New Australian laws extending goods and services tax (GST) to low value imports of physical goods by consumers will come into force from 1 July 2018. From this date, the Australian Taxation Office (ATO) will impose GST on the supply of goods valued at equal to or less than AUD $1,000 from outside of Australia to Australian consumers.
With concerns from small and large online marketplaces alike that the regulatory burden of the new regime may prevent them operating in Australia, Aitken Partners’ Katherine Wangmann and Erin Meeking seek to outline key provisions of the reforms and practical considerations for impacted businesses, as well as ATO guidance on compliance and enforcement penalties.
With the introduction of the Treasury Laws Amendment Act (GST Low Value goods) Act 2017 (Cth) in June 2017, GST liability is soon to be imposed on merchants who sell goods valued at AUD $1,000 or less to an Australian consumer in circumstances where the business has delivered or facilitated delivery of those goods into Australia. Business-to-business sales are excluded from the new laws.
Previously under the A New Tax System (Goods and Services Tax) Act 1999 (Cth), a GST-free threshold applied to low value goods with GST only payable on transactions valued at over AUD $1,000.
The reforms establish special deeming rules for operators of electronic distribution platforms (EDPs), or online marketplaces. Where low value goods are purchased by a consumer online and brought into Australia with the assistance of an operator of an online marketplace or the supplier, the GST liability will shift to the operator.
Businesses that forward goods to Australia from overseas companies, known as re-deliverers, take on GST liability and responsibility to register and report GST. The reforms may see re-delivers treated as the suppliers of low value goods if the goods are delivered outside of Australia as part of the supply. This will apply where a re-deliverer has assisted with delivery into Australia as part of a shopping or mailbox service that it provides under an arrangement with the consumer.
Merchants must now register for GST where they meet the annual GST turnover registration threshold of AUD $75,000. The threshold for non-profit businesses is AUD $150,000.
The new laws have been designed to prevent double taxation, and to ensure that businesses do not charge GST on a sale where GST will be charged at the border when an item is either worth over AUD $1,000, a tobacco product or alcoholic beverage. The reforms will also mean that businesses will not need to charge GST on a sale if it is clear that multiple goods will be shipped to Australia in one consignment worth over AUD $1,000, as GST will be charged at the border instead.
Existing processes to collect GST on imports above AUD $1,000 at the border will remain the same. While overseas merchants, operators of EDPs and re-deliverers may now be liable for GST on low value goods, GST will continue to be payable at the border by the importer of record on goods valued at more than AUD $1,000 imported into the country. Similarly, border clearance processes will not change under the reforms.
What are the practical implications and how can you prepare for them?
Affected businesses may include merchants who sell directly to consumers, operators of EDPs, and re-delivers who are engaged by consumers to provide shopping or mailbox services.
Businesses which meet the registration threshold of AUD $75,000 will need to register online with the ATO for GST and charge GST on sales of low value imported goods (unless they are GST-free or sales of alcoholic beverages and tobacco products) from 1 July 2018, as well as lodge returns to the ATO. Non-resident suppliers of low value goods will also be able to access the simplified online registration system.
The ATO intends the online system to minimise the administrative burden of registration by streamlining the application and reporting process. Entities who register under the simplified system will only be required to report and pay GST on a quarterly basis, regardless of GST turnover. Entities and related individuals may also be eligible for reduced identification requirements.
Businesses should consider how their current practices and systems will manage GST, such as the amount of GST payable on a supply chain. It is recommended that businesses also consider whether the terms and conditions of their website and platforms allow for collection of this data and the recovery of GST, especially those who operate online marketplaces. Affected businesses may also want to consider how they will establish a system to determine the status of their customers, notification and recover of GST, as well as a system to ensure GST is correctly captured and reported.
In the case of a taxable supply where the consideration is expressed in a foreign currency, businesses must provide a tax invoice which expresses the GST payable in Australian currency or provides sufficient information for the recipient of the tax invoice to calculate the GST payable on the supply in Australian currency. The exchange rate published by the Reserve Bank of Australia on the business day prior to the date of the tax invoice may be used to calculate the GST payable in Australian currency.
The new reforms will also see changes to the Integrated Cargo System. This may mean that freight forwarders and logistics providers will be required to collect additional information on merchant and platform operator’s GST registration details, as well as whether a consignment will be shipped to entities exempt from GST liability for low value goods to avoid double taxation at the border.
Further to the reforms, impacted businesses should consider the impact of other Australian laws, such as whether products now comply with Australia consumer law requirements on the display of pricing. It is also recommended that impacted businesses considered whether additional paid services, such as shipping, will be captured by the GST on low value goods.
In April 2018, the ATO released additional guidance on compliance and enforcement of the changes to GST on low value goods.
The ATO has proposed significant administrative penalties, which could mean substantial penalties for entities or groups with a global turnover greater than AUD $1 billion (Significant Global Entities). Several mechanisms are expected to be established to approach collection of GST and penalties from non-compliant entities, including the interception of funds from Australia destined for overseas merchants of EDPs. The ATO may also seek to register penalties as a debt in courts or through relevant taxation authorities in the overseas merchant of EDP operator’s country.
To ensure compliance, the ATO will monitor financial data and flow of funds from purchasers to overseas suppliers via pre-existing administrative systems in place to capture transaction information, in addition to customs data on entry of imports into Australia. The ATO has also stated its intention to obtain information from other jurisdictions under information sharing agreements and tax treaties, and conduct investigations to identify businesses and EDPs which supply goods to Australian customers.
However, a concessionary penalty regime for entities which make efforts to comply with the new law on GST on low value goods. Under the regime, the ATO will not seek to impose penalties on mistakes made in the first 12 months following introduction of the reforms on 1 July 2018. After 30 June 2019, non-imposition of penalties will be considered on a case-by-case basis.
Businesses that meet the AUD $75,000 registration threshold should act now to review their business systems and ensure that they comply with the new GST laws. For more information on the reforms, visit the ATO website. If you are unsure how your business will be impacted, or require assistance in complying with the new laws, contact Katherine Wangmann, Senior Associate at Aitken Partners.