A cafe owner in Burwood asked me the question that defines this whole area: why does the same bread roll attract GST when someone eats it at a table, but not when they carry it out the door? The hard part of running a food business was never the takings. It is that a few hundred small transactions a day are a mix of taxable and GST-free items, and if the split is wrong the quarterly BAS is out by thousands. From 1 July 2026 there is a second problem stacked on top: super has to go out every payday rather than every quarter, which changes the rhythm of your cash entirely. Here is where the GST lines actually fall, what to do when your register cannot tell the difference, how much to set aside for BAS, and what the ATO compares your numbers against.
1. The GST line on food: how it is sold comes before what it is
The ATO does not sort food by category alone. The first test is the setting. Anything consumed on your premises is taxable — bottled water and fresh fruit included. Hot takeaway food and hot drinks are taxable too. The ATO’s own example makes the point better than any rule: a bread roll is GST-free, unless it is eaten in a restaurant.
Only after that does the product itself matter. Staples are GST-free; processed items and things eaten as snacks generally are not. The table below covers what a small shop actually handles day to day. Set your POS product file against it and most of the errors disappear.
| What you sell | GST status |
|---|---|
| Anything eaten or drunk on your premises | Taxable, whatever the item is |
| Hot takeaway food and drinks (brewed coffee, hot pies, fried chicken) | Taxable |
| Bread and plain bread rolls (no sweet filling or icing) | GST-free, takeaway |
| Cakes, pastries, pies, sausage rolls, iced buns | Taxable |
| Biscuits, crispbread, crackers, wafers | Taxable |
| Confectionery, chocolate, chewing gum | Taxable |
| Crisps, flavoured/roasted/salted nuts, muesli and energy bars | Taxable |
| Ice cream, gelato, flavoured ice blocks | Taxable |
| Fresh and frozen meat, fruit, vegetables, canned produce, soup | GST-free |
| Plain milk, cream, cheese, eggs | GST-free |
| Flavoured milk, soft drink, flavoured water, sports drinks | Taxable |
| Non-carbonated juice with at least 90% fruit or vegetable content | GST-free (below 90% is taxable) |
| Plain non-carbonated natural water | GST-free |
| Tea leaves, coffee beans, ground coffee (unbrewed) | GST-free (ready-to-drink is taxable) |
| Flour, sugar, cooking oil, spices, sauces, jam and peanut butter | GST-free |
| Platters — cold cuts, cheese, fruit — arranged ready to eat | Taxable |
| Infant formula for 0–12 months (stages 1 and 2) | GST-free (12 months+ formula is taxable) |
| Pet food, vitamins and supplement tablets | Taxable |
A few of the lines are easy to remember backwards. Juice turns on content, and 90% is the cut-off — the bottle at 89% is taxable. Infant formula turns on the age marking: stages 1 and 2 are GST-free, the tin labelled for 12 months and over is not. Icing on a bun counts as a sweet coating and makes it taxable, while a plain glaze does not. The ATO has also said that how a product is marketed affects its classification — packaging, labelling, naming and shelf placement all count. The same nut sold loose and sold in a bag branded as a snack can land differently.
When you are unsure about a specific product, do not guess. The ATO publishes a GST food and beverage search tool and a detailed food list that goes down to brand level. Two minutes of checking beats a year of misreporting.
2. When the register cannot tell: simplified accounting methods
Bakeries, grocers and milk bars often run an older register with two buttons, taxable and free, and a staff member deciding on the spot. The ATO treats that setup as inadequate. An adequate point-of-sale system identifies and records each sale as GST-free or taxable automatically, and can total your GST-free sales and your overall sales separately for a period. Electronic scanning systems, touchscreen registers and product-programmed registers qualify.
If your equipment falls short and you genuinely sell both, you can apply to use a simplified accounting method (SAM), which estimates the GST-free share using ATO figures. There are five: business norms, stock purchases, snapshot, sales percentage and purchases snapshot. Which ones are open to you depends on whether you are a reseller or a converter. A greengrocer selling GST-free stock as it comes in is a reseller; a shop buying GST-free ingredients and turning them into hot food is a converter. Do both and you are treated as a converter.
The threshold is turnover of $2 million or less — SAM turnover for business norms, stock purchases and snapshot; GST turnover for the other two. Three of the methods also require the taxable and GST-free sales to happen at the same premises. Once you qualify and choose a method you can use it for the first 12 months regardless; after that you test again for each tax period.
Treat SAM as a bridge rather than a destination. A register that classifies by product costs a few thousand dollars now, and usually pays for itself inside two years in reconciliation time and avoided errors — and your figures hold up if the ATO ever asks.
3. BAS cash flow: the GST you collect was never your turnover
One of the more common ways a small food business dies is spending the GST it collected on behalf of the ATO. Put numbers on it. A cafe with $195,000 in GST-inclusive sales for the quarter divides by 11 and reports $17,727 at 1A. Its purchases and expenses that carried GST came to $60,500, so 1B claims $5,500. Net payable is roughly $12,227, due 28 October.
Hospitality is at a structural disadvantage here. Fresh meat, produce, flour and milk are GST-free going in, so there is no credit to claim on the bulk of your stock. What you can claim sits in packaged coffee, cleaning supplies, rent and power. At the same turnover, a cafe usually nets out owing a higher proportion than a hardware store or a clothing shop. Setting aside 3% to 5% of quarterly turnover is a safer planning assumption than expecting purchases to offset most of it.
On timing, businesses with GST turnover under $20 million report quarterly by default, due 28 October, 28 February, 28 April and 28 July. Lodging online usually adds a fortnight, though quarter two is the exception — 28 February already includes an extra month. Lodging through a registered tax or BAS agent can extend the dates further.
High-volume, thin-margin shops turning over a thousand dollars a day in cash can elect to report monthly, due on the 21st of the following month. One payment of $12,000 becomes three of $4,000, which is easier to schedule and far less likely to land on a bad month.
On method, businesses with aggregated turnover under $10 million can choose between cash and accruals. For over-the-counter trade the two barely differ, because payment and sale happen together. The gap opens when you invoice business customers on account — catering for an office nearby, wholesaling to another shop. On accruals you owe the GST in the period you issue the invoice, before the money arrives. On cash you remit as you are paid, and your bank balance matches your BAS liability.
Businesses with GST turnover under $10 million also use Simpler BAS, reporting only G1 total sales, 1A GST on sales and 1B GST on purchases, with no GST calculation worksheet. The form is shorter; the underlying classification still has to be right, because those three numbers come straight out of your POS categories.
4. From July 2026: super moves to payday, and cash flow changes shape
If you employ anyone, this is the change with the most immediate effect. Before 1 July 2026, super guarantee is paid quarterly, due 28 October, 28 January, 28 April and 28 July. From 1 July 2026, it is paid every time you run payroll, and the contribution must reach the employee’s super fund within 7 business days of payday, carrying enough information for the fund to allocate it to the right member account. Exceptions apply for new employees and some other cases.
The rate stays at 12%, but the base becomes the new “qualifying earnings”, which brings in commissions, salary-sacrificed contributions and other amounts beyond ordinary time earnings. The Small Business Superannuation Clearing House that many shops relied on has closed, so you will need payroll software or a commercial clearing house on the SuperStream channel.
In cash terms: a cafe with eight casuals and a weekly wage bill of $6,000 has about $720 of super leaving the account within 7 business days, every week. That money used to sit in the business for up to three months. The two-month buffer that carried quiet periods is simply gone.
Late payment bites. Miss the deadline and it becomes a super guarantee charge, now assessed by the ATO directly — employers no longer lodge their own super guarantee statement, so if the system sees it, it is seen. The charge is calculated on qualifying earnings, interest runs at the general interest charge rate compounding daily, and an administrative uplift is added, which can be reduced if you make a voluntary disclosure before the ATO takes action. Unlike the old regime, the new charge is tax deductible — but daily compounding interest still hurts. Paying super on payday itself is the simplest way to never think about it.
5. Records, invoices, and what the ATO checks you against
Most tax records must be kept for 5 years, running from when you prepared the record or completed the transaction, whichever is later. Records for depreciating assets and CGT assets are kept until 5 years after you dispose of the asset.
You need a tax invoice to claim a GST credit, except for purchases of $82.50 or less including GST, where keeping the receipt is still sensible practice. GST credits can be claimed for 4 years, so something missed can be recovered — but not indefinitely.
Cash sales go in the books, all of them. The ATO publishes small business benchmarks, currently to the 2023–24 year, and compares ratios such as cost of sales to turnover against businesses of your industry and size. If a cafe buys enough stock to support a certain level of trade but reports well below it, the system flags it. That matching runs automatically; nobody has to report you.
One newer cost is worth noting: ATO general interest charge and shortfall interest charge incurred after 1 July 2025 is no longer deductible. GIC compounds daily, and where it once offset partly as an expense, it is now a straight cost. Letting a BAS run late is more expensive than it used to be.
What to do next
You do not have to fix everything at once. Three things carry most of the benefit. Reset your POS product file against the table above, paying particular attention to bread, drinks, and the dine-in versus takeaway split. The day you finish a BAS calculation, move the 1A amount into a separate account so it never mixes with working capital. And pay super on payday rather than waiting. Do those three and your BAS and your cash flow stop producing surprises.
If you sell both GST-free and taxable food and you are not confident your register is set up correctly, or you want to see what switching to monthly reporting or changing your accounting method would do to your cash position, call TXAS in Melbourne on (03) 8827 0025.
Frequently asked questions
At what turnover must my shop register for GST?
You must register once your GST turnover — your gross business income excluding GST — reaches $75,000 or more, and from the start if a new business expects to reach it in the first year. Once you hit the threshold you have 21 days to register. Register late and GST may be payable on sales from the date you should have registered, even though you never charged it to customers, with penalties and interest on top.
Do I charge GST on bread and milk?
It depends on how the customer consumes it. Takeaway bread and plain bread rolls without sweet filling or icing, plain milk, fresh meat and produce, and non-carbonated juice of at least 90% fruit or vegetable content are GST-free. But anything eaten or drunk on your premises is taxable — in the ATO’s words, a bread roll is GST-free unless it is eaten in a restaurant. Hot takeaway food and drinks are taxable too, which is why a brewed coffee attracts GST and a bag of beans does not.
My register cannot separate GST-free from taxable sales. How do I complete my BAS?
You can apply to use one of the five simplified accounting methods for food retailers — business norms, stock purchases, snapshot, sales percentage or purchases snapshot — which estimate the GST-free proportion using ATO figures. The threshold is turnover of $2 million or less, and three of the methods require the taxable and GST-free sales to occur at the same premises. Treat it as an interim measure: a POS that classifies by product is less work over a year and stands up better under review.
Is my BAS quarterly or monthly, and when is it due?
Under $20 million GST turnover, quarterly is the default, due 28 October, 28 February, 28 April and 28 July. Lodging online generally adds two weeks, except for the quarter due 28 February. At $20 million or more, monthly reporting is compulsory, due on the 21st of the following month. Smaller businesses can elect monthly voluntarily, which splits one large payment into three smaller ones and makes cash flow easier to manage.
What changes for employee super from July 2026?
From 1 July 2026 super guarantee is paid on every payday rather than quarterly, and contributions must reach the employee’s fund within 7 business days of payday, with exceptions for new employees and some other cases. The rate remains 12%, but the base becomes qualifying earnings, which includes commissions and salary-sacrificed contributions. The Small Business Superannuation Clearing House has closed, so you will need payroll software or a commercial clearing house. Late payment triggers a super guarantee charge now assessed by the ATO directly, calculated on qualifying earnings with interest compounding daily at the GIC rate plus an administrative uplift. Unlike the previous regime this charge is tax deductible, but delaying is still expensive.
Talk to a Melbourne accountant
TX Accountants And Services (TXAS) works with Melbourne hospitality and retail operators on GST, BAS and payroll. Call (03) 8827 0025, email om@txas.com.au, or visit us at 303-313 Burwood Highway, Burwood East VIC 3151. This article is general information only. It does not take your circumstances into account and is not tax, financial or legal advice.
