include soup. Additionally, food marketed as a prepared meal will only be taxable where the food requires refrigeration or freezing for its storage (clause 2 of Schedule 1). It is not a requirement for the food product to be ready for immediate consumption to be considered a prepared meal. A product can be a prepared meal regardless of whether it is supplied hot or cold, or requires cooking, heating, thawing or chilling prior to consumption (clause 3 of Schedule 1). The term ‘prepared meal ‘referred to in item 4 is not defined in the GST Act and therefore takes its ordinary meaning. In the context of food, ‘prepare’ is defined in the Macquarie On-line Dictionary as: 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 ATO view on what is a ‘prepared meal’ is provided in Issue 5 of the Food Industry Partnership - Issues Register (Issue 5). This issue and all the information within it is a public ruling for the purposes of section 105-60 of Schedule 1 to the Taxation Administration Act 1953. Issue 5 provides that 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). It is considered that making dressing available will satisfy this requirement, as it allows the consumer to add the level of dressing to meet their personal tastes. In addition, if the food is cooked or partly cooked and is to be served hot, it should only need heating, which may include completion of the cooking process, to be ready for consumption. Heating will be interpreted to mean warmed in the microwave oven, convection oven, frying pan, wok or saucepan. Issue 5 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, labelling and marketing as well as any cooking instructions 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. How a product is marketed is determined by “the total process where b y goods are put onto the market” ( Cascade Brewery Company Pty Ltd & Anor v FCT (2006) ACT 4339 23. The term ‘marketed’, in the context of ‘marketed as a prepared meal’ suggests the aim of the supplier, determined objectively, is to present the goods as being a prepared meal. Therefore when examining the characteristics of a product, all the relevant factors will be looked at together in deciding the proper classification of the product. That is the classification decisions for GST purposes are often questions of fact and degree, a matter of overall impression and a combination of fact finding and evaluative judgment. ( Lansell House Pty Ltd & Anor v FCT 2010 ATC 20-173, at paragraph 108) Therefore no one factor will be determinative and as such it follows that the classification of a product will not be governed by one factor alone including: ● where it is sold next to other GST-free products ● ingredients included in the product e.g. meat ● the name given to the product; or ● the size of the product. The Salad base consists of a variety of salad items including vegetables and noodles. The Salad base is approximately a number of grams in weight and sold for a certain amount each. The Salad base is indicative of that found in similar ‘ready to eat’ salad concept stores and takeaway stores. The Salad base is served in closed disposable container duly assembled and ‘ready to eat’ and given to the customer with a fork or chopstick and serviette. The Salad base is not dressed but the dressing is given to the customer in a separate container to allow them to add the amount of dressing to meet their personal taste. The weight and price of the Salad base is comparable to similar ‘ready to eat’ salads sold in concept stores and takeaway stores. The location of shop near other takeaway shops and surrounded by office buildings indicates that the Salad base competes with traditional takeaway/fast food. The Salad base is served from the fridge, ready for consumption when supplied, and requires refrigeration for storage. Hence, it is considered that the Salad base satisfies both clauses 2 and 3 of Schedule 1. We consider that the Salad base is marketed as a prepared meal as listed in item 4, and is excluded from being GST-free by paragraph 38-3(1)(c) of the GST Act. You should note that the fact that Salad base does not include any protein does not preclude it from being a prepared meal. As the supply of the Salad base falls within the exclusions in section 38-3 of the GST Act, the supply is not GST-free under section 38-2 of the GST Act. In addition, the supply of the Salad base is not GST-free under any other provision of the GST Act or another Act. Therefore, as all the requirements of section 9-5 of the GST Act are satisfied, the supply of the Salad base is a taxable supply.