What small business owners need to know about GST and food

If you run a food business, you need to know about GST. Read on to learn what small business owners need to know about GST and food. The goods and services tax (GST) is a tax of 10% on most goods and services sold or consumed in Australia.

When your business is registered for GST you need to:

  • include GST in the price of sales to your customers, and
  • claim credits for the GST included in the price of purchases for your business.

GST and food

The ATO explains that: Not all food sales involve GST. If you sell food in your business, you need to know which items to charge GST on. Generally, you need to include GST in the price of goods and services you sell or provide. These are called ‘taxable sales’.

There are some goods and services which are ‘GST-free’, meaning you don’t have to charge your customer GST and you don’t have to pay this GST to the ATO. Most basic food is GST-free.

Examples of ‘GST-free’ foods are:

  • bread and bread rolls without icing or filling
  • cooking ingredients such as flour, sugar and cake mixes
  • fats and oils for cooking
  • milk, cream, cheese and eggs
  • spices and sauces
  • fruit juice containing at least 90% by volume of juice
  • bottled drinking water
  • tea and coffee (unless it’s ready to drink)
  • baby food and infant formula
  • meats for people to eat (except prepared meals or snacks)
  • fruit, vegetables, fish and soup
  • spreads, such as honey, jam and peanut butter
  • breakfast cereals
  • rice, cooked or uncooked (but not hot)

NOTEEven though your item may be in the GST-free food list, it may still be taxable under some circumstances. For example, bread rolls are GST-free unless you sell them in a restaurant where your customers will eat them at the restaurant.

Examples of ‘taxable foods’ are:

  • bakery products such as cakes, pastries and pies
  • biscuits, cones and wafers
  • savoury snacks such as potato chips
  • chocolates and lollies
  • ice cream
  • soft drinks and flavoured milk such as chocolate milk
  • food platters
  • food marketed as prepared meals such as sushi, curry and rice dishes
  • any food not for people to eat, such as food for pets
  • all food and drinks sold in restaurants or for consumption on the premises – see ‘Where food is sold and consumed affects GST’ for more information.

There are some items that are not considered to be food. These items are taxable and include:

  • live animals
  • plants and seeds that grow into fruit and vegetables.

If you’re unsure whether your food is taxable or GST-free you can always consult your tax adviser or check with the ATO at www.ato.gov.au/foodindustry (then select ‘Basic topics’, ‘Publications’ and ‘Detailed food list’ – this list provides the GST status of more than 500 food items).

GST and the food supply chain

GST is applied at certain stages in the food supply chain. If you are a GST-registered business, you can claim ‘GST credits’ for any GST you pay in the price of food items you purchase for your business.

NOTE: You cannot claim GST credits for food supplied as an ‘entertainment expense’ if you cannot claim an income tax deduction for it.

EXAMPLE: When is GST applied in the food supply chain?

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 vegetable wholesaler sells the lettuce GST-free to a supermarket.

At the supermarket, people buy the lettuce GST-free.

Where food is sold and consumed affects GST

All food and drinks sold in a restaurant or to be eaten or drunk at the place they are sold are taxable even if they are a GST-free item.

This means, you must charge your customers GST and pay that GST to the ATO if food and drinks are sold at:

  • a restaurant or cafe
  • a snack bar or stand
  • any venue associated with leisure, sport or entertainment such as
    • a sports ground
    • a golf course
    • a gym
    • a racecourse
    • a theatre
    • a museum
    • a gallery
    • a cinema
    • an amusement park.

NOTE: In some cases charitable institutions, charitable funds, gift deductible entities and government schools (for example, a tuckshop) that sell food for fundraising or something similar do not charge GST. Go to www.ato.gov.au/nonprofit or check with the ATO on 13 28 66 if you’re unsure.

Examples

Anh’s bakery

Anh sells bread and plain bread rolls at her bakery. These are without icing or fillings. She sells the bread to her customers with the intent that they will eat it elsewhere.

She doesn’t need to charge her customers GST.

Iman’s restaurant

Iman sells plain bread rolls at his restaurant. These are served in the restaurant and intended to be eaten at the restaurant.

Iman charges GST to his customers and he pays this GST to the ATO.

Ali’s coffee van

Ali runs a mobile coffee business. He drives his van to various places where there is a festival or an event. He sells hot drinks such as coffee and hot chocolate. He also sells bottled water. The hot drinks are taxable as these are considered ‘ready to drink’. The bottled water is also taxable as it is sold to customers with the intention that they will drink it at the event.

Ali charges GST to his customers and he pays this GST to the ATO.

Haruka’s juice bar

Haruka runs a juice bar at a food court. She sells 100% fruit juice, smoothies and bottled water, all of which are taxable as they are intended to be drunk at the food court.

Haruka charges GST to her customers and pays this GST to the ATO.

For more information about GST, food and your tax obligations, visit www.ato.gov.au or speak to your tax advisor.

Do you want to invest in new equipment, furniture or technology for your business? A small business loan could help.

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