In brief
Following last year’s Federal Court decision in Simplot Australia Pty Limited v Commissioner of Taxation [2023] FCA 1115 (Simplot case) involving the goods and services tax (GST) treatment of frozen meals (as reported in our Tax Alert dated 28 September 2023), the Commissioner of Taxation (the Commissioner) issued his first draft tax Determination on the Commissioner’s view on the circumstances in which a product is to be deemed “food of a kind marketed as a prepared meal” for GST purposes (as discussed in our Tax Alert dated 24 May 2024).
Following industry consultation, the ATO has now released an updated draft determination (GSTD 2024/D3), released on 16 October 2024, that adopts the same broad principles from the Simplot case and offers further clarification on the attributes of a “prepared meal”, being quantity, composition and presentation, as well as practical guidance and examples. Importantly, GSTD 2024/D3 also introduces a four-step method statement and a practical compliance approach to the GST classification of prepared meals (the Compliance Approach).
Whilst GSTD 2024/D3 (once finalised) offers a detailed, prescriptive guidance and a compliance approach to taxpayers, this new framework is complex and requires significant work to be undertaken by taxpayers to comply.
In detail
Attributes of a prepared meal
In GSTD 2024/D3 the Commissioner sets out updated guidance on the key attributes of a “prepared meal” as follows:
- Quantity
- A meal must have a ‘quantity of substance’ but does not necessarily have to be a substantial meal to be considered a prepared meal.
- As to what is considered ‘of substance’ will vary depending on the nature of the food in question (e.g. breakfast) and targeted consumer base of the meal (e.g. babies).
- Products of less than 150 grams in total weight are not considered to be a sufficient quantity for a meal (and not a prepared meal). However, this does not apply to products sold where the consumer may choose or measure the amount.
- Composition
- A prepared meal involves food consisting of more than one ingredient or element.
- The nature of the ingredients is important, and not just the number of ingredients (e.g. a food containing protein, vegetables and grain are more likely to be a prepared meal).
- The composition of the product should be considered in the context in which the meal is intended to be consumed (e.g. when considering whether a product may be breakfast or dessert).
- Presentation
- To be considered a prepared meal, the food must be presented as a ‘complete meal’ only requiring limited further preparation, assembly and cooking activity.
- Food requiring limited cooking or heating can still be a prepared meal, and elements can be raw when supplied.
- Food may not be prepared meal where the preparation activities require chopping or peeling, cooking different ingredients or elements separately, or cooking a product which contains raw ingredients requiring active involvement (e.g. stirring, monitoring, adjusting temperature, and the staged addition of different ingredients).
- A product can be a prepared meal where some or all the elements are separated from each other and simply require combining before consumption.
- Where a product includes all required seasonings, sauces or flavourings, this is an indicator that the product is presented as complete (addition of water or oil does not mean the product is not complete).
- A product that is presented as being a meal component only, or as an appetizer, will generally not be food of a kind marketed as a prepared meal. However, the same food may be presented and packaged differently and presented as a complete meal that can be eaten straight from the packaging.
Salad products as prepared meals
Following a period of uncertainty for taxpayers selling salad products and lack of public guidance from the Commissioner, GSTD 2024/D3 provides detailed guidance on salad products.
The Commissioner’s view is that some salad products are “readily recognisable”, as a matter of common sense and common experience, as being commonly marketed as a prepared meal (e.g. caesar salad) and others are not (e.g. coleslaw).
Where a salad product is not one of these “readily recognised” products, the Commissioner considers the following attributes are indicative of a salad product to be food of a kind marketed as a prepared meal:
- marketed as a complete meal to be eaten on their own
- contains a variety of ingredients in balanced proportions
- contains a more than insignificant meat or seafood component
- contains instructions for heating (even if heating is optional)
- is sold as a single serving in a bowl or similar container from which it is designed to be eaten
- is sold in a takeaway environment such as a food court or salad bar.
In contrast, the following attributes indicate that a salad product is not food of a kind marketed as a prepared meal:
- a high proportion of one ingredient (or category of ingredient) with insignificant amounts of others
- a limited number of different ingredients (or categories of ingredient).
Examples
Based on the above guidance on the relevant features of a “prepared meal”, the Commissioner has provided updated examples of prepared meals to include bircher muesli (150 gram pot), large lasagne trays, frozen chicken pasta meal and microwaveable dumpling containers.
Examples of products that are not prepared meals include frozen mash potato, dessert trifle, meal kits requiring more than limited cooking, and meatballs in tomato sauce.
A practical administration approach to GST classification
The Commissioner has introduced a four-step method statement for assessing whether a product is a prepared meal and the Compliance Approach for certain salads. Although these do not form part of the Ruling, but rather an approach for the administration of law (set out in Appendix 1), following this approach provides some certainty for taxpayers provided it is followed correctly and evidenced.
Updates to the Detailed Food List (DFL)
The DFL will be updated as a result of GSTD 2024/D3 with the GST treatment of the following salad products, noting that the composition and ingredients have been defined in detail:
- Taxable salad products “readily recognised” as prepared meals include caesar salad, Greek salad and pasta product/salad
- GST-free salad products that do not meet the definition of a prepared meal: coleslaw, creamy potato salad, creamy pasta salad, tabbouleh and seafood salad.
Step 1: Is the product a sufficient quantity for a meal? |
If the product is not a sufficient quantity (minimum 150 grams), then the product is not of a kind marketed as a prepared meal, however this does not apply to products where the customer chooses or measures the product. |
Step 2: Is the product covered by the Detailed Food List (DFL)? |
The taxpayer needs to assess whether their product is accurately described by an item in the DFL, and if so, the DFL GST treatment applies (and the Compliance Approach on salads cannot be applied). |
Step 3: Compliance Approach for salad products |
Salad products meeting the Compliance Approach will be considered low risk and the Commissioner will not apply compliance resources to review whether the salad product is food of a kind marketed as a prepared meal. The Compliance Approach does not apply if the salad product has any of the following features (and the salad products are likely prepared meals, subject to Step 4):
The Compliance Approach applies to salad products that are not covered by the DFL (see Step 2) and have any of the following attributes:
The phrase 'category of ingredient' is used to refer to very similar ingredients or ingredients that are commonly included together (e.g. white rice and brown rice, cherry and grape tomatoes, mixed beans, leafy greens). |
Step 4: Is the product of a kind that, as a matter of common sense and common experience, is marketed as a prepared meal? |
Where steps 1-3 have not resulted in the GST classification being determined, the general principles in GSTD 2024/D3 are to be applied. The Commissioner considers that most salad products that are not taxable prepared meals should be identified through steps 1-3 and others are highly likely to be taxable. |
The updated DFL and the GSTD 2024/D3 (when finalised) will apply both historically and going forward, meaning that they may apply for overlapping periods with existing public rulings. In the case of inconsistency, taxpayers can rely on either applicable public ruling, subject to any private ruling in place.
Comments on GSTD 2024/D3 can be made by 15 November 2024. The ATO is particularly interested in views on the 150 grams weight threshold to be a “prepared meal” and the Compliance Approach for salads.
The takeaway
The updated GSTD 2024/D3 expands significantly on the guidance available to taxpayers on taking GST classification decisions and along with the newly introduced Compliance Approach should provide taxpayers comfort on a number of products and product lines, especially salads, if followed correctly.
Whilst the Commissioner’s approach is detailed and prescriptive, it also introduces complexity which is likely to require significant time and resources from taxpayers to comply with. The guidance also has the potential to leave some uncertainty and/or inconsistency in the GST outcomes between products presented, packaged and sold in a different ways or sizes (e.g. packaged vs. buffet).
It is recommended that affected taxpayers should now take action to:
- Review their complete product master file for GST classification, including the detailed ingredients, packaging and other attributes of each individual product.
- Assess where public rulings or the new Compliance Approach on salads can be relied on.
- Document any analysis and decisions on GST classification appropriately.
- Where errors are identified or the Commissioner’s views on GST classification of a particular product has changed, assess what protection exists for past and future GST treatment of supplies.
- Action and implement required changes going forward, considering commercial positions with counterparties.
- Consider whether rectification is required for GST paid on past supplies.
- Where the GST classification of a particular product is still unclear, seek specialist advice and consider seeking a private ruling from the Commissioner.
- Review and update existing systems, processes and controls in place for GST classification in light of the changes and the ATO’s expectations on GST governance.
Matthew Strauch
Andrew Howe
Mark Simpson
Shagun Thakur
Jeff Pfaff
Kati Pedersen
Related content