Tax Pooling - An unexpected source of working capital
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In November 2016 the Australian Government announced its intention to impose GST on supplies made by offshore suppliers of ‘low value goods’ to Australian consumers. The government has now introduced a Bill into Parliament to enact these changes. The changes are due to commence on 1 July 2017.
Currently, goods imported into Australia by a consumer with a customs value that does not exceed $1,000 are not subject to GST (or duty where applicable).
This concession was deemed to be detrimental to Australian based retailers, who are generally liable to remit GST on all sales made in Australia, irrespective of value. The changes are designed to boost the competitiveness of Australian retailers by leveling the playing field with overseas suppliers.
Broadly, the proposed amendments will impose a GST liability on overseas entities selling goods valued at A$1,000 or less to an Australian consumer (i.e. a customer that is not registered for GST or a registered customer who makes the purchase for a non-business purpose) where the supplier delivers or facilitates the delivery of the goods into Australia.
The sale of goods that are GST-free under other provisions (e.g. certain medical equipment) will not be impacted by the changes. Sales made to Australian GST registered entities (essentially B2B transactions) will also not be impacted.
The new rules effectively create a two-tiered system for the collection of GST on goods imported into Australia depending on the value of the imported goods, as follows:
A single sale of multiple low value goods will be treated as a supply of low value goods. Where a single sale includes some goods that have an individual value of A$1,000 or more and some goods that have an individual value of less than A$1,000, the supply will be disagregated and only the goods under $1,000 will be treated as low value goods.
In recognition of the various mediums through which sales of goods can now be made to Australian consumers, the legislation also captures businesses that operate as re-deliverers (which assist in purchasing goods from overseas suppliers for delivery into Australia – excluding general freight forwarders) and operators of electronic distribution platforms.
Subject to certain criteria being met, these entities will need to assess whether they are required to register for, and remit GST for sales made on behalf of other suppliers.
The legislation potentially imposes a GST liability on all three levels in the supply chain with ‘tie breaker’ rules to determine which entity will be liable for the GST.
Where the sale of the goods by the overseas supplier is subject to GST, the proposed amendments prevent the goods being taxed twice by making the importation of the goods non-taxable where the importer notifies Customs at the time of the importation that the sale was subject to GST.
The existing GST registration threshold of A$75,000 will apply to overseas suppliers of low value goods. Therefore, overseas suppliers of low value goods will need to assess whether the annualised value of their supplies into Australia is likely to exceed A$75,000. If a supplier’s turnover is below the GST registration threshold, they will not be required to register. If their turnover is above the threshold they will be required to register for GST purposes and remit GST to the ATO on their sales.
Overseas suppliers that are impacted by the changes have the option of registering as ‘limited registration’ entities, which gives them access to simplified GST registration and reporting obligations that will save on compliance costs. However, entities registered in this way will not be entitled to claim input tax credits for GST incurred on purchases and will not be able to obtain an Australian Business Number.
Overseas suppliers would not be expected to incur significant costs in Australia, so the denial of input tax credits should not be a material factor, but the level of likely costs should be reviewed to ensure this assumption is correct.
The changes are due to commence on 1 July 2017, which also coincides with the commencement of the so-called ‘Netflix rules’. Those rules impose GST on inbound intangible supplies to Australian consumers. Accordingly, overseas businesses that make supplies to Australian consumers will need to prepare for these changes to the GST law, especially where the business is involved in both the supply of goods and other products to Australian consumers.
We recommend that businesses affected by the changes consider the following:
The Bill is currently before the Australian Parliament and is expected to be enacted and become law with effect from 1 July 2017.
Please contact your local Baker Tilly Staples Rodway representative if you wish to discuss any aspect of the proposed changes.