When does Australia charge GST on frozen vegetables?

What are the regulations regarding GST-exempt food?

Australia’s GST Act outlines that 'food' is exempt from GST. 

The definition of food includes:

• Items and components intended for human consumption;
• Beverages intended for human consumption, including water;
• Goods intended to be mixed with the above; and
• Culinary fats and oils marketed for cooking purposes.

The next step involves verifying whether the supply of a food item aligns with taxable food:

• Hot food intended for immediate consumption.
• Food types expressly listed (sausage rolls, pastry, etc.)

The Birds Eye Case

The taxpayer is an importer and supplier of a range of fresh food products, including fried rice, couscous, pasta, quinoa, risotto, and vegetable fried rice.

The Court determined that these products were food marketed as prepared meals and therefore subject to GST. This classification did not hinge on how the products were consumed or purchased, but rather on whether they belonged to a group advertised as prepared meals. The defining characteristic shared by these foods is their classification as marketed prepared meals.

Chobani Yogurt

The item in question was the Chobani Flip Strawberry Shortcake flavoured yogurt. It consisted of strawberry-flavoured yogurt in the main section of a plastic tub, with dry toppings placed in a separate smaller compartment within the same tub.

The tub allowed consumers to peel off the single foil covering and flex the tub to combine it into the larger one. Considering the physical composition and its marketing approach, the overall impression was that the product constituted a blend of strawberry-flavoured yogurt, cookie pieces, and white chocolate chips. 

The yogurt was deemed taxable for GST as there was no doubt it was marketed for immediate consumption and not baking purposes. 

New ATO Approach

The Australian Taxation Office (ATO) has released draft GSTD 2023/D1 titled Goods and Services Tax: Supplies of Combination Food. The ATO outlined the following principles for determining the presence of a supply of combination food subject to GST:

• There must be at least one item of taxable food.
• The identifiable taxable food must be sufficiently integrated.
• The identifiable taxable food must not be so integrated that it fails to influence the essential character of the product.

The application of GST to food significantly impacts the sale price to consumers, and structuring the GST on food so it is exempt can determine if a product is viable in the marketplace. Understanding the ATO approach to food is critical for any manufacturer looking to expand or continue operations in Australia.

Ross Forrester is a director of the Australian accounting and tax firm Westcourt. He is the Asian Chair of the GGI International Tax Practice Group, and the State Chair of the Taxation Institute of Australia.