Hot food taken away is taxable and cold unprepared food is often GST-free, so the same plain bread roll carries GST when a customer eats it at your table and none when they carry it out, a swing of 1 in 11 of the price.
Skai Solutions wrote this from section 38-3 of the GST Act rather than from the usual summaries, because the statute is shorter and clearer than anything written about it. Below: the four tests that decide whether a food sale is taxable, a cafe by cafe item table, the beverage thresholds that catch people, and what it costs when a dine in sale is coded GST-free. This is not tax advice.
Food is GST-free by default and then four exceptions pull most of a hospitality menu back into tax. The exceptions are in section 38-3 of the A New Tax System (Goods and Services Tax) Act 1999. Read from the statute, a supply is not GST-free if it is a supply of "food for consumption on the premises from which it is supplied", or of "hot food for consumption away from those premises", or of food of a kind listed in Schedule 1, or of a beverage that is not of a kind listed in Schedule 2.
Those first two paragraphs are the whole hospitality problem in 20 words. The first makes location decisive. The second makes temperature decisive. Nothing about the food itself has to change for the tax treatment to change.
| Test from s 38-3(1) | What it means at your counter |
|---|---|
| (a) consumed on the premises it is supplied from | Taxable, whatever the item is |
| (b) hot food taken away | Taxable, even though it left the building |
| (c) food of a kind in Schedule 1 | Taxable wherever it is eaten |
| (d) a beverage not of a kind in Schedule 2 | Taxable |
So the order of questions at the till is: is it hot, is it being eaten here, and is it on the list. Any one yes means GST applies.
The ATO's own small business guidance works through the common lines, and the examples it uses are recognisably cafe examples. The table below follows that guidance, which was last updated on its page in August 2019, so treat it as the settled long standing position rather than as this month's news.
| Item | Treatment | Why |
|---|---|---|
| Plain bread and bread rolls, no sweet coating or filling, taken away | GST-free | Not in Schedule 1 |
| The same bread roll, eaten at your table | Taxable | s 38-3(1)(a), on the premises |
| Cakes, pastries and pies | Taxable | Schedule 1 bakery products |
| Any hot food sold to take away | Taxable | s 38-3(1)(b) |
| Hot soup | Taxable | Excluded from the GST-free soup category |
| Coffee beans and tea leaves | GST-free | Not ready to drink |
| A flat white or a hot chocolate | Taxable | Ready to drink |
| Soft drinks and flavoured milk | Taxable | Not of a kind in Schedule 2 |
| Bottled water sold to drink on site or at an event | Taxable | Consumed where supplied |
The pattern worth memorising is the second row. Nothing about that bread roll changed. The customer sat down. That single fact moved one eleventh of its price from your pocket to the Australian Taxation Office, which is why a dine in button that staff treat as a service preference rather than a tax decision is a real exposure. The ATO's guidance and its worked examples are on its GST and food for small business page.
Beverages are where the thresholds are sharpest, because Schedule 2 works by listing what escapes rather than what is caught.
Fruit and vegetable juice is GST-free only where it contains at least 90% by volume of juice of fruit or vegetables. At 90% it is GST-free. At 89% it is taxable. That is a formulation decision made by a supplier you did not choose, printed on a label nobody at your venue reads, and it changes the tax on every unit you sell. If you stock juice, the percentage on the bottle is a tax document.
Two more that catch people out. Tea and coffee are GST-free unless they are ready to drink, so the retail bag of beans you sell by the register is GST-free and the cup you make from the same beans is not. And bottled water is in the GST-free list in general but becomes taxable when it is sold to be drunk on the premises or at an event, which is the s 38-3(1)(a) test reappearing in a different costume.
If you are repricing a menu and want to see where the tax actually sits in a cup, our page on the cost to make a cup of coffee breaks the inputs down, and how to put prices up covers the mechanics of passing a change through.
You under remit. GST on a taxable sale is one eleventh of the GST inclusive price, so the arithmetic is simple and it compounds quietly. Here is Skai Solutions' own worked example from the rule above, using our own assumed volumes rather than a measurement, so put your own numbers in.
| Line | Amount |
|---|---|
| Plain rolls and bread sold, eaten in, per week | A$600 |
| GST that should have been remitted, one eleventh | A$54.55 |
| Over 52 weeks | A$2,836.36 |
| Over four years | A$11,345.45 |
That is one product line in one venue. The reason it is worth a few minutes of a POS administrator's time rather than an accountant's is that the fix is a configuration, not a judgement: the same item needs two tax codes and the dine in or takeaway choice has to drive which one fires. Most hospitality POS systems can do this. Many are set up by someone who treated the choice as a kitchen instruction. Our POS integration pages cover what each system does and does not carry between its order types.
Phone orders deserve one line of their own, because they are the order type where nobody asks the question. A customer who rings and collects is a takeaway sale, and whether it is taxable then turns on whether the food was hot. If the person taking the order is also carrying plates, that distinction does not get made reliably.
Three changes, in order of effort.
And the limit on all of the above: this page is a reading of the statute and the ATO's published guidance, not tax advice. It does not look at your registration, your turnover, your accounting method or anything specific to your venue, and the Schedule 1 and Schedule 2 lists are long and contain items this page has not reproduced. Confirm your own menu's coding with your accountant or registered tax agent before you change anything in the POS. Related reading on the money side of a venue: merchant fees and food cost percentage.
Is there GST on takeaway food in Australia?
Hot food taken away is taxable under section 38-3(1)(b) of the GST Act. Cold unprepared food taken away is often GST-free, unless it is a kind of food listed in Schedule 1, such as cakes, pastries and pies.
Why is the same bread roll taxable in the dining room?
Because section 38-3(1)(a) makes food for consumption on the premises it is supplied from taxable, whatever the item is. The item does not change; the place it is eaten does.
Is coffee GST-free?
Coffee beans and tea leaves are GST-free because they are not ready to drink. A made coffee or hot chocolate is taxable because it is ready to drink.
Is bottled water GST-free?
Bottled drinking water is in the GST-free list in general, but it becomes taxable when it is sold to be consumed on the premises or at an event.
What percentage of juice has to be real juice to be GST-free?
At least 90% by volume of juice of fruit or vegetables, under the Schedule 2 list. At 90% the drink is GST-free; below it the drink is taxable.
How much GST is in a taxable sale?
One eleventh of the GST inclusive price. On A$600 of sales that should have been taxed, the GST is A$54.55.