Australian consumers are now facing the prospect of Goods and Services Tax (''GST'') on low value imported goods and digital supplies. Offshore suppliers need to be aware that making offshore supplies of low value goods to Australian consumers will contribute to their Australian GST turnover.
From July 1, 2017, GST will be levied on offshore supplies of digital products and services to Australian consumers.
From July 1, 2018, imported low value goods to Australian consumers will also be subject to GST
Expansion of the GST Base in Australia
Offshore Supplies of Digital Products and Services—the ''Netflix Tax'
The amendments to catch digital products and services within the GST net were dubbed the ''netflix tax.'' There is no separate tax; only an extension to the ''connected with Australia'' rules that determine whether a supply can be subject to GST in Australia.
Before the amendments, digital products and services from offshore suppliers were not subject to GST where an Australian consumer:
- purchased the product or service directly from an offshore supplier who did not have an enterprise in Australia—''enterprise'' is a similar, but not identical, concept to a permanent establishment; and
- the product or service was then delivered digitally
The amendments to the GST legislation now capture ''inbound intangible consumer supplies'' as connected with Australia.
''Inbound intangible consumer supplies'' are defined as anything other than goods or real property where the acquirer is an Australian consumer. This covers digital products such as the streaming or downloading of movies, music, apps, games, e-books as well as services such as consultancy and professional services.
An ''Australian consumer'' is defined as an entity that is an Australian resident and is either not registered for GST or is registered but is not acquiring the supply for the purpose of carrying on their enterprise. A business acquiring a supply for business purposes will not be considered an Australian consumer.
''There are a number of anticipated implementation difficulties.''
As a result of the amendments, offshore suppliers who meet the GST annual turnover threshold are now obligated to pay GST on supplies of digital products and services to Australian consumers even if there is no ''thing'' being done in Australia and no enterprise carried on in Australia.
Supplies of digital products and services made through an ''electronic distribution platform'' (websites, internet portals, gateways, stores or marketplaces) are also captured. In this case, the operator of the platform is targeted for GST, rather than the actual individual suppliers. The policy behind this argued that the operators of the platforms often hold the information about the consumer, as opposed to the individual suppliers themselves, and are larger and better resourced entities than most of the entities making the supplies through the platform.
Offshore Supplies of Low Value Goods
GST applies to taxable importations. Most imported goods valued at AU$1,000 or less (which are commonly referred to as ''low value goods'') are not taxable importations. The original policy was that the cost of collecting GST on imports less than AU$1,000 was likely to be more than the GST collected.
However, this also created a competitive advantage for importers selling direct to Australian consumers. Australian retailers, particularly in the electronics space, lobbied to have the threshold reduced so that goods sold through retail channels could compete with goods sold direct from overseas suppliers.
The new changes extend the application of GST to situations where there is an offshore supply of low value goods purchased by an Australian consumer and imported into Australia with the assistance of the supplier. These supplies will be deemed taxable supplies. Where several supplies of low value goods are made in the one order, there will still be an offshore supply of a low value good for each individual item valued at AU$1,000 or less, even if the combined order value exceeds AU$1,000.
The definition of ''Australian consumer'' in this context is the same as defined above. Therefore, the new changes will not apply to business importations, provided the low value goods are acquired for a purpose that relates to the business.
An ''offshore supply'' is a supply where goods are brought into Australia with the assistance of the supplier, or an entity treated as being the supplier. The assistance requirement of an offshore supply has a low threshold. It covers actual delivery or merely arranging, procuring or facilitating delivery.
Entities that will be treated as a supplier include operators of electronic distribution platforms as well as ''redeliverers.'' Similar to the ''Netflix tax,'' operators of electronic distribution platforms will bear the obligation to remit GST as opposed to the individual suppliers who utilize the platforms. ''Redeliverers'' in this context refers to service providers (e.g., mail, post or package forwarders) who assist Australian consumers in the initial purchase of the low value goods from offshore suppliers, provide a mailing address and storage, and arrange for the transport and delivery of the goods into Australia. In these circumstances, the actual suppler of the low value goods has no involvement with the goods entering Australia and the ''redeliverer'' will instead be treated as the suppler and will be obligated to remit GST.
As with the ''netflix tax,'' the offshore suppliers will need to meet the GST annual turnover threshold before they are required to be registered for, and remit, GST on their supplies to Australian consumers.
Implementation Difficulties
The ''netflix tax'' provisions are already in place, effective from July 1, 2017. The low value goods amendments will commence on July 1, 2018. The Productivity Commission is due to deliver its report on the low value goods legislative reform by October 31, 2017; however, the Australian Federal Government has indicated that further changes to the legislation are unlikely to be made as a result of the report. It is therefore important that affected offshore suppliers plan ahead for the impending July 1, 2018 changes. There are a number of anticipated implementation difficulties.
Determining the Status of the Acquirer
Both amendments to the GST regime require the offshore supplier to determine whether the acquirer is an ''Australian consumer.'' This creates a burden for the offshore supplier, particularly where an entity supplies high volumes of low value goods or digital products or services over the internet. In this circumstance, the only practical way of ascertaining whether an acquirer is an Australian consumer or not is through the information gathered during the sale.
In order to be relieved of GST obligations, the offshore supplier needs to hold a ''reasonable belief'' that the acquirer is not an Australian consumer and must be able to prove that they have taken ''reasonable steps'' in drawing that conclusion. Reasonable belief will still be able to be held in situations where the sale of goods occurs through an automated process—in such a case, the entity will need to hold a reasonable belief that their systems will be able to correctly classify supplies. An acquirer's status could be determined by reference to addresses, contact numbers and statements about location.
The amendments provide protection for offshore suppliers that reasonably rely on the information provided by an acquirer during the course of a sale. Penalties apply to acquirers who misrepresent their position to offshore suppliers in order to avoid GST applying to their supply.
GST Registration
Offshore suppliers need to be aware that making offshore supplies of low value goods to Australian consumers will contribute to their Australian GST turnover. If an offshore supplier meets the GST annual turnover threshold, which is currently set at AU$75,000, they will be required to register for GST.
As part of the amendments, there is a limited GST registration available to those offshore suppliers that would otherwise not be caught by the GST provisions if it were not for the amendments. These suppliers are able to elect to be limited registration entities and gain access to simplified registration and reporting requirements. We expect ''simplified'' in this context means ''not as complicated as it otherwise could be'' rather than ''easy to comply.''
Cooper Grace Ward is a leading Australian law firm based in Brisbane.
This publication is for information only and is not legal advice. You should obtain advice that is specific to your circumstances and not rely on this publication as legal advice. If there are any issues you would like us to advise you on arising from this publication, please contact Cooper Grace Ward Lawyers.
