From 1 July 2017, Australia’s goods and services tax (GST) laws will be significantly overhauled. The amendments to the A New Tax System (Goods and Services Tax) Act 1999 (the GST Act) will result in the removal of the exemption from the requirement to pay goods and service tax (GST) for imports of goods which have a value of less than AUD $1,000 (the GST Threshold). The amendments to the GST Act were made to take effect from 1 July 2017. However, an amendment made by the Senate overnight has changed the start date to 1 July 2018. That amendment must also be passed by the House of Representatives, but indications are that it will be accepted.
The Australian Government's intention in amending the A New Tax System (Goods and Services Tax) Act 1999 (the GST Act) is to "ensure that goods and services tax (GST) is payable on certain supplies of low value goods that are purchased by consumers and are imported into Australia".
For further information about the background to these GST amendments, please see our Direct Selling Newsletter – December 2015
What are the changes?
Removal of the GST Threshold
Under the current Australian GST laws, Australian consumers can purchase goods under a GST Threshold value of AUD $1,000 from overseas suppliers without being subject to paying GST and; conversely, overseas retailers are generally able to sell and supply their goods to Australian residents without imposing a GST charge, where the value of the goods is less than the GST Threshold.
The primary aim of the amendments to the GST Act is to effectively remove the GST Threshold and impose GST on the sale of all imported goods, including those valued at $1000 or less at the time of sale (namely, low value goods) to ensure that these imported low value goods are treated in the same manner as goods sourced from Australian suppliers.
Overseas-based retailers, including offshore direct selling companies selling directly to Australian-based consumers, will be required to register for GST, comply with GST reporting requirements and remit GST to the Australian Taxation Office (ATO) if they meet the registration turnover threshold.
Suppliers will meet the registration turnover threshold if they:
- record AUD$75,000 or more from sales to Australian consumers over a 12 month period (ie current GST turnover); or
- are projected to record AUD$75,000 over the next 12 months (ie projected GST turnover).
GST turnover is the gross sales revenue of a business excluding, for example, sales not connected with Australia and sales not connected to an enterprise that is run by the business.
When will GST registration be required?
Supplies of low value goods to Australian recipients by offshore suppliers will only be taxable if the supply is to an “Australian consumer” and the $75,000 threshold is exceeded (or is likely to be exceeded) in a year. Whether the value is likely to be exceeded will be influenced by historical sales. An Australian consumer is an Australian resident that is not registered for GST. As stated above, where such supplies are made, the offshore supplier will be required to register for GST and comply with the GST reporting requirements.
When will GST registration not be required?
An offshore supplier which supplies low value goods to Australian consumers (or other supplies which are subject to GST) where the gross sales revenue in respect of these supplies is less than the AUD$75,000 threshold per year, will not be required to register for GST.
An offshore supplier will also not be liable for GST on supplies to Australian consumers if:
- it takes reasonable steps to obtain information as to whether the recipient is an Australian consumer; and
- after taking those steps, it reasonably believes the recipient is not an Australian consumer.
A draft Australian Taxation Office (ATO) ruling2 (Draft Ruling) on this issue states that reasonable belief can be formed that a recipient is not an Australian consumer when:
- the recipient does not satisfy the residency element; or
- the recipient does not satisfy the consumer element.
If an offshore supplier believes that a recipient is not an Australian consumer because the recipient holds an Australian Business Number (ABN), this belief will only be reasonable if the recipient’s ABN has been disclosed to the supplier and the recipient has provided a declaration or other information which indicates they are registered for GST.3
If offshore direct selling companies:
- are solely selling products to their Australian-based distributors for resale; and
- their distributors hold ABNs,
then the companies should not be required to register for GST and comply with GST reporting requirements. However, as stated above, if the company is also making sales directly to Australian-based consumers, they will need to consider whether they are a “GST entity” and required to register for GST.
What does this mean for e-commerce and online businesses engaged in direct selling?
The amendments to the GST Act will primarily impact overseas companies which conduct their businesses online, including but not limited to, direct selling organisations and any retailers with an e-commerce website through which overseas sales are made to Australian consumers.
Where do we go from here?
Offshore suppliers of low value goods to Australian consumers should consider promptly whether registration for GST is required and, if so, whether they wish to, for example:
- register for GST; or
- continue to make supplies to Australian consumers without registering for GST (and risk enforcement action); or
- discontinue supplies to Australian consumers.
The ATO is developing “simplified” registration and administration procedures for foreign suppliers who would not have had to register for GST in Australia, but for these amendments. The ATO has announced that it will use a phased approach for registration in the simplified GST system:
- Phase 1 commencing 26 June 2017
Foreign suppliers will be able to register for simplified GST by accessing an online platform called “the simplified GST system” via a portal on the ATO’s website.4 Once registered, foreign suppliers will be issued with an ATO Reference Number (ARN), which is used to identify foreign suppliers in the ATO’s systems and can be used as an identifier on invoices. Although registration cannot take place before 26 June, offshore providers may apply for an ARN to assist with registration on or after 26 June.
- Phase 2 commencing 30 September 2017
From 1 October 2017, foreign suppliers will be able to lodge and pay GST using the platform.
However, the amendments passed by the Senate also require that the Productivity Commission review the new provisions and report by 31 October. Consequently, the “phased” approach proposed by the ATO will also change. We will continue to monitor developments.
At this stage it is not clear how the ATO will enforce compliance with the new laws. The ATO has indicated that it will be “monitoring” and working with international agencies, as well as auditing taxpayers and prosecuting, where appropriate. However, we are unsure as to how enforcement will occur in practice.