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How does GST affect takeaway food outlets?

Monday, October 24, 2005
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You may have heard that sales of food are exempt from GST. However, this exemption does not extend to most food items sold by a takeaway food outlet. Before looking at how GST will apply to the various types of takeaway foods, there are several decisions you have to make and several matters you must be aware of:

  • Do you have to register for GST and, if you have a choice, should you register anyway?
  • What length tax periods should you use - monthly or quarterly?
  • If you have a choice, which method of accounting for GST will you use?
  • If you are eligible, which simplified accounting method for calculating GST will you use?
  • How important is it that you get tax invoices from suppliers?
  • Do you know how to use the simplified method to claim the special credit for sales tax paid on stock?
  • How are salaries and wages treated?
  • Which takeaway foods attract GST?

Deciding to register for GST

You can only charge GST and claim GST credits if you are registered with the Tax Office. You can only register if you are conducting a business. Your annual turnover from the takeaway business is crucial in determining whether you have to register or whether you can choose to do so. You must register if your annual turnover is $50,000 or more. If your annual turnover is less than this, registration is optional.

Calculating your annual turnover

Annual turnover is annual gross sales income. If this figure exceeds $50,000 you must register. The calculation of annual turnover does not include the GST component of sales. Also excluded are the value of sales that normally wouldn't give rise to GST in any event. This means that you exclude:

  • supplies that are input taxed, eg financial services;
  • gifts, unless they are made to associates;
  • projected sales of assets; and
  • supplies that aren't made in connection with the business.

There are two measures of annual turnover:

  • current annual turnover; and
  • projected annual turnover.
Current annual turnover is measured over the 12-month period ending at the end of the current month, ie the preceding 12 months.

Projected annual turnover is measured over the 12-month period starting at the beginning of the current month, ie the following 12 months.

TIP
Your current and projected annual turnovers may change every month so it is important that you monitor them closely. This way you will know if an obligation to register arises, or is likely to arise as a result of projected growth.

Regular monitoring of turnover probably makes sense from a general business point of view in any event



TIP
Jonno owns a beach-side milkbar. As at November 2001, after a period of cold and windy weather, Jonno's current annual turnover (ie the turnover for the period from 1 December 2000 to 30 November 2001) is $40,000.

Because the weather is expected to improve and more people will be going to the beach over summer, Jonno's projected annual turnover (ie the turnover for the period from 1 November 2001 to 31 October 2002) is $80,000.

Even though Jonno's current annual turnover is below the $50,000 registration threshold, it is compulsory for him to register because his projected annual turnover is above the threshold.

Deciding whether to register

If it is not compulsory for you to register, you should take into consideration the following matters when deciding whether to register.

Only registered businesses can charge GST on sales. This may make you think that if you don't register you may be able to charge lower prices than competing takeaway food outlets that are registered. However, this is not necessarily true because input tax credits for the GST paid on the things purchased for the business can only be claimed by registered businesses. A business that is not registered will pay GST on the things it purchases for use in the business but will not get any input tax credits. This may mean that you have to increase your prices so that you earn enough revenue to cover this additional business cost.

GST registration procedure

Step 1 - Fill in the application form

You apply for registration on the "Application to Register for the New Tax System" form.

CHECKLIST

To complete the application you will need:

  • your tax file number
  • your bank account details - BSB number, account number and account name
  • tax file numbers and details of any principals associated with the business (such as partners or directors)
  • your company ACN or ARBN (if applicable)
  • Step 2 - Lodge the application

    Applications can be lodged in three ways:

    • by mailing your completed application to:
      The Registrar
      Australian Business Registry
      Australian Taxation Office
      Reply Paid 3000
      Albury NSW 2640

    • by completing an application on the Internet at www.business.gov.au; or

    • by completing an application with your tax agent.
    Step 3 – Check your registration details

    Upon registration you will receive written advice from the Tax Office regarding:

    • your registration number (which will be your Australian Business Number or ABN);
    • the date that your registration comes into effect; and
    • the registration details that have been entered in the Australian Business Register.

    You should check these details to ensure they are correct. Written confirmation of your ABN will be provided within 28 days of lodging your application.

    Choosing your tax period

    The amount of GST you have to pay is worked out at the end of each tax period. Tax periods may be monthly or quarterly depending on annual turnover.

    If your annual turnover is $20 million or more, it is compulsory to use monthly tax periods. Monthly tax periods end on the last day of each calendar month. It is unlikely that many takeaway food outlets will have such a high turnover.

    If your annual turnover is less than $20 million, you can choose whether to use monthly or quarterly tax periods. Quarterly tax periods end on:

    • 31 March;
    • 30 June;
    • 30 September; and
    • 31 December.

    You are required to lodge your BAS and pay any GST liability on or before the 28th day of the month following the end of the tax period.

    TIP
    In deciding between monthly and quarterly tax periods, you should consider the cashflow implications. For example, if you use monthly tax periods you will be able to claim any input tax credits and any refunds of GST sooner than if you use quarterly tax periods.

    Choosing your method of accounting

    Calculation of the amount of GST to pay and the input tax credits that can be claimed depends on the method of accounting you use. There are two methods of accounting that you can use:

    1. the cash method; and
    2. the accruals method.

    You can use either basis of accounting if your annual turnover is less than $1 million. If your turnover is above the $1 million threshold, it will be compulsory for you to use the accruals method of accounting unless:

    • you account on a cash basis for income tax purposes;
    • you are a charity; or
    • you can convice the Tax Office that it is appropriate for you to use the cash method.

    Most takeaway food outlets will have a choice between the two methods.

    Cash basis of accounting

    If you use the cash basis, the GST you have to pay and GST credits you can claim for each tax period is calculated on the basis of amounts you actually receive and pay out.

    Accruals method of accounting

    Under the accruals basis of accounting, you work out the GST you have to pay and GST credits you can claim for each tax period on the basis of your entitlement to be paid and your obligation to pay.

    Under this method of accounting, receipt of an invoice in a tax period means that you can claim an input tax credit for the relevant expense even if that client has not paid the invoice in that tax period (provided the invoice is a tax invoice).

    TIP
    Businesses that sell takeaway food, such as milkbars, cake shops, sandwich shops, fish and chip shops and takeaway outlets, will receive payment from their customers at the time of the sale. This means that the accruals method will really only have an impact in relation to when input tax credits can be claimed.

    Choosing a simplified accounting method

    Businesses that sell takeaway food, such as milkbars, delicatessens, cake shops, sandwich shops, fish and chip shops and takeaway outlets, are high-volume, low-value item businesses that may find it difficult to identify the GST status of each sale.

    To assist in reducing the administrative burden of this task, the Tax Office has issued special determinations that permit you to use simplified accounting methods (SAMs) to account for stock purchases and sales.

    TIP
    You can use a SAM regardless of whether you use the cash or accruals method of accounting.

    Use of a SAM will allow you to estimate your total GST-free sales at the end of each tax period, rather than having to record each GST-free product when it is sold.

    There are three different SAMs for eligible retailers:

    1. the business norms method;
    2. the snapshot method; and
    3. the stock purchases method.

    The method you choose will depend on what is most appropriate for your business.

    Business norms method

    Under this SAM, you choose to use standard percentages to calculate the amount of GST-free and taxable sales and purchases. The Tax Office has issued the following business norms:

    Type of retailer

    GST-free sales

    GST-free purchases

    Fresh fish retailers35%98%
    Cake shops2%95%
    Hot bread shops50%75%
    Convenience stores that prepare takeaway food but do NOT sell fuel or alcohol22.5%30%
    Convenience stores that do NOT prepare takeaway food and do NOT sell fuel or alcohol30%30%

    Snapshot method

    If you choose this method you take a "snapshot" of purchases and sales to estimate GST-free purchases and sales for the period.

    The snapshot should be "taken" twice a year between 1 June and 31 July and between 1 December and 31 January. The snapshot for sales must be for a two-week continuous period. The snapshot for purchases must be for a four-week continuous period.

    From the records made each day during these periods, you calculate the percentage of total sales and stock purchases that are GST-free and use these percentages to calculate the GST-free amounts for each tax period.

    Stock purchase method

    To use the stock purchase method, you take a snapshot of purchases to estimate the percentage of GST-free purchases and sales. The basis of the stock purchase method is that if you only resell, the percentage of your GST-free sales will be about the same as your percentage of GST-free purchases.

    This method can only be used by food retailers who resell products unchanged, eg a fruit shop could use this SAM because it buys fruit and vegetables and sells them unchanged. Takeaway businesses such as sandwich shops cannot use this SAM because they do not sell products unchanged.

    CHECKLIST

    To use a SAM you must:

  • be registered
  • be a retailer;
  • sell both taxable and GST-free food at the same premises or location;
  • have an annual turnover of less than $2 million for the 2001/02 financial year, except for the business norms method – to use this method you must have a turnover of less than $1 million; and
  • not have adequate point-of-sale equipment to identify and record the mix of taxable and GST-free sales.
  • Tax invoices and input tax credits

    A tax invoice is a special type of invoice which contains specified items of information needed for the effective operation of the GST system.

    You must be sure to get a tax invoice for all business purchases so that you can claim input tax credits (see below). The invoice must be a valid tax invoice. If it is not, input tax credits cannot be claimed and you will not be able to recover any GST that has been included in the price. To be a valid tax invoice, it should contain the information listed below.

    Tax invoices

    Tax invoices have slightly different requirements depending on whether the sale is for less than $1,000 or for $1,000 or more. The main differences are that invoices for more than $1,000 must also include:

    • the name and address of the recipient; and
    • the quantity or volume of the item(s) being supplied.
    Checklist – tax invoice for less than $1,000
    CHECKLIST

    A valid tax invoice where the sale is for less than $1,000 must contain:

  • the words "tax invoice" stated prominently;
  • the date of issue of the tax invoice;
  • the Australian Business Number (ABN) of the supplier;
  • the GST inclusive price of the taxable supply;
  • the name, or trading name, of the supplier;
  • a brief description of each thing supplied;
  • where the GST is simply 1/11th of the price, the invoice must show either:
    • the words "The total price includes GST for the supply"; or
    • the GST exclusive value and the amount of the GST; and
  • where the sale is a mixed sale (ie part of the sale is taxable and part of the sale is GST-free or input taxed), the invoice must identify each taxable sale and show:
    • the GST exclusive amount of the sale;
    • the amount of GST payable; and
    • the total amount payable.
  • CHECKLIST

    A valid tax invoice where the sale is for more than $1,000 must contain:

  • the words "tax invoice" stated prominently;
  • the date of issue of the tax invoice;
  • the ABN of the supplier;
  • the GST inclusive price of the taxable supply;
  • the name, or trading name, of the supplier;
  • a brief description of each thing supplied and the name of the recipient;
  • the address or the ABN of the recipient;
  • the quantity or volume of the thing supplied;
  • where the GST is simply 1/11th of the price, the invoice must show either:
    • the words "The total price includes GST for the supply"; or
    • the GST exclusive value and the amount of the GST; and
  • where the sale is a mixed sale (ie part of the sale is taxable and part of the sale is GST-free or input taxed), the invoice must identify each taxable sale and show:
    • the GST exclusive amount of the sale;
    • the amount of GST payable; and
    • the total amount payable.
  • Sales less than $50

    A tax invoice does not have to be issued if the price (excluding GST) you paid for something is less than $50.

    TIP
    So that low value acquisitions can be substantiated and input tax credits can be claimed, you should keep a record of the following matters:

    • what was purchased;
    • where it was purchased;
    • the date of purchase; and
    • the sale price (including GST).

    Input tax credits

    You can only claim an input tax credit if:

    • you are registered;
    • the expense was incurred for something used in the business, whether it was used wholly in the business or only part of the time (if only used partly in the business the credit will be reduced by the proportion of non-business use); and
    • you have received a tax invoice from the supplier (except for purchases of less than $50).

    The following are some of the expenses a takeaway food business may incur that will give rise to an input tax credit:

    • cleaning expenses;
    • repairs and maintenance;
    • electricity used in the business;
    • capital items such as refrigeration equipment and display cases; and
    • accounting and legal fees.

    Is GST payable on salaries and wages?

    GST does not apply to services provided by an employee to his or her employer. Therefore wages and salaries paid to employees and superannuation contributions paid on behalf of employees are not subject to GST. The rule that GST is not payable on salaries applies to full-time, part time and casual employees.

    However, GST does apply to services provided by a registered independent contractor.

    EXAMPLE
    Mick works on Thursday and Saturday nights delivering pizzas for Bruno's Gourmet Pizza. He is paid casual rates of pay. Bruno does not add any GST to the amount he pays Mick each week.

    Tony is a consultant business manager who is registered for GST. Bruno is going on a holiday to Italy for 2 months and hires Tony to manage the pizza business while he is away. As Tony is registered and is a contractor, not an employee, Bruno will include GST in the amounts he pays him for managing the business.

    Which takeaway foods attract GST?

    GST must be included in the price when a takeaway food outlet makes a sale of the following types of food:

    • any food that is supplied for consumption on the premises
    • hot takeaway food
    • prepared meals
    • bakery products
    • confectionery
    • snack foods
    • ice-creams
    • biscuits
    • flavoured milks
    • soft drinks

    Some food packaging also attracts GST.

    Food supplied for consumption on the premises

    GST must be included in the price of any food that is eaten on the premises of a takeaway food outlet.

    CAUTION
    GST-free food loses its GST-free status if it is sold for consumption on the premises.

    Leisure, sport and entertainment venues

    The premises of a food outlet in a leisure, sport or entertainment venue that is enclosed or that has defined boundaries include the whole of that venue. Such venues include:

    • football grounds
    • golf courses
    • cinemas
    • gyms
    • galleries
    • swimming pools
    EXAMPLE
    Jack, who grows apples and sells them to a wholesaler, has come to Sydney to watch a football game. He has brought some apples with him to sell to patrons at the ground as a snack. As the apples will be eaten in the football stadium, which is an enclosed venue, their sale will attract GST. If Jack sold them to a wholesaler, the apples would be GST-free.

    Shopping centres

    The premises of a caf&eactue; within a shopping centre are only the café itself and do not extend to the rest of the shopping centre.

    School canteens and tuckshops

    A school canteen or tuckshop is the premises, not the school. This means that food sold and eaten in the school grounds is not eaten on the premises of the tuckshop – any GST-free food will maintain its GST-free status. If the tuckshop provides tables, any food eaten at the tables will lose its GST-free status.

    Takeaway food

    GST applies to all sales of hot takeaway foods that are intended to be consumed away from the premises where they are sold, such as:

    • soup
    • tea
    • coffee
    • hot chips
    • hamburgers
    • hot chicken
    • pies
    • sausage rolls
    • pizzas

    To be hot takeaway food, it must be intended to be consumed hot. If food is not intended to be consumed hot, it will not be taxed as hot takeaway simply because it happens to be hot at the time of purchase. For example, bread remains GST-free even though it may be purchased still warm from the oven.

    Hot takeaway food also includes complete meals that are already heated and ready for immediate consumption (eg meat, vegetable and rice dishes supplied in containers by a restaurant or takeaway outlet – Chinese and Thai takeaway meals would fall into this category).

    Cold takeaway food

    Sales of cold takeaway food do not attract GST, ie there is no need for you to add an amount for GST to the price of cold takeaway food.

    For example, a sale of fresh fish that is taken home and cooked does not attract GST but a sale of cooked fish and chips does.

    However, if an item of cold takeaway food falls within one of the other categories of taxable food (eg confectionery, sandwiches or prepared meals, bakery products, or soft drinks), GST should be charged.

    Combination hot and cold takeaway food

    If an item of food is a combination of hot and cold but is sold as a single item, it is treated as hot takeaway food and GST should be charged. Takeaway foods that would fall into this category include:

    • kebabs
    • enchiladas
    • hamburgers
    • schnitzel sandwiches

    Prepared meals

    GST applies to food that is marketed as a "prepared meal". To be taxable as a prepared meal the item must, in its unopened state, require refrigeration or freezing for storage. For example, a tin of baked beans is not taxable as a prepared meal because it does not require refrigeration until after it has been opened.

    Foods that are sold as prepared meals are subject to GST whether they are sold hot, cold or frozen, and irrespective of whether they require any cooking, heating, thawing or chilling before consumption.

    Taxable prepared meals include:

    • curry and rice dishes
    • mornays and similar dishes sold cold by a takeaway or supermarket that only need reheating to be ready for consumption
    • fresh or frozen prepared lasagne
    • sushi
    • cooked pasta dishes sold complete with sauce
    • single serve dinners
    What is not a prepared meal?

    Prepared meals do not include:

    • soup
    • frozen vegetables
    • uncooked pasta products
    • fish fingers
    • canned baby food, baked beans, spaghetti or Irish stews
    Other prepared food

    GST also applies to certain other types of "prepared food". These include:

    • quiches
    • sandwiches
    • pizza, pizza subs, pizza pockets and similar food
    • platter of cheese, cold cuts, fruit or vegetables and other arrangements of food
    • hamburgers, chicken burgers and similar food
    • hot dogs

    These items are taxed no matter whether they are sold hot, cold or frozen, and irrespective of whether they require any cooking, heating, thawing or chilling before consumption.

    Bakery products

    Cakes and other bakery products sold by a takeaway food business will attract GST. It does not matter whether they are sold hot, cold or frozen. Bakery products include:

    • cakes, slices and muffins
    • pies and sausage rolls
    • tarts
    • doughnuts
    • breads with a sweet filling

    Bread that does not have a sweet filling or coating is not a bakery product and is GST-free.

    Confectionery, snacks, ice-cream and biscuits

    Takeaway food outlets usually sell ice-creams, chocolate bars and snackfoods. GST will apply to sales of these items.

    Confectionery includes:

    • chocolate
    • boiled sweets
    • lollipops
    • sherbet
    • marshmallow and fruit lollies
    • popcorn
    • confectionery novelties
    • muesli bars
    • health food bars
    • crystallised fruit, glace fruit and drained fruit
    • crystallised ginger
    • preserved ginger
    • edible cake decorations
    Savoury snacks include:

    • potato crisps, sticks or straws
    • corn crisps or chips
    • bacon or pork crackling
    • prawn chips
    • salted, spiced, smoked or roasted nuts or seeds (but unshelled or raw nuts are GST-free)
    • caviar or similar fish roe
    • vegetable chips
    • dried beef snack food
    Ice-cream includes such items as:

    • ice-cream cakes and substitutes
    • frozen confectionery
    • frozen yoghurt
    • frozen fruit products (but frozen whole fruit is GST-free)
    • flavoured iceblocks and similar items
    Biscuits include such foods as:

    • cookies
    • crackers
    • pretzels
    • cones
    • wafers

    These are taxable whether they are supplied hot or cold, and whether or not they require cooking, heating, thawing or chilling prior to consumption.

    Drinks

    Most drinks are GST-free unless they are supplied for consumption on the premises or as a hot takeaway item. The following drinks are taxable in any circumstances:

    • flavoured milk
    • alcohol
    • soft drinks
    • packaged iced coffee and tea
    • cordials that are less than 90% fruit juice
    • non-carbonated fruit and vegetable juices if the juice is less than 90% by volume of juice
    • carbonated fruit and vegetable juices if the juice is not 100% by volume of juice
    • non-carbonated water that has additives

    Food packaging

    The Tax Office stated that food packaging that is a "normal and necessary" part of the supply of food is GST-free. To be "normal and necessary", the packaging must contain, protect and promote the food. For example, a straw that comes with a juice packaged in a tetra pack would be GST-free.

    The following types of takeaway food packaging is normal and necessary and would be GST-free:

    • paper wrapping for a sandwich or a burger
    • a box to put a burger or chips in
    • plastic containers for hot takeaway food
    • paper bags to carry away food
    • cardboard cups to contain hot chips, milkshakes etc

    Straws and spoons that are supplied separately to food and that are provided free to customers also do not attract GST.

    Food packaging subject to GST

    Food packaging will attract GST when it is not a normal and necessary part of the supply of food, such as promotional packaging.

    However, even food packaging that is not normal and necessary will be GST-free if it satisfies a de minimus rule, that is, it is not charged for separately and costs the lesser of $3 or 20% of the wholesale value of the total supply.

    EXAMPLE
    1. If a breakfast cereal is supplied in a plastic container, rather than in the usual cardboard box (provided the plastic container is not charged for separately and costs the lesser of $3 or 20% of the wholesale value of the total supply), the supply of the container will be GST-free.

    2. If a coffee mug is sold with a jar of coffee, the coffee mug attracts GST (the coffee mug is additional to the coffee and its packaging).

    In the second example, the supply is a mixed supply, ie the supply of the coffee mug is taxable whereas the supply of the coffee and jar is GST-free. The total price must be apportioned between the GST-free and taxable components to calculate the amount of GST.e

    Other Resources

    The following resources from the Australian Tax Office may be of further assistance. Please note that the contents of this article are current at the time of writing, but that the latest and most up-to-date GST information can always be located on the ATO website, www.ato.gov.au.

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    23/11/2014 11:49Sydney, Australia. 23 November,2014
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