Common GST categories
Basic food
Basic food is the group of unprepared, everyday food and drink items that are GST-free in Australia, such as bread, milk, fruit, vegetables and meat, as opposed to snacks, takeaway and restaurant meals.
Basic food is a catch-all name for the grocery items that are GST-free under the GST law. The GST-free list is based on the idea that essential, unprepared food should not carry GST. It includes items such as bread, milk, eggs, fruit and vegetables, meat, fish, cooking ingredients, tea, coffee, and many cereal, rice and pasta products. Plain flour and sugar also fall in this category.
Many foods look similar but are taxed differently, which is where the confusion starts. Takeaway food, restaurant meals, hot food such as a hot roast chicken, confectionery, savoury snacks like chips, ice cream, soft drinks and alcoholic drinks are generally taxable. Biscuits and cakes can also be taxable depending on how they are described and packaged. The law lists the categories specifically, so you check whether the product fits the GST-free list.
For a retailer, getting this right is important because the GST status drives your pricing, your point of sale tax codes and your BAS figures. A supermarket will sell GST-free and taxable items in the same transaction, so the register needs correct tax codes for each product. If an item is coded wrongly, you either overpay GST or fail to collect it, and either could create problems at BAS time.
Cafes, bakeries and food manufacturers need extra care because the same business may sell both GST-free and taxable products. A bakery selling a loaf of bread to take home makes a GST-free supply, while a hot meat pie, a cake sold for consumption on the premises and a coffee served in a cafe setting will generally be taxable. A single transaction can contain items from both categories.
A common misunderstanding is that all food is GST-free. Another is that a food product's name determines its GST status. It does not. The classification is based on what the product is and how it is sold, so a product marketed as a snack or a prepared meal can be taxable even though its ingredients are all basic foods. A product can change classification when it is prepared or heated.
Where a product is unclear, check the ATO's food guidance or ask for a private ruling before you set up your product list. Keep a record of how you decided, particularly for items near the boundary. This page is general information only, so confirm the treatment of specific products with the ATO or a registered tax professional.
Worked example
A corner store sells a $4.50 loaf of bread (GST-free), a $3.30 bag of chips including GST, and a $2.20 soft drink including GST. GST is charged only on the taxable items. GST on the chips is $3.30 / 11 = $0.30 and on the soft drink is $2.20 / 11 = $0.20, so the GST in the transaction is $0.50 on total sales of $10.00.
Practical tips
- Set up separate tax codes in your register for GST-free and taxable products, and review them whenever you add a new line.
- Do not rely on the product name. Check whether the item is prepared, hot, a snack or confectionery before treating it as GST-free.
- When a supplier changes a recipe or packaging, recheck the GST status, because the same product line can move between categories.