Australia is introducing new goods and services tax (GST) legislation relating to ‘low value’ imported goods and services.
The new legislation has two parts:
1. GST on digital goods and services
The first part of the legislation applies GST to digital products and services imported into Australia (sometimes called ‘the Netflix tax’). It will apply to things like music bought online and digital streaming services. This piece of the legislation came into force on 1 July 2017.
2. GST on physical ‘low value’ goods
This part is likely to have the most impact on New Zealand exporters. It applies GST to ‘low value imported goods’ – this means physical goods. Physical goods under AU$1,000 are not currently subject to GST, but will be from 1 July 2018.
Note that the legislation will not affect customs duty, which is still not payable below the AU$1,000 threshold.
What are the likely impacts be for New Zealand companies exporting to Australia?
It will depend on how they undertake their exports. However, to get a bit more clarity NZTE spoke with Andrew Hudson, Partner at Rigby Cooke – an Australian legal firm that regularly consults on legal and trade developments affecting Australian and international business – to get some guidance based on the information available so far.
Andrew has said:
• In all cases, there will be GST payable on sales into Australia. New Zealand exporters will need calculate, collect and remit the tax properly to avoid recovery actions, penalties and interest.
• If an exporter undertakes sales online in a specific way (for example, like eBay) and they total over a certain amount of GST value then they could be classified as an ‘electronic distribution platform’ (EDP), requiring they register for GST, levy, collect and remit it back.
• Exporters who sell through online retailers that are EDPs should expect and accommodate changes in their relationship with the EDP. For example, this could include being required to provide additional evidence of sales to check the GST is correct, having to pay an indemnity if it is required to pay additional GST or an indemnity against penalties if the transaction is not reported correctly.
• Exporters who sell direct will need to include GST in their prices and even though they may not need to register, they may choose to. Otherwise, the GST is a new cost of business along with the compliance issues.
• If the GST on sales by an exporter over a 12-month period is over AU$75,000 then that exporter must register for GST.
• In advertising goods for sale New Zealand, exporters will need to identify the GST charges payable if being sent to Australia, which may also require adjustment of ‘online price calculators’.
Further background to Part 2: GST on physical ‘low value’ goods
Following the introduction of the Bill to apply GST on the import of low value goods, Parliament referred it to the Senate Economics Legislation Committee for an Inquiry. After the Committee tabled the Inquiry report in May 2017, the Bill finally passed through Parliament on 21 June after significant debate and public comment.
Parliament passed the Bill under two conditions: 1) that introduction of GST on low value goods transactions is deferred until 1 July 2018 and 2) that the Productivity Commission will review and comment on the proposed ‘vendor registration’ model for levying and collecting the GST, providing advice and alternative options if it sees fit.
The ‘vendor registration’ model would require registered vendors to collect GST at the point of sale – meaning that offshore vendors with an Australian projected annual turnover of AU$75,000 or more would be required to register for, collect and remit GST for supplies of low value goods and services.
Concerns from retailers about the model of GST collection
The ‘vendor registration’ model is a key area of concern for online and other retailers, who feel it will not work in practice, places an unnecessary burden on the major online retailers, and causes compliance issues. The Australian Productivity Commission’s review of the model will be watched closely.
The GST issue will continue to evolve. If you are exporting goods to Australia and would like to discuss it further, please speak to your accountant, or your NZTE Customer Manager or Business Development Manager based in Australia. You can also contact Australia-based legal firms, including Rigby Cooke, which specialise in tax and trade issues.
Resources and further reading
• AUSPAC GST webinar
• The Australian Tax Office’s draft Law Companion Guideline discusses in detail the currently available details on how the new tax regime will operate. Note that this is a draft, and will continue evolving.
• Updates from Australian legal firm Rigby Cooke from March and June 2017.