The Australian Government has proposed changes to goods and services tax (GST) legislation. The new legislation affects both Australian and international retailers – particularly if you sell your products online, or if they’re digital in nature. The two key changes small business owners need to be aware of, especially at EOFY, are the low-value import tax, and the digital goods and services tax.
GST on low-value imported goods
Currently, low-value goods – that is, physical goods with a value of $1,000 or less – are not subject to any duty or GST when imported directly by Australian customers. For example, that $300 camera you bought on eBay was (for tax purposes) low value, so you weren’t required to pay 10% GST on top of your purchase.
Under the new legislation, offshore suppliers, electronic distribution platforms, and goods forwarders will be asked to collect the tax. This means international retailers that sell to Australians, and sell $75,000 worth or more in the process, will be required to register for, charge, and pay GST.
Intended to level the playing field, low-value imported goods, and those who supply them, will face the same GST requirements as goods that are sourced domestically – something Aussie retailers, like Harvey Norman, have long lobbied for.
The new tax, which was set to be implemented on July 1, 2017, will likely be delayed until July 1, 2018, following a recent stall in the Senate, giving local and international retailers another year to prepare for the change.
GST on digital products and services
The tax on digital products and services – or the ‘Netflix tax’ as it’s been dubbed – will apply GST to intangible digital goods and services. This includes almost anything you can download, but will likely affect tax on:
- Movie and TV streaming services, like Netflix
- Music purchases and streaming services
- Downloaded games, magazines, and ebooks
- Consultancy and professional services performed offshore, like architectural, legal, or educational services
How will it affect consumers?
Essentially, Australian consumers will pay 10% more for purchases made online from international retailers, for things like clothing and electronics. If you have an annual Netflix subscription, this will increase by 10%, or around $10.70. The tax on digital products and services will also affect how much you pay for your Spotify subscription, and that Amazon Kindle book you’ve been planning to buy. Even virtual goods like apps and online games are under new legislation.
How will it affect overseas competitors?
The legislation requires overseas vendors, like eBay, Amazon, and Apple, who meet the GST registration turnover threshold, to register for GST, collect GST, and pay GST on goods imported by, or supplied to, Australian consumers.
The GST registration threshold applies if your current or projected turnover in Australia is over $75,000. If it is, you will need to register for GST under either the new simplified GST system or the traditional system, in order to electronically report and pay GST. Under the simplified system, you:
- Won’t be able to claim input tax credits
- Aren’t entitled to an Australian Business Number (ABN)
- Will be required to pay GST to the Australian Taxation Office (ATO) on a quarterly basis
You will then need to apply GST on each taxable low-value item or digital product or service you sell, and any shipping or insurance normally connected with the purchase.
How will it affect domestic businesses?
If you’re an Australian business owner selling products online or digital products that are already subject to GST, you don’t need to do anything. How you collect and pay GST, and your obligations come tax time, won’t change.
The new rules should impact price competition with overseas vendors, who will likely face the same charges you do now under current GST legislation. Australian-based retailers who experience the most competition on cheaper goods sourced offshore, like fashion retailer The Iconic, or online bookseller Booktopia, are likely to see the greatest effect.
As with any change in your financial operations, it’s important to understand how it affects you and make sure you’re compliant. Cloud-based accounting tools, like QuickBooks Online, can help you keep track of your GST compliance.
Learn more about Small Business Accounting here.