Small businesses selling a mixture of gst and non-gst food items may be able to choose one of five simplified GST accounting methods offered by the tax office to estimate the gst content of sales.
A small business retailer for Simplified Accounting Method “SAM” eligibility purposes is a business with turnover of less than $2 million.
The five simplified methods are:
- Business norms percentages (only certain businesses)
- Stock purchases
- Snapshot of trading
- Sales percentage (only certain businesses)
- Purchases snapshot
See full details of the “SAM” (Simplified Accounting Methods) here: Simplified GST accounting methods for food retailers
GST On Prepared Food
The Tax Office has published a draft determination GSTD 2024/D1 which aims to clarify how GST applies to food which is marketed as a prepared meal.
The ruling implements a definition of ‘prepared meal’ drawn from a recent Federal Court decision which determined that certain frozen foods were not GST free. (See Simplot Australia Pty Limited v Commissioner of Taxation [2023] FCA 1115).
Helpful commentary on this case can be found in the following articles:
- Federal Court denies GST-free treatment for frozen vegetables and grains products; and
- GST and food: The Federal Court have challenged the concept of a prepared meal
The draft ruling sets out a number of examples:
| Example 1 – marketing does not refer to the product as a prepared meal A Mediterranean salad bowl is sold ready to eat, containing fetta, olives, mixed leafy greens, chickpeas, and a sachet of dressing. Despite not being explicitly marketed as a prepared meal, the Mediterranean salad bowl possesses the characteristics of a prepared meal. |
| Example 2 – quantity – breakfast products Pots of bircher muesli breakfast food contain rolled oats, yogurt, apple juice, with added coconut flakes and raisins. The composition, presentation, and portion size qualify it as a complete breakfast as a prepared meal. |
| Example 3 – quantity – large quantities Trays of frozen beef lasagne are sold in quantities of 5kg to 10kg each. Despite the large quantities and lack of pre-portioning, the frozen beef lasagne is considered a prepared meal. |
| Example 4 – composition – number of ingredients or elements Frozen mashed potato product is sold in two pre-portioned packets, with instructions for heating in the microwave. This product is not considered a prepared meal because it consists of only one component – mashed potato. |
| Example 5 – composition – nature of ingredients or elements A trifle, a chilled dessert containing a number of ingredients, does not in itself constitute a meal. The trifle is not considered a prepared meal. |
| Example 6 – presentation – prepared A frozen package of partly cooked crumbed fish and potato chips is marketed with instructions for final cooking at home, basically requiring only heating. It is considered a prepared meal. |
| Example 7 – presentation – not prepared A chicken stir fry kit is marketed with all essential ingredients including raw chicken, fresh vegetables, a sauce packet, and uncooked rice, along with cooking directions. The kit contains raw ingredients and require cooking, and so is is not considered a ready to eat prepared meal. |
| Example 8 – presentation – not complete Tubs of coleslaw, typically recognized as a side dish or a component of prepared meals, is not considered a prepared meal. |
| Example 9 – presentation – complete Microwavable packages of 8 dumplings deemed to contain sufficient quantity and composition to be a complete meal, and is marketed as such, is considered a prepared meal. |
GST Free Food
In general, food and beverages for human consumption are GST-free unless it is for consumption at the place of supply, or if it is hot food for consumption elsewhere.
However, the food GST classification rules are somewhat complex in practice.
Determining whether food is subject to GST can variously depend on the ingredients and manner of preparation, the place of preparation and the place, or intended place, of consumption (or intended consumption).
The tax office provides a detailed food list and a search tool to enable food vendors to accurately classify food items for GST purposes.
The food list has Ruling status, and as such provides limited protection if relied upon in good faith.
Combination GST Foods Ruling
The determination GSTD 2024/1 Goods and services tax: supplies of combination food (released Feb 28, 2024) seeks to clarify the position when a food product is a combination of foods, at least one of which is taxable.
The determination finalises the earlier draft GSTD 2023/D1.
The determination follows a tribunal decision in Chobani Pty Ltd and Commissioner of Taxation [2023] AATA 1664 which found a flavoured yoghurt product was taxable.
The Chobani case revolved around Chobani’s Flip Strawberry Shortcake flavoured yoghurt.
It had separately packaged dry inclusions like cookie pieces and chocolate chips, which were taxable foods.
The AAT held that Chobani Flip Strawberry Shortcake flavoured yoghurt was a combination food that was not GST-free.
The Administrative Appeals Tribunal determined that the term “combination” meant the product or outcome of merging multiple items.
The determination provides that:
- Combination food is a product made up of distinctly identifiable foods, with at least one being taxable.
- A food is distinct if it can be perceived separately upon normal visual inspection.
- The term “combination” indicates the outcome of joining two or more things.
- The decision if foods are adequately joined to be a combination food depends on various factors like physical appearance, packaging, labelling, marketing, and consumer experience.
- A combination food is not regarded as such if the taxable food is integrated so much that it doesn’t impact the overall product’s character.
Several examples are provided in the Determination. They include:
- A chocolate-hazelnut spread containing 20% roasted hazelnuts is not considered a combination food because the hazelnuts aren’t visually distinct.
- Meal kits, like a Nutty Chicken Pasta Kit, aren’t combination foods even if they contain taxable items, because the ingredients are distinct and need several steps for meal preparation.
- A peanut satay stir-fry sauce with visible roasted peanuts is not a combination food as the peanuts are integrated into the sauce’s character.
- Bakery bread with roasted sesame or poppy seeds on top isn’t a combination food since the seeds are too minor to affect the bread’s overall character.
- However, products like Tuna Lunch Pak, Crunchy Custard with nuts, and Tall Tales Trail Mix are considered combination foods.
See also:
- GST Simplified Accounting Method Determination (No.38) 2016 for Restaurants, Cafes and Caterers – purchases snapshot method
- Goods and Services Tax: Simplified Accounting Methods Determination 2017 for Retailers who sell Food – Business Norms, Stock Purchases and Snapshot Methods
This page was last modified 2024-03-29