Under Australia’s current Goods and Services Tax (GST) legislation, GST is generally not imposed on cross border supplies of intangibles and services by offshore suppliers to Australian consumers. Similarly, GST is not imposed on supplies of low value imported goods (customs value of less than $1,000) to Australian consumers.
New legislation has been introduced and further legislative changes are proposed to ensure that from 1 July 2017 GST will be imposed on cross border supplies of intangibles, services, and low value imported goods to Australian consumers.
From 1 July 2017, GST will become applicable to supplies of intangibles, services, and low value imported goods by offshore suppliers to Australian consumers. These changes are primarily aimed at business-to-consumer (B2C) transactions, but have the potential to impact all transactions between offshore suppliers and Australian recipients.
Broadly, the new and proposed measures will operate as follows:
- Supplies of intangibles, services, and goods (with a GST-exclusive customs value of less than $1,000) to Australian consumers may be subject to GST, regardless of whether the supply takes place inside or outside the Australian indirect tax zone. Exceptions will apply for supplies to Australian consumers who acquire such supplies outside of the Australian indirect tax zone.
- The GST liability of the offshore supplier can be shifted to another entity who assists Australian consumers acquire goods, services, or intangibles from outside the Australian indirect tax zone in certain circumstances, including situations where operators of “electronic distribution services”, such as online market places or businesses that provide redelivery or mail forwarder services, are in the supply chain.
- Affected offshore suppliers will need to determine if they have customers who meet the definition of an “Australian consumer”. This will require offshore suppliers to take reasonable steps to identify, document, and support any position concerning the status of a customer for the purposes of the new rules.
- The new rules will not apply where offshore suppliers are engaged in business-to-business (B2B) transactions, rather than B2C transactions, because the supplies are not being made to an Australian consumers.
- A newly introduced and modified GST registration and remittance regime will be implemented for offshore suppliers to manage their Australian GST reporting and payment obligations.
The implications for offshore suppliers to Australia
The changes facing offshore suppliers in relation to Australian dealings are significant, and any such supplier should act now to consider the impact of these changes to their business.
Offshore suppliers should consider whether the new rules will require them to register for Australian GST purposes if they exceed, or will exceed, the registration threshold of A$75,000 annual sales to Australian recipients.
Offshore suppliers need to determine what additional, or new, information they will need to collect from their customers to assess whether those customers are Australian consumers.
The new rules may also result in a need by offshore suppliers to make changes to their accounting systems to account for Australian GST and to manage the new compliance and liability obligations being imposed by the Australian Taxation Office.
As well, offshore suppliers should consider the GST implications of the existing terms and conditions of legal agreements with customers, as the ability to impose or recover GST under the new rules may be limited where existing arrangements are in place or where standard documents do not take the new rules into account.
The Australian Taxation Office has also released information and guidance materials in relation to the changes, which should be considered by an offshore supplier when determining the impact of the new rules.
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