The Australian Government has confirmed in the 2016-17 Budget that from 1 July 2017, GST will be applied to low value imports of goods by Australian consumers.
This follows an announcement made by the Government in August last year and is designed to boost the competitiveness of domestic suppliers who incur GST on sales of low value goods within Australia.
Currently, goods imported into Australia with a customs value that does not exceed $1,000 are not subject to GST. From 1 July 2017, it is proposed that GST will be applicable to goods below this threshold.
Under the proposed legislation for low value goods supplied to consumers in Australia, a ‘vendor registration model’ will apply, which requires registered vendors to collect GST at the point of sale. The new measure will require offshore vendors that have an Australian projected annual turnover of $75,000 or more to register for, collect and remit GST for supplies of low value goods.
The only difference between the supply of goods below and above $1,000 for offshore vendors will be the method of collecting the GST. Goods with a customs value above $1,000 will continue to be stopped at the border and GST charged to the importer. The importer can either be the Australian customer or the offshore vendor depending upon the terms of trade.
While reaching the same outcome in terms of the amount of GST collected, the different GST collection methods may cause confusion, for instance where individual items are valued under $1,000 but the total cost of the transaction is more than $1,000. Further clarification will be required from the ATO as part of the consultation process on the new measure.
The vendor registration model is in line with the model adopted for the proposed ‘Netflix Tax’, which will require offshore suppliers to register and account for GST on the supply of things other than goods and real property to Australian consumers. The Netflix Tax measures are also intended to apply to offshore vendors from 1 July 2017.
As such, offshore vendors will need to have their systems and processes ready to apply GST to both low value goods and digital products sold to Australian consumers by July next year. More specifically, offshore vendors will need to assess the robustness of their sales systems to ensure that they can accurately identify whether they are selling to an Australian resident consumer.
A consultation period will be held in the lead up to the commencement of the new legislation to assist with clarifying some of the more practical issues associated with the new rules. Further, the Australian Government has stated that these arrangements will be reviewed after two years to ensure they are operating as intended and take account of any international developments.
We recommend that our international clients who sell to Australian consumers start a process now to ensure that they appropriately assess their requirement to register for and charge GST, and that their systems are capable of ensuring compliance with the new legislation by 1 July 2017.