On 10 February 2016, the Australian Treasurer, the Hon. Scott Morrison introduced the Tax and Superannuation Laws Amendment (2016 Measures No. 1) Bill 2016 (the Bill) into Parliament. The legislation puts forward a number of changes, but most notably in the area of cross-border GST. Treasury conducted two periods of public consultation on the draft legislation. The original draft legislation was released in May 2015 and a subsequent draft in October 2015.
The Bill amends the A New Tax System (Goods and Services Tax) Act 1999 to ensure that digital products and other imported services supplied to Australian consumers by foreign entities are subject to GST in a similar way to equivalent supplies made by Australian entities. The change of law will work as follows:
- A new taxing nexus will be introduced into the A New Tax System (Goods and Services Tax) Act 1999 to tax supplies made to a recipient who is an “Australian consumer”. This will generally bring to taxation supplies of digital products, services and other intangibles supplied from overseas to an Australian consumer.
- An “Australian consumer” will include any entity which is an Australian resident. Further, the entity must not be registered for GST (or if registered, does not acquire the thing supplied solely or partly for the purpose of an enterprise that the entity carries on). This will effectively include domestic consumers.
- The taxing net will capture the supply of an “inbound intangible consumer supply”, generally meaning anything other than goods or real property supplied to an Australian consumer from outside Australia.
- No tax invoices nor adjustment notes are required to be issued for inbound intangible consumer supplies. This will relieve overseas vendors caught within the extended GST regime from some of the administrative obligations which fall upon domestic suppliers.
- Where an inbound intangible consumer supply is made through an "electronic distribution platform", the operator of the platform instead of the supplier is taxed (with some exceptions including, where there is a written agreement between the actual supplier and the operator satisfying certain requirements to shift liability to the supplier). Further, where an inbound consumer supply is made through more than one electronic distribution platform, liability can, by written agreement, shift to a particular operator. An additional rule provides that, in the absence of any relevant agreement, liability lies with the first operator to receive or authorise the charging of any consideration or otherwise, the first operator to authorise delivery of the supply.
- An electronic distribution platform will include a website, internet portal, gateway, store or market place that allows businesses to make supplies available to end users. Further, the service must be delivered by means of electronic communication and the supplies made by means of electronic communication. However, a carriage service (within the meaning of the Telecommunications Act 1997), providing access to a payment system, processing payments or providing vouchers are not included within the reach of what is an “electronic distribution platform”.
- A supplier is treated in some situations as not being liable, that is, it is treated as making a supply to an entity that is not an Australian consumer. Liability will not apply, where a business takes reasonable steps to obtain information about whether or not an entity is an Australian consumer and after taking those steps, the business reasonably believes that the other entity is not an Australian consumer. Where usual business systems and processes provide the business with a reasonable basis for forming a reasonable belief about whether someone is an Australian consumer, this should be sufficient.
- To the extent that a supplier's belief that the recipient is not an Australian consumer is based on the other entity being registered for GST, that belief will only be reasonable if their Australian Business Number (ABN), or other identifying information relating to that entity (which is expected to be prescribed by the Commissioner at a later date), has been disclosed to the supplier; and a declaration or information that indicates that the other entity is registered for GST has been provided to the supplier by the recipient.
- A GST registration threshold of A$75,000 per annum will apply to businesses consistent with the registration threshold applying to domestic suppliers. That is, business making sales into Australia with an annual value under this threshold will not need to register for GST.
- The Minister will have the power to determine that specified classes of inbound intangible consumer supplies made by non-residents are GST free, where imposing GST would be inconsistent with Australia’s international obligations.
- The Minister will also have a similar power to determine that specified classes of inbound intangible consumer supplies made by non-residents are input taxed (i.e. exempt where similar supplies made by residents would be input taxed).
- Entities that are subject to the scheme may opt to be limited registration entities when they register for GST. A limited registration entity is not entitled to input tax credits, or to receive an ABN, and must have quarterly tax periods. However, the Commissioner is expected to significantly simplify the process of registration and reporting for these entities.
- The accompanying explanatory memorandum states that it is anticipated that approximately 100 non-resident entities will register for and remit GST, through either a simplified or full registration regime, as a result of this measure.
- If passed, the new rules will apply to supplies that are attributable to tax periods starting on of after 1 July 2017.
A second key change introduced by the Bill is the long awaited amendments as a result of the 2010 Board of Taxation Review. The changes involve cross-border transactions involving business-to-business (B2B) supplies. Unlike the changes to digital supplies referred to above, which bring into the tax base supplies that are currently not taxed, these changes will relieve non-resident suppliers of the obligation to account for GST on certain supplies. The changes are in Schedule 2 and will apply where GST would have ultimately been payable on a supply by a non-resident to an Australian business recipient. The GST obligations are shifted to Australian-based business recipients that are already registered for GST, effectively reducing compliance costs for non-resident businesses. The changes will effectively apply to a range of services supplied from offshore to onshore. These changes will come into effect during a quarterly tax period starting after the Bill as passed receives Royal Assent.