Originally dubbed the “Netflix Tax”, from 1 July 2017, foreign businesses are liable to charge Goods and Services Tax (GST) at a flat rate of 10% on imported services and digital products supplied to Australian consumers ie. “B2C” sales.
GST is an indirect consumption tax that is similar to Sales tax/VAT.
This development has caught many US on-line and e-commerce businesses on the hop with the main impacts being that it will bring many new taxpayers into Australia’s GST “net” and in most cases Australian customers will have to cough up more to cover the GST.
The policy of this new tax was to address a perceived uneven playing field for local suppliers who have had to charge GST since its introduction, 17 years ago.
An Australian consumer is essentially an Australian tax resident who is not registered for GST purposes.
A notable compliance feature of the legislation is that the onus is on non-resident suppliers to prove that they are not making taxable sales to an Australian consumer. In other words, certain inquiries will be necessary at the point of sale to establish whether
(i) customers are registered businesses or not and
(ii) whether GST should be charged, collected and sent to the Australian Taxation Office (ATO).
For some businesses, this will be an onerous, time consuming and costly exercise.
What does this mean for US businesses?
Affected businesses need to register with the ATO. Luckily, there is a simplified GST registration option on offer which means that it is not necessary to apply for a unique business number nor submit certified POI documents.
GST is levied on a quarterly basis with the first tax period being the quarter ended 30 September 2017. The tax will need to paid to the ATO by 30 October and reported on a statutory filing called a Business Activity Statement.
Under Australia’s tax laws, significant penalties and late payment interest apply for non-compliers.
Interestingly, the ATO has sent targeted letters to many foreign addressed businesses particularly in the US regarding registration. This demonstrates the ATO’s depth of reach and intelligence gathered presumably from other foreign revenue agencies and/or via sophisticated ATO analytical tools.
In conclusion, for those who sell digital products and services in Australia, be careful, your business may be on the ATO radar!
Please contact your local Moore Stephens tax professional for any additional information on this tax change or to assist with the registration process.
This article was written by Tim as a guest post for Citrin Cooperman, one of our affiliated firms in North America. Tim sits on the International Tax Committee which brings together a set of likeminded professionals to share and develop their expertise in international tax matters.