The proposed changes
Currently, goods imported into Australia by a consumer with a customs value that does not exceed $1,000 are generally not subject to GST. The proposed amendments, which would come into effect from 1 July 2017, make supplies of goods valued at $1,000 or less subject to GST if the goods are purchased by consumers and are brought into Australia with the assistance of the supplier. GST registered businesses that import low value goods for the purposes of their business will not be impacted by the proposed changes.
The policy intent behind the proposed changes is to boost the competitiveness of GST registered domestic suppliers who must remit GST on all sales of taxable goods made within Australia irrespective of their value.
Once enacted, the new rules will effectively create a two tiered system for the collection of GST on imports depending upon the value of the imported goods, as follows:
- For goods with a customs value of $1,000 or less – generally the supplier will have a liability to remit GST where the annual value of its Australian supplies is $75,000 or more;
- For goods with a customs value of more than $1,000 – GST will continue to be payable at the point of importation by the importer, subject to the application of the deferred GST scheme.
The amendments also include provisions to prevent double taxation by making importations of goods non-taxable where the supply of the goods is a taxable supply as a result of the amendments and the importer notifies the ATO at the time of importation that the supply was taxable. This ensures that GST will not apply twice to low value goods that are imported into Australia.
A ‘vendor registration model’ will apply with respect to the collection of GST under the proposed legislation, which requires offshore vendors that have an Australian annual turnover of $75,000 or more to register for, collect and remit GST on the sale of low value goods to Australian consumers.
The proposed legislation also captures the following types of businesses (and requires them to remit the GST on supplies made through them):
- Goods (freight) forwarders; and
- Operators of electronic distribution platforms.
Non-resident suppliers that are required to register for GST as a result of the changes will be able to be ‘limited registration’ entities, which gives them access to simplified GST registration and reporting obligations. However the trade-off is that they will not be entitled to claim input tax credits and cannot obtain an Australian Business Number.
Practical issues to be aware of
The proposed amendments are broader than the Netflix Tax amendments introduced earlier this year, which will also come into effect from 1 July 2017 but which will only apply to supplies of intangibles made to ‘Australian consumers’ who are tax residents of Australia at the time of the supply. In contrast, the low value goods amendments will apply to any recipient importing goods into Australia in circumstances where:
- the recipient is not registered for GST; or
- if the recipient is registered for GST, they do not acquire the goods solely or partly for the purpose of an enterprise they carry on in Australia.
This will potentially capture situations where the recipient is located overseas at the time of importation but directs delivery of the goods to someone else in Australia.
As a result of the two-tiered system for collection of GST referred to above, offshore vendors will need to assess the robustness of their sales systems to ensure they can accurately identify transactions where GST will now apply. This is likely to involve introducing an additional step into the sales process to identify the GST registration status of the customer.
We expect that a significant number of offshore vendors will be caught by the amendments and will be required to register for GST from 1 July next year. The effectiveness of the collection of GST will depend largely on the awareness of the changes in the offshore marketplace as well as the ATO’s policing of the regime. The ATO is likely to focus on large market players and freight forwarders / electronic distribution platform operators that make significant sales to Australia, rather than focusing on the vast number of smaller offshore vendors. However, all offshore vendors with Australian sales that are projected to meet the $75,000 per annum registration threshold should review the amendments and consider their obligation to register for GST with effect from 1 July 2017.
From the Australian consumer’s perspective, we expect that the price of goods purchased from affected entities will increase from 1 July 2017 on account of the additional GST payable by the vendor.
The Australian Government has invited public comments on the exposure draft by 2 December 2016.