These measures came into effect on 1 July 2017.
While the measures originally focused on taxing the supply of digital download products to Australian consumers, they also capture the supply of anything other than of goods or real property made by offshore businesses to Australian consumers unless the supply is otherwise GST-free or input taxed.
An Australian consumer is defined as an Australian tax resident who is not registered for GST purposes or, if registered, does not make the acquisition for the purpose carrying on their enterprise. Supplies made to Australian businesses (B2B transactions) therefore fall outside the scope of the new measures.
The new rules require the supplier to take reasonable steps to ascertain whether the recipient is an Australian consumer. Such steps include a decision based on the recipient’s Australian Business Number (“ABN”) or other identifying information or a declaration received from the recipient indicating that the recipient is registered for GST.
While the new measures will apply to a wide range of services and other intangibles, it is expected that digital downloads will comprise the majority of transactions that will be caught.
Digital downloads and Electronic Distribution Platforms
The GST changes include provisions that will apply where digital products are supplied via an electronic distribution platform. In such cases, the operator of the electronic distribution platform will be deemed to be the supplier and will be liable for the GST rather than the actual supplier of the digital product. There are special provisions for determining who the supplier is where a supply is made through multiple electronic distribution platforms without an agreement between the parties.
GST registration threshold
The existing GST registration threshold of AUD$75,000 per annum will also apply to non-resident suppliers of intangibles. Therefore, non-resident suppliers will need to assess whether the annualised value of their supplies to Australian consumers is likely to exceed AUD$75,000. If a supplier’s turnover for supplies to Australian consumers 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.
Limited GST registration rules
Non-resident suppliers who are caught by these new provisions may elect to be treated as limited registration entities. Limited registration entities will be required to lodge their GST returns on a quarterly basis and will not be entitled to claim input tax credits in respect of any GST that is included in the costs they may incur in Australia.
In practice, on the basis that the overseas supplier will not have a presence in Australia, we expect that there will be minimal costs incurred that would otherwise give rise to an input tax credit entitlement.
The Australian Taxation Office (“ATO”) has recently activated its on-line limited GST registration process. As the returns are to be lodged quarterly and the first return will not be due until October 2017, the ATO expects that non-residents will be able to back date their registrations to 1 July 2017 and report their sales by the due date for the first return.
As noted, the changes have now commenced. Accordingly, non-resident businesses that make supplies to Australian consumers will need to take into account these changes to the GST law.
We recommend that businesses affected by the changes consider the following:
- The ability of their systems to implement changes to cater for the new GST rules. This will include sales systems being able to obtain information to confirm whether the customer is an Australian consumer, being able to identify the amount of GST payable on a supply and that the amount is reported on the periodic GST return to be lodged with the ATO;
- Reviewing existing terms and conditions of sale to ensure that they can recover GST from their customers if needed;
- Reviewing websites through which sales are made to determine compliance with Australian consumer laws which generally require a GST inclusive price to be advertised to consumers;
- Considering currency conversion issues if sales are made in a currency other than AUD;
- For electronic distribution platform operators – understanding their role in the supply chain and assessing whether they will have a liability to register for remit GST and agreeing with relevant parties where the GST will be imposed.
Please contact your local Pitcher Partners representative if you wish to discuss any aspect of the proposed changes.