You run a restaurant. You sell meals. You sell takeaway food. You sell drinks. You also have customers who eat at your premises. Then comes the question: “Do I charge GST on all of these sales?”
It sounds simple. But restaurant and takeaway GST can get confusing. Some food may be GST-free when sold in one way. The same food can become taxable when it is prepared and sold in another way. So, if you run a restaurant, cafe, food truck or takeaway business, it is important to get the GST treatment right.
Let’s break it down.
Do Restaurants Charge GST?
Generally, yes. Food and beverages sold by restaurants for consumption on the premises are generally taxable supplies. This means a GST-registered restaurant generally charges 10% GST on these sales.
For example, you sell a meal for: $22 including GST.
The GST component is: $22 ÷ 11 = $2.
So: Food price before GST: $20.
GST: $2.
Customer pays: $22.
It is important to remember that the GST is included in the price if you advertise the meal at $22 as a GST-inclusive price.
What About Takeaway Food?
Takeaway food can also be taxable. But you cannot simply use one rule for every takeaway item. The GST treatment depends on the type of food and how it is supplied. For example, hot takeaway food is generally taxable.
So if you sell a hot meal for: $11.
The GST included is: $11 ÷ 11 = $1.
The customer pays: $11.
And the GST component is $1.
Hot Food Is Generally Taxable
This is one of the easiest rules to remember. Food that is sold hot for consumption can generally be taxable. Imagine you run a takeaway shop.
You sell: Hot chips: $11. The price includes: GST: $1. You don’t treat the sale as GST-free just because potatoes are normally GST-free food. The finished product and the way it is supplied matter.
So: Potatoes purchased for food preparation: May be GST-free. Hot chips sold to a customer: Generally taxable. This is why you need to look at the final sale.
What About Food Eaten at the Restaurant?
If your customer sits down and eats the food at your restaurant, the supply is generally taxable.
For example, a customer orders: Lunch: $33 including GST.
The GST component is: $33 ÷ 11 = $3.
So: Meal before GST: $30.
GST: $3.
Total: $33
The fact that the meal contains basic food ingredients does not make the restaurant sale GST-free. The way the food is supplied matters.
What About Cold Takeaway Food?
This is where things can become more complicated. Not all cold takeaway food is automatically taxable. Some food can still be GST-free if it falls within the GST-free food rules.
For example, certain basic food items may be GST-free when sold as takeaway. But other items may be taxable because they fall into specific taxable food categories. So don’t use: “Takeaway = GST.” And don’t use: “Cold food = GST-free.” Neither rule works for everything.
What About Sandwiches?
Sandwiches are a good example. A sandwich can have different GST treatment depending on the circumstances. If you are selling a prepared sandwich as part of your food business, you need to consider the specific GST rules.
For example, a cafe may sell: Fresh ingredients: GST-free in some cases. Prepared sandwich: May be taxable depending on the circumstances. The fact that the ingredients are GST-free does not automatically determine the GST treatment of the finished product.
What About Salads?
Salads can also require some thought. A basic packaged salad may have different GST treatment from a prepared salad sold as part of a restaurant or takeaway meal.
Again, look at the actual supply.
Ask: What exactly am I selling?
How is it prepared?
How is it supplied?
Where is it consumed?
These details can affect the GST treatment.
What About Drinks?
Drinks have their own GST rules. Some beverages are GST-free. Others are taxable.
For example, certain types of plain water can be GST-free. But soft drinks and many other beverages are generally taxable. So if you run a cafe, don’t assume: “Drinks are GST-free.” They aren’t. Check the particular beverage.
What About Coffee?
This is one of the most common questions for cafes.
You sell a coffee for: $5.50.
If the coffee is a taxable supply, the GST included is: $5.50 ÷ 11 = $0.50.
So: Price before GST: $5.
GST: $0.50.
Customer pays: $5.50.
This is generally the case for coffee prepared and sold by a cafe or restaurant.
What About Cakes and Desserts?
Cakes, desserts and similar products can be taxable. This is important for bakeries, cafes and restaurants. For example, you sell a cake for: $11 including GST. The GST component is: $1.
You cannot simply treat it as GST-free because it is food. Certain cakes, biscuits, confectionery and similar products are specifically excluded from the GST-free food treatment. So check the actual product.
What About Ice Cream?
Ice cream and similar products are generally taxable.
For example: Ice cream: $5.50 including GST.
GST: $5.50 ÷ 11 = $0.50.
So the price before GST is: $5.
And the GST is: $0.50.
This is another example where food being “food” does not automatically make it GST-free.
What About Meal Deals?
Meal deals can make things even more interesting. Imagine you sell: Burger + chips + soft drink = $20. You cannot always assume the entire $20 has the same GST treatment without considering what is included in the deal.
The GST treatment can depend on the individual products and how the package is supplied. So if you regularly sell meal deals, make sure your point-of-sale system handles them correctly.
What About Delivery?
You sell a meal through a delivery service. The customer orders: Meal: $22. The food may still be taxable. The fact that someone else delivers the food does not automatically make the food GST-free.
You also need to consider the GST treatment of any separate delivery or service charges. This is an area where keeping your invoices and accounting records clear is important.
Restaurant Food vs Grocery Food
This is one of the easiest ways to understand the issue. Imagine you buy ingredients from a supermarket. Some of those ingredients may be GST-free. You then use them to prepare a meal in your restaurant. You sell the finished meal to a customer.
The restaurant sale may be taxable.So:
Ingredient: May be GST-free.
Prepared restaurant meal: Generally taxable.
This is why you cannot determine the GST treatment of your restaurant sale simply by looking at the ingredients.
What About Takeaway From a Supermarket?
A supermarket can sell both GST-free and taxable food. For example:
Fresh vegetables: Generally GST-free.
Plain bread: Generally GST-free.
Chocolate: Generally taxable.
Soft drink: Generally taxable.
Hot prepared meal: Generally taxable.
So even within the same supermarket, different food items can have different GST treatment.
A Common Mistake
One of the most common mistakes is: “All food is GST-free.” It isn’t. Another common mistake is: “Everything sold by a restaurant has GST.” You still need to look at the actual supply and the relevant GST rules. The important thing is not to guess.
Another Common Mistake: Wrong POS Settings
Imagine your restaurant sells 1,000 transactions every week. Your point-of-sale system has every food item marked as GST-free. But some of those items should actually have GST. That small setup error can become a large BAS problem. So when you add a new menu item, check its GST treatment. Don’t just copy the GST code from another product.
What About GST Credits on Restaurant Purchases?
GST works both ways. If your restaurant is registered for GST, you may be able to claim GST credits on eligible business purchases.
For example, you purchase commercial kitchen equipment for: $11,000 including GST.
The GST component is: $1,000.
If the purchase is eligible, you may be able to claim the $1,000 GST credit.
The same applies to other eligible business purchases. But you need the right records. Keep your tax invoices. Keep your receipts. Record the GST correctly.
A Simple Restaurant Example
Imagine your cafe has the following sales:
Restaurant meals: $22,000 including GST.
Coffee: $5,500 including GST.
Fresh packaged food: $5,000 GST-free.
Your taxable sales include GST.
The GST included in: $22,000 = $2,000. $5,500 = $500.
So the total GST collected is: $2,500.
The GST-free sales have: $0 GST.
This is why your accounting system needs to separate taxable and GST-free sales.
A Simple Checklist
Before deciding how to treat a restaurant or takeaway sale, ask:
1. What exactly am I selling?
2. Is the food prepared for immediate consumption?
3. Is the food sold hot?
4. Is it eaten on the premises?
5. Is it takeaway?
6. Is the product a beverage?
7. Is it a cake, biscuit, snack or confectionery item?
8. Is it a prepared meal?
9. Is the sale part of a meal deal?
10. Is the correct GST code being used in my POS system?
These questions can help you avoid common GST mistakes.
The Bottom Line
GST on restaurant and takeaway food can be confusing. But the basic idea is simple. Restaurant food is generally taxable. Hot takeaway food is generally taxable. But not every takeaway item is automatically taxable. Some food can still be GST-free.
Drinks, desserts, snacks and prepared foods can also have different GST treatment. So don’t simply use: “Restaurant = GST.” or “Food = GST-free.”
Look at the actual product. Look at how it is prepared. Look at how it is supplied. And make sure your POS and accounting system use the correct GST treatment. Because when you are serving hundreds of customers every week, a small GST mistake on one meal can become a very big number by the time BAS time arrives.