Offer ready-made meals at your business? Don't pay too much tax!

Understanding your GST obligations when sellingready-made mealscan save your business a significant amountof moneyand dramatically improve your margins.

Operating a food business has never been tougher and with marginsalreadybeingextremely tight,it is vital that food business owners understand their GST obligationsand avoidmakinganyunnecessary payments.

The reality is that many food businesses areunnecessarilypassing on GST to the Australian Taxation Office (ATO) and are simply not aware of it. The impact of gettingit right will mean asignificant improvementin future profit margins and the possibility of a retrospective claim forincorrectpast payments.

This is most relevant for businessesproviding customers with atake-home orready-made meal offering, where the meals are not consumed on premise or as ready-to-eat take-away, instead they are provided cold and for later consumption.

It is important to note thatmeals sold for in-store consumption attract GST, however a different set of rulescanapply for the same items when sold cold and for ‘at home’ consumption.

Thetypes of food businessesthatarewell positioned to benefit from a better understanding of theirGSTrequirementsincludesfood stores, providores, restaurants, delis and caterers who are providing ready-made meals.Combined this group make up a large portion of the hospitality industry, meaning the size of potential overpayments is significant and in today’s tough environment it becomes criticalthat you understand how the rules apply to your business.

COVID-19 saw an influx of food businessespivot toofferingmealsin the form of‘ready-made meals’ asan ‘at Home’ option. Many have continuedto provide these mealsdue to their popularitydriven by changing consumer behaviours where people areincreasinglylooking for meal solutions other thantake-away andfast food. With a movement towards ‘at home’ meal solutions that can be ordered in advance, it’s a lucrative opportunity for these food businesses.

Cookaborough an easy-to-useplatform thatmakes it easy to start, run and grow a ready-made meal business, has witnessedmany food businesses who are using its software, being unaware of thesituation and as such paying thousands of dollars of unnecessary GST.In response to the situation Cookaborough has built functionality into its software that assists food businessesto ensure they are not incorrectly paying GST and to navigate the complexities of this process including the accounting treatment.

The impact ofmaking business owners aware of what’s required has resulted in theirprofit marginsincreasingly significantly.Co-founder of Cookaborough Lyndon Galvin commented:

We have been genuinely surprised by the lack of awareness to this issue with not just food operators but also their accountants. We think this will impact thousands of food businesses across Australia and result in a radical improvement to their business models.’

‘It is a complex areaof taxation that requires a deep understanding of the specific tax ruling relating to GST on food, however at a high level when food is served cold, not consumed on the premises and not deemed a ‘prepared meal’ for ATO purposes, then it can be classified as GST free. Examples of this includes a majority of sauces and curries when not served with rice; pastas; salads; soups.’

Cookaborough’s propriety softwareis designed to make it easyfor food businesses to create and grow a ready-made meal business and is excited to also be in a position to help food businessesnavigate these GST issues.

The ATO’s guidelines around the treatment of GST on food can be foundhere. This article does not constitute taxation advice and it is important you seek the advice of your accountant when reviewing this issue.

For more information contact Lyndon vialyndon@cookaborough.com or Nick vianick@cookaborough.com