GST for Restaurants & Hospitality
Food classification is the most complex area of GST in Australia. Whether your food is taxable or GST-free depends on what it is, how it is prepared, and how it is sold. This guide covers the rules that apply to restaurants, cafés, pubs, caterers, and food-service businesses.
Overview
The default position under the GST Act is that food for human consumption is GST-free. However, Schedule 1 of the Act lists specific categories of food that are taxable — and most of what restaurants sell falls into those categories. All food sold for consumption on the premises (dine-in), all hot takeaway food, and all catering supplies attract 10% GST.
The critical distinction is between basic food (GST-free) and prepared or restaurant-type food (taxable). A raw chicken breast at a butcher is GST-free. The same chicken breast grilled and served on a plate at a restaurant is taxable. A cold sandwich sold from a bakery display cabinet is GST-free. The same sandwich heated in a press and sold hot is taxable.
Hospitality businesses that sell a mix of taxable and GST-free food — such as convenience stores, bakeries, or delicatessens — may be eligible to use one of five ATO Simplified Accounting Methods (SAMs) to estimate their GST liability instead of classifying every individual item. Eligibility requires GST turnover under $2 million.
Tips and gratuities are not subject to GST because they are voluntary payments and not consideration for a supply. However, a compulsory service charge added to a bill is part of the price and includes GST. BYO corkage charges are taxable — they are a service (providing glassware, opening wine) supplied for consideration.
Common items & GST status
The table below shows the GST treatment of common items and transactions in the restaurants & hospitality sector.
| Item | GST Status | Notes |
|---|---|---|
| Dine-in meals | Taxable | All food consumed on premises is taxable regardless of what it is |
| Hot takeaway food | Taxable | Food heated above ambient temperature and sold to take away |
| Cold takeaway sandwiches | GST-free | Cold prepared food sold to take away from a non-restaurant premises (e.g. bakery) |
| Coffee (dine-in or takeaway) | Taxable | Hot beverages are always taxable — they are heated above ambient temperature |
| Bottled water (sealed) | GST-free | Plain bottled water is GST-free as basic food; flavoured or carbonated water is taxable |
| Soft drinks & juices | Taxable | Carbonated and sweetened beverages are listed in Schedule 1 |
| Alcohol (beer, wine, spirits) | Taxable | All alcoholic beverages attract GST plus excise or WET |
| Catering supplies | Taxable | Food and beverages supplied under a catering contract are taxable |
| Cakes and pastries | Taxable | Bakery products listed in items 20-27 of Schedule 1 |
| Plain bread and bread rolls | GST-free | Basic bread without sweet filling or coating remains GST-free |
| BYO corkage charges | Taxable | A service supplied for consideration — opening, pouring, glassware |
| Tips and gratuities | GST-free | Voluntary payments are not consideration for a supply, so no GST applies |
| Compulsory service charge | Taxable | A mandatory surcharge is part of the price and includes GST |
| Uber Eats / DoorDash delivery fee | Taxable | Delivery services are taxable; the food itself is also taxable as it is prepared/hot |
| Gift vouchers (sale) | GST-free | No GST on the sale of a voucher — GST applies when the voucher is redeemed |
Common mistakes & traps
These are the most frequent GST errors the ATO sees in the restaurants & hospitality industry. Avoiding them can save your business from penalties and back-payments.
1Treating all takeaway food as GST-free
A common error is assuming that because food is taken away rather than eaten on premises, it must be GST-free. Hot takeaway food, prepared meals, and confectionery are taxable regardless of where they are consumed.
How to fix it
The test is not where the food is eaten — it is what the food is and whether it was heated. Cold basic food taken away is GST-free. Hot food, prepared meals, confectionery, and bakery products are always taxable.
2Not charging GST on compulsory surcharges
Some restaurants add a public holiday surcharge or mandatory service charge but don't include GST on these amounts. If the surcharge is compulsory, it is part of the consideration for the supply.
How to fix it
Include any compulsory surcharges in your GST calculation. A 10% Sunday surcharge on a $50 meal means the total is $55, and GST is $5.00 (1/11th of $55).
3Claiming GST credits on staff meals
Food provided to employees as entertainment (e.g. a Christmas party) is subject to FBT rules and GST credit restrictions. You can only claim GST credits on staff meals to the extent they are not entertainment.
How to fix it
Light meals provided during work hours (e.g. working lunch) are generally deductible and GST credits can be claimed. Social meals and functions are entertainment — different rules apply.
4Ignoring the Simplified Accounting Methods
Businesses selling a mix of taxable and GST-free food sometimes classify every item individually, which is time-consuming and error-prone.
How to fix it
If your GST turnover is under $2 million and you sell both taxable and GST-free food, consider the ATO's five Simplified Accounting Methods — especially the Business Norms method or the Snapshot method.
5Forgetting GST on loyalty and gift card redemptions
No GST is payable when a gift voucher or loyalty reward is sold. But when the customer redeems it against a taxable purchase, the business must account for GST on the full value of the supply.
How to fix it
Report GST when the voucher is redeemed, not when it is sold. The GST-inclusive price of the meal is the same whether the customer pays cash or uses a voucher.
Input tax credit guide
Which business purchases can you claim GST credits on? This table covers the most common purchases for restaurants & hospitality businesses.
| Purchase | Credit? | Notes |
|---|---|---|
| Kitchen equipment & appliances | Yes | Full GST credit on commercial kitchen equipment used for the business |
| Food ingredients (taxable items) | Yes | GST credits on taxable ingredients — confectionery, soft drinks, bakery supplies |
| Food ingredients (GST-free items) | No | No GST is charged on GST-free ingredients (fresh produce, meat, dairy), so no credit to claim |
| Fit-out and renovations | Yes | Full GST credit on commercial fit-out costs |
| POS system and software | Yes | GST credit on hardware and subscription fees |
| Cleaning and pest control | Yes | Commercial cleaning services are taxable supplies |
| Rent (commercial premises) | Yes | Commercial rent is a taxable supply — claim the GST credit |
| Insurance (business) | Yes | Business insurance premiums include GST |
| Staff uniforms | Yes | Compulsory uniforms and protective clothing |
| Alcohol for resale | Yes | Claim the GST credit on wine and spirits purchased for resale |
BAS tips for restaurants & hospitality
Use a Simplified Accounting Method if eligible
If your turnover is under $2 million and you sell mixed taxable/GST-free food, the Business Norms or Snapshot method can save hours of classification work each BAS period. You must notify the ATO before switching methods.
Report on a cash or accrual basis consistently
Restaurants with turnover under $10 million can choose cash or accrual accounting for GST. Cash basis means you only report GST when you receive payment — useful if customers pay on account.
Track supplier invoices carefully
You need valid tax invoices for any purchase over $82.50 (inc. GST) to claim input tax credits. Keep all supplier invoices organised by BAS period.
Separate taxable and GST-free sales in your POS
Configure your point-of-sale system to categorise items by GST status. This makes BAS preparation dramatically faster and reduces classification errors.
Frequently asked questions
ATO sources & references
All information in this guide is based on the following ATO publications and rulings.