Edited version of your written advice

Authorisation Number: 1051303975658

NOTICE

This is an edited version of a revised private ruling. It replaces to an extent the edited version of the private ruling with authorisation number 77169.

Date of advice: 15 November 2017

Ruling

Subject: GST and classification of food products

Question

Is the sale of your Salads a taxable supply under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer

Yes.

Relevant facts and circumstances

You operate a shop.

You are registered for GST.

Your website includes information about your shop. Your social media page includes similar general information.

Your shop has a number of tables and a number of seats (some seats are used for people waiting for takeaways). Your website includes a picture showing the street view of your shop. There are tables and chairs set up on the footpath but it has an enclosed area connected with your shop.

A menu is displayed at entry to the shop and provided at tables.

You have chalkboards to promote foods and drinks.

You provided a copy of your menu.

The menu lists Breakfast and Lunch products.

Lunch includes Salads. The Salads may contain hot and cold ingredients. Some Salads do not include any meat products or meat protein.

Your social media account contains the pictures of the Salads.

You do not have store displays of the Salads. They are listed on the menu including their ingredients.

The Salads are made to order on the premises.

The Salads can be consumed in the shop or taken away to be eaten later.

For takeaway sales, Salads are put in a takeaway container with no labelling. There are no literature or service instructions provided. Cutlery and serviettes are given for free if requested.

You currently include GST on all dine-in salads and take away salads that have cooked meat in them.

You have previously received a private ruling which provides that salads supplied for consumption on the premises is subject to GST, however, food sold as a takeaway is not subject to GST.

Reasons for decision

Summary

The supply of the Salads is a taxable supply.

The supply of the Salads is not GST-free because they:

● are for consumption from your shop,

● contain a hot food component which are sold on a takeaway basis as they are hot food for consumption away from your shop, or

● are food marketed as a prepared meal.

That is, the sale of all your Salads is a taxable supply regardless of where they are consumed or whether they contain hot items or not.

Detailed reasoning

The supply of the Salads 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 Salads satisfy 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 Salads for consideration.

● the supply of the Salads is made in the course of your enterprise.

● the supply of the Salads is connected with Australia and

● you are registered for GST.

The supply of the Salads is not input taxed. It remains to be determined if the supply of the Salads 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)'. Your Salads satisfy the definition of food as they are 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 marketed as a prepared meal (item 4 in the table in clause 1 of Schedule 1 of GST Act).

You sell the Salads from your shop and they are available either for dine-in or takeaway. The Salads are listed in your Lunch menu and are made to order. The Salads may contain hot and cold ingredients.

Therefore, it needs to be determined if the supply of the Salads falls within any of the exclusions in section 38-3 of the GST Act such that the Salad is taxable.

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 cafes 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.

In your case, you operate a shop. The seating area of your shop includes an area on the footpath. Accordingly, your supply of the Salads for dine-in is excluded from being GST-free by paragraph 38-3(1)(a) of the GST Act as they are food for consumption on the premises from which it is supplied. The supply of the Salads for consumption on your premises will be taxable.

Hot food for consumption away from your cafe

The supply of the Salads is excluded from being GST-free if the Salads are hot food for consumption away from the premises from which it is supplied (paragraph 38-3(1)(b) of the GST).

The term hot food is not defined in the GST Act. However, the Further Supplementary Explanatory Memorandum to A New Tax System (Goods and Services Tax) Bill 1998 (the EM) is consistent with the ordinary meaning of the statutory text where it explains ‘hot food’ in the following terms.

1.28 Hot food means food that has been heated above the room temperature or above the generally surrounding air temperature for consumption. You do not need to check the precise temperature because food or drink which has been heated so that it can be consumed while still hot will be at a higher temperature than the surrounding air temperature.…

1.30 Hot and cold food supplied as a single item for consumption away from the premises will be subject to GST. For example, kebab rolls or sausage and onions supplied on a slice of bread or in a bread roll will be taxable.

Some of your Salads are cold salad items which also contain hot items (such as egg and meat) where the cold salad including the hot items and the other salad ingredients are supplied as a single item and in the same takeaway container for consumption away from your shop.

It is our view that with regards to your takeaway sales, your supply of the Salads which contain hot food is excluded from being GST-free by paragraph 38-3(1)(b) of the GST Act as it is a supply of hot food for consumption away from the premises from which it is supplied.

As such, the supply of your Salads that include hot food will be taxable.

Food marketed as a prepared meal

The supply of the Salads is taxable if the Salads are food of a kind specified in 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.

Item 4 of Schedule 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 whereby 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.

You sell the Salads from your shop either for dine-in or takeaway. The Salads are not in a ready-made condition but are prepared when ordered by the customer. The Salads contain all the ingredients and are supplied assembled and dressed ready for consumption. While Salads intended for consumption in the shop are served on a plate, for takeaway sales, the Salads are packaged in takeaway containers.

We consider that the Salads are marketed as prepared meals as listed in item 4, and are excluded from being GST-free by virtue of paragraph 38-3(1)(c) of the GST Act.

You should note that the fact that a salad does not include any meat products or meat protein does not preclude it from being a prepared meal.

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