Indirect Tax Alert | 27 February 2017
Australia introduces legislation on GST on ”low value” imports from 1 July 2017
In Australia, the Goods and Services Tax (GST) treatment of the importation of low value goods valued at less than AU$1,000 (LVG) has been an issue for many years. Australian retailers have maintained that they face an uneven playing field with their sales to Australian customers being subject to GST, while those of their foreign competitors generally are not.
The Australian Government committed to eliminating this discrepancy. In a move that will be welcomed by most Australian retailers, but likely very few off-shore sellers and even fewer Australian consumers, the Government has introduced a Bill into the Australian Parliament intended to impose GST on such LVG sales from 1 July 2017.
The Bill implements the Organisation for Economic Co-operation and Development’s (OECD’s) ”destination principle” for value added tax (VAT) style taxation and contains no fundamental changes to the Exposure Draft legislation issued for discussion in November 2016.
Any seller of goods into Australia, LVG or otherwise, is only liable for GST if the sale has the requisite connection with Australia (or the “indirect tax zone” as it is known). Generally, where goods are sold from outside Australia and not imported by the seller, that connection will usually not be present and no GST is payable.
The consumer as the purchaser only has to pay a GST amount to clear the goods through Customs if their customs value exceeds AU$1,000. Therefore under current law, offshore LVG sales do not give rise to a GST liability for either the foreign seller (on the sale) or the Australian consumer (on the importation).
Proposed new rules
While it appears simple, the approach proposed to achieve the policy objective of taxing these business to consumer (B2C) transactions will result in new administrative and compliance burdens on affected sellers:
- Rather than lowering the AU$1,000 limit which would impose very difficult enforcement issues for the Australian Government given the volume of very low value transactions, foreign sellers of LVG to consumers are being brought into the Australian GST system.
- From 1 July 2017, a sale of LVG into Australia to a consumer is deemed to be connected with Australia if the seller procures, arranges or facilitates the delivery of the LVG to Australia.
- These rules also extend to electronic market place providers (or “electronic distribution platform” providers such as eBay) and goods “re-deliverers” (such as those that allow goods to be delivered to them from the seller within the sale jurisdiction before shipping them to Australia). Such service providers are deemed to be the seller of the LVG, the sale of which is then deemed to be connected with Australia and the GST liability will move to these service providers.
- By deeming this necessary connection with Australia, the LVG sale falls into the regular GST system and the seller (or deemed seller) will have a GST liability, needs to register for GST and file regular GST returns (see below) if the value of all its Australian sales, including these LVG sales, exceeds AU$75,000 per annum. That is not an especially high threshold and many foreign sellers are expected to exceed it.
- For goods re-deliverers and electronic market places, this AU$75,000 threshold includes all transactions they facilitate (i.e., it is not determined per seller they facilitate). Given the multitude of transactions typically facilitated, this is an especially low threshold for these service providers.
- If a sale of goods by such a foreign seller is not an LVG sale (i.e., its value exceeds AU$1,000), these rules do not apply and the transaction will be taxed under the current arrangements. That is the seller is generally not liable for GST, but the Australian consumer must pay a GST amount to have the goods cleared through Customs.
- There are rules aimed at disaggregating single transactions involving multiple purchases that are valued in excess of AU$1,000 collectively to ensure that they are captured by these rules.
Impact on foreign sellers
- Foreign sellers making sales of goods into Australia, including electronic distribution platform operators and goods-forwarders who will be deemed to make such sales, will need to track their Australian sales to determine whether they are made to Australian consumers and, if so, whether they anticipate that they will exceed AU$75,000 per annum in aggregate. If so, they will need to choose whether to increase prices for GST or absorb that additional cost.
- If a particular sale is valued in excess of AU$1,000 and the disaggregation rules do not apply, then the seller is not subject to GST in the hands of the seller (as the deemed Australian connection rules do not apply).
- Implementing systems and procedures to actually track this information may prove difficult.
- Foreign sellers of LVG will also be required to ensure additional information concerning the supply of LVGs is included within customs documentation at the time the goods are imported into Australia.
- While foreign sellers caught by these new provisions will need to register for GST and file periodic GST returns along with payment of their GST liabilities, they can elect a limited form of GST registration to reduce their compliance burden.
- This allows them to only file GST returns on a quarterly basis (rather than monthly as might otherwise be the case), but the trade-off is that while they must pay GST on their sales, they cannot recover a GST input tax credit for the GST included in their Australian costs (in practice, such costs may not be material for many foreign sellers). In addition they will not be entitled to an Australian Business Number (ABN).
Australia operates a “self-assessment” GST regime, whereby foreign sellers caught by these rules are expected to identify and meet their legal obligations.
Given that these rules are part of Australia’s response to the OECD push to standardize cross border taxation and sit with other cross-border GST and income tax matters that have received a lot of press, there is an expectation that most industry players (certainly those at the large end) will self-comply, leaving the ATO to target its enforcement resources.
While the ATO is expected to be cooperative during a transitional period in assisting foreign sellers to implement changes to comply with the Australian GST requirements, for those that do not attempt to comply or engage with Australia’s GST system the ATO has affirmed it will pursue those foreign sellers to collect unpaid GST plus penalties.
Impact on Australian sellers
To compete with foreign retailers who did not need to charge GST on LVG sales, some retailers set up foreign websites and distribution chains so that their LVG sales were not connected with Australia and hence not subject to GST. That benefit will be removed by these changes and retailers will need to give thought to whether those structures should be unwound.
Other Australian retailers who have not set up structures will no doubt welcome this levelling of the playing field with its impact on retail prices.
Impact on Australian consumers
While there may still be price advantages in shopping with foreign sellers, this will no longer be due to GST:
- LVG sales under AU$1,000 will now be subject to GST unless they are from a reasonably small seller not selling through an electronic distribution platform or goods forwarder.
- If the goods exceed AU$1,000, the consumer will need to pay GST to clear the goods through Customs.
For additional information with respect to this Alert, please contact the following:
Ernst & Young (Australia), Oceania Indirect Tax Leader, Melbourne
- Brad Miller
+61 3 9655 2718
Ernst & Young (Australia), Adelaide
- Matthew Nicholls
+61 8 8417 2068
Ernst & Young (Australia), Brisbane
- Patrick Lavery
+61 7 3243 3694
- David Wilson
+61 7 3011 3346
Ernst & Young (Australia), Melbourne
- Rhys Penning
+61 3 9288 8432
Ernst & Young (Australia), Perth
- Gavin Shanhun
+61 8 9429 2209
- Karen Dill-Macky
+61 8 9429 2128
Ernst & Young (Australia), Sydney
- Mark Tafft
+61 2 8295 6987
- Greg Hill
+61 2 8295 6432
- Jason Bailey
+61 2 9248 4698
Ernst & Young New Zealand, Auckland
- Paul Smith
+64 9 300 8210
EYG no. 00863-171Gbl