Australians have been taking full advantage of the offerings on the digital marketplace with gusto for years now, but it has only been relatively recently that the rules for goods and services tax (GST) have caught up.
With the purchase of digital products such as the streaming or downloading of movies, apps, and e-books and much more trending exponentially more popular, it is pertinent to run over the law that applies GST to digital products and services imported by Australian consumers.
Effective 1 July 2017, GST now applies to digital products and other services imported by Australian consumers. Affected supplies that are caught by the new law include not only the streaming or downloading of movies, music, apps, games, e-books, online supplies of software, digital trade journal/magazine subscriptions and other digital products, but also offshore services such as website design, publishing services, consultancy and professional services (for example, legal advice, architectural services and so on).
The concept of an “Australian consumer” is central to the new law. GST will only apply where the supply is imported by an Australian consumer. This requires that both of the following conditions are met:
- the recipient is an Australian resident for tax purposes, and
- either the recipient is not registered for GST or, if they are registered, the recipient does not acquire the supply for use in their business. Therefore, if the recipient is an Australian resident and makes the acquisition solely or even partly for business purposes, GST will not apply.
Safeguards for suppliers
In many cases, the foreign supplier may have only a limited ability to assess the residency and GST registration status of the recipient (in determining whether they are an Australian consumer). To overcome this, safeguards are built into the legislation that provide that the non-resident supplier can treat the supply as non-taxable where:
- they have taken reasonable steps to obtain information regarding whether the recipient is an Australian consumer, and
- having taken these steps, reasonably believe that the recipient is not an Australian consumer.
These safeguards apply (meaning no GST is required to be charged) even where it is later found that the supply is indeed taxable.
On the other hand, where the non-resident supplier believes the recipient is registered for GST (and is therefore not an Australian consumer) then they may treat the supply as GST-free but only where the recipient has provided to them:
- their ABN, and
- a declaration or other information that the recipient is registered for GST (a declaration that can be in any form, including verbal).
In acknowledgement of the compliance challenges faced under the new law, the ATO has designed a simplified/limited electronic GST registration and payment process for non-resident businesses that make or intend to make sales of imported services or imported digital products to Australian consumers. This fully secure online platform allows businesses to register, lodge and pay the Australian GST online, manage account details, as well as authorising others to access their account. To register and use this platform, non-resident businesses:
- are not required to prove their identity
- use an ATO reference number instead of an ABN
- cannot claim GST credits for acquisitions made in the course of making a taxable supply
- cannot issue tax invoices or adjustment notes
- must lodge GST returns and pay GST quarterly
- can pay electronically via SWIFT bank transfer or credit card.
Alternatively, non-resident businesses can register for GST in the standard way. If this option is adopted these businesses will require an ABN, can claim GST credits, must issue tax invoices (unless the supply is less than $82.50 [including GST]), and must complete activity statements to report and remit GST to the ATO.
- Affected non-resident suppliers need to ensure compliance with GST registration requirements and consider whether to apply for simplified or standard registration
- Despite the safeguards built into the new rules, non-resident suppliers face a significant burden in determining whether customers are a “Australian consumers”. This may require them to upgrade their systems
- To avoid GST being charged, GST-registered recipients need provide their ABN and advise of their GST registration status at the time of purchase.