GST & Food Misclassification
As we plunge into the festive season and brace for fun, food and festivities, spare a thought for those trying to report GST on supplies of food.
At a high level, GST classifications of food and beverages (sections 38-2 to 38-6 of the GST Act) seem straightforward:
- Food (is normally GST-free, but Taxable by exception);
- Beverages (are normally Taxable, but GST-free by exception).
However, the reality is that classifying food for GST purposes is not so straightforward. Not all food sales need to include GST and not all things we normally consider as “food” are treated as GST free food by the GST Act.
Where food is sold and consumed affects its GST status. Food sales are not GST-free where it is served in, or falls into one of the following categories: restaurants, catered or eat-in food served at any venue associated with leisure, sport or entertainment such as a sports ground – a golf course – a gym – a racecourse.
GST is also applied at certain stages in the food supply chain.
For example, a plant nursery sells lettuce seeds to a farmer. The seeds are taxable as they are plants under cultivation, and people cannot eat them yet. The plant nursery charges GST to the farmer and pays that to the ATO. The farmer can claim a GST credit for the GST that they paid in the purchase price of the seeds. The farmer grows the lettuce and sells it to a vegetable wholesaler, without charging GST. The lettuce is GST-free as it is now a food for human consumption.
The GST classification of food supplies is a prominent compliance risk which has been the subject of long-standing discussions between the ATO and Industry. The ATO has published a Detailed Food List – which details of the GST status of major food and beverage product lines and has recently established a GST Food Misclassification Cluster to design a treatment strategy to provide certainty for impacted taxpayers.
The ATO has indicated that its early stage analysis shows a concerning level of non-compliance across the food industry and this is an area that will be the subject of further compliance activity by the ATO.
If you would like to discuss the above matters further, please contact Mimi Ngo.
 Rebecca Saint – ATO Deputy Commissioner, December 2021 The Tax Institute, National GST Conference.