GST and food – ATO issues GST determination on “prepared meals”, a Decision Impact Statement for Simplot and amends the Detailed Food List

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Division 38-A of the GST Act deals with the GST treatment of food. Broadly, the supply of “food” is GST-free (s 38.2), but the supply will be taxable in certain circumstances (s 38.3), including if the food falls within one of the items in the table under clause 1 of Schedule 2. In 2023, the Federal Court had the opportunity in Simplot Australia Pty Ltd v Commissioner of Taxation [2023] FCA 1115 to consider the operation of item 4 of that table, being ‘food [of a kind] marketed as a prepared meal but not including soup’. At the conclusion of the decision, the Federal Court made the following observation on the legislative scheme:

‘[t]he legislative scheme with its arbitrary exemptions is not productive of cohesive outcomes. It has left the Court in the unsatisfactory position of having to determine whether to assign novel food products to a category drafted on the premise of unarticulated preconceptions and notions of a ‘prepared meal’. It may be doubted whether this is a satisfactory basis upon which taxation liabilities ought to be determined‘ .

In a similar vein, the Court observed (at [94]):

‘[a]n examination of the statutory context of item 4 of clause 1 of Schedule 1 does not, in my view, reveal a coherent policy that is of assistance in the present case. One might speculate that the forms of the specific carve outs from the rule that food is GST-free were the product of compromise and lobbying…in such circumstances there is a danger to attempt to construe the items by reference to some supposed legislative purpose rather than solely by reference to the text. There is, for example, no clear rationale as to why soup marketed as a prepared meal should be GST-free but other types of food not. It is not clear why food sold unrefrigerated in vacuum‑sealed or canned form is not GST-free but the same sort of food (eg Irish stew) sold in frozen form is subject to GST.‘

The ATO has sought to clarify the GST treatment of item 4 through the issue of three documents:

The ATO is to be applauded for the considerable work that has gone into try to resolve this complex issue an to give clarity to the GST treatment of a broad range of food products, many of which were not in existence at the time the GST was introduced in 2000. As observed by the Court in Simplot (at [127]), the products in issue in that case were novel or unique and did not have direct competitors at the time of their launch.

The decision in Simplot

Upon reviewing the decision, at the end of the day, the GST treatment of a particular food product under item 4 appears to be a matter of overall impression and one ‘based on common experience and common sense’ (at [104]).

The Court concluded that item 4 refers to ‘foods of a sufficient quantity, mix and seasonings as to be regarded by the ordinary person as being of a kind that are marketed as a prepared meal’ (at [125]). The Court considered the attributes of a ‘prepared meal’ to include:

  • quantity – a meal connotes a quantity of substance, even if it may be termed a small meal
  • composition – a prepared meal connotes food consisting of more than one ingredient or element. Whether a combination of foods constitutes a meal is a question of degree. A dish comprised solely of vegetables can be a meal. However a serving of a mix of vegetables (eg, peas and corn) may not be a meal
  • presentation – a prepared meal connotes a combination of foods that is complete. Matters such as seasoning, sauces and flavourings may also be relevant in determining whether goods are of a kind marketed as a prepared meal.

Applying this analysis to the products at issue, the Court concluded that as a matter of common experience, the products were taxable under item 4. The Court’s reasoning for each product included the following:

  • SteamFresh Fried Rice – is a combination of foods in the form of vegetables, rice and egg. It is flavoured and seasoned. A bowl of fried rice with vegetables, scrambled egg and flavouring, with or without added meat or seafood, is food of a kind marketed as a prepared meal. As a matter of common experience in modern Australia, this product is food of a kind that is marketed as a prepared meal.
  • SteamFresh Couscous and SteamFresh Quinoa – Each was part of a range of frozen food products that combined grains and vegetables. Both products were seasoned and flavoured. A bowl or plate of mixed grains, vegetables and seasonings sold in packages that contain 400g of the product in two separate 200g packets is a combination of foods in sufficiently substantial quantity as to constitute food of a kind that is marketed in modern Australia as a prepared meal.
  • SteamFresh Pasta – is a combination of pasta, vegetables and sauce. It is prepared by heating. Pasta packaged together with sauce is, as a matter of common experience, generally food of a kind marketed as a prepared meal. 
  • VeggieRice Risotto and VeggieRice Fried Rice – The VeggieRice Products used cauliflower as a low carbohydrate substitute for rice. That attribute aside, both products were in fact marketed as “meal bases”. Each product was a combination of ingredients and was flavoured. Whilst it was possible for consumers to choose to add protein in the form of meat or seafood to the products, such an addition was not necessary to produce a prepared meal. As a matter of common experience, both risotto and fried rice are foods of a kind that are marketed as prepared meals. The fact that these particular products used a substitute for rice does not alter their character. Both these products are a kind of food marketed as a prepared meal.

The GST Determination

In GSTD 2025/1, the ATO seeks to adopt the approach of the Court in Simplot, describing the relevant test as being ‘how the product as a whole is perceived objectively, informed by common sense and common experience, and an overall consideration of its attributes’ (paragraph 25).

In the context of what is a ‘prepared meal’, the Determination discusses the questions of quantity, composition and presentation. The observations of the ATO include the following:

Application of the ATO approach – salads as a case study

It is one thing to express the statutory enquiry in such terms, but another to apply the test to the vast range of frozen and refrigerated food products presently available to consumers (noting the item only applies to products that require refrigeration or a frozen). In this context, the difficulty facing retailers, and manufacturers, is consistency – given that treating one product as taxable whereas another (similar) product is GST-free gives rise to a 10% pricing disparity, leaving the supplier with the choice of either increasing its prices or bearing the cost of the GST. The GST Determination and the Addendum to the Detailed Food List should assist in giving retailers and manufactures more certainty into how their products are to be treated. However, the GST treatment given by the ATO to certain food products does appear to have a level of inconsistency and arbitrariness.

This is illustrated by GST treatment of ‘salads’, an issue which has become relevant in recent times. The Determination includes a detailed analysis of the GST treatment of salads (paragraphs 67-74), observing that ‘salads are a broad category of food that includes some products that are marketed as prepared meals and others that are not marketed as prepared meals’ and (paragraph 72) ‘generally, the kinds of salad products that are marketed as a prepared meal contain a variety of ingredients, a balanced proportion of ingredients and a sufficient overall quantity to constitute a meal’. The Determination sets out a table which identifies the attributes of a salad that indicate whether it is of a kind marketed as a prepared meal or not of that kind. Attributes that indicate the salad is not food of a kind marketed as a prepared meal include that the product has a high amount of one ingredient or has a limited number of different ingredients. Attributes that indicate the salad is of a kind marketed as a prepared meal include that the product contains a variety of ingredients in balanced proportions or contains a more than insignificant meat or seafood component.

On can readily understand this type of approach. This difficulty is how to adapt this approach to the Detailed Food List (a public ruling), which seeks to clarify the ATO’s view of the GST treatment of particular categories food products – rather than looking at the individual circumstances for a particular food product.

This difficulty is illustrated by the treatment of salads in the Detailed Food List. The ATO appears to have approached the question by reference to the particular ‘type’ of salad – with that description determining the GST treatment – regardless of the number, or complexity, of the components to the product. On this basis, the following salads are identified:

  • Caesar salad – taxable (containing any combination of lettuce, croutons, parmesan cheese, bacon, chicken, egg and dressing
  • Coleslaw salad – GST-free (dressed or undressed containing mainly cabbage. Does not include any product containing a meat or seafood component)
  • Greek salad – taxable (containing any combination of tomato, cucumber, onion, capsicum, olives, feta, lettuce and dressing)
  • Potato salad – GST-free (containing potatoes and dressing, may also include bacon, egg, celery, capsicum, spring onions, chives or similar garnishes)
  • Seafood salad – GST-free (containing seafood extender, prawns, celery and dressing, may also contain spring onion, parsley or similar garnishes)
  • Tabbouleh salad (GST-free) (containing chopped parsley, bulgur wheat (or similar alternatives), tomatoes, mint, onion and dressing

Adopting this list, all ‘caesar salads’ and ‘greek salads’ are taxable, regardless of the combination of foods within the salad. For example, a greek salad with tomato, onion and dressing would be taxable. In contrast, all ‘potato salads’ are GST-free, regardless of the combination of foods within the salad. For example, a potato salad also containing, egg, bacon and other garnishes will remain GST-free.

It is difficult to see why a caeser salad containing lettuce, bacon, egg and dressing is treated as taxable whereas a potato salad containing potato, bacon, egg and dressing is treated as GST-free. Both salads have attributes identified in the Determination that indicate the product is of a kind marketed as a prepared meal – being they contain a variety of ingredients in balanced proportions and contain a more than insignificant mean component.

It is similarly difficult to see why a greek salad containing tomato, onion and dressing is taxable while a tabbouleh salad containing tomatoes, onion and dressing is GST-free. Both salads have attributes identified in the Determination that indicate the product is not of a kind marketed as a prepared meal – being they have a limited number of different ingredients.

The approach in the Detailed Food Listing also raises questions about how suppliers are to approach the characterisation of their products. If a supplier sells food described as a ‘potato salad’, does that mean the supplier does not need to have regard to the Determination and can simply rely on the entry in the Detailed Food Listing to treat the supply as GST-free. Similarly, if a supplier sells food describe as a ‘greek salad’, can the supplier seek to rely on the Determination to characterise the food as GST-free in certain circumstances (eg, if it only contains a limited number of ingredients such as tomato, onion and dressing), or is the supplier bound to follow the taxable treatment as set out in the Detailed Food Listing. The method statement and compliance approach in Appendix 1 to the Determination appears to make the Detailed Food Listing the primary document if the product is listed (see step 2). It appears that it is only where the product is not listed that the supplier can apply the analysis in the Determination to characterise the product.

Transitional compliance approach

Appendix 2 of the Determination acknowledges that some of the views are not fully aligned with the ATO’s past practice and public advice and guidance. A transitional compliance approach is therefore being adopted to the following categories of food products:

  • salad products (but not those sold in a dine-in or takeaway environment such as a food court or café)
  • prepared meal products that require assembly, and
  • chicken wraps – uncooked.

If taxpayers have treated the supply of these products as GST-free in good faith, the ATO states that it will not have cause to devote compliance resources to reviewing their GST treatment under table item 4 for tax periods ending on or before 31 December 2025. However, this transitional compliance approach will not apply if the taxpayer takes action to claim input tax credits for products understood to be supplied to them GST-free, there is evidence of fraud or evasion, or the taxpayer otherwise takes inappropriate advantage of the transitional compliance approach.

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