It looks as though it’s official that, in general and as of 1 July 2018, low value goods imported to Australia will attract the Goods & Services Tax (GST). Low value goods are those with a customs value of AUD$1,000 or less and not including tobacco or alcoholic products.
This is a major economic change.
Many people are convinced this is going to be nothing short of a complete disaster. We have recently seen that the Australian Tax Office (ATO) has officially been made responsible for implementation of this massive change and that they are to be the enforcer of compliance.
We shall examine how ATO intends to execute this momentous change. We will, however, not comment on how feasible or practical it is; we will leave that to you for the moment. Aspects of this plan, such as what the ATO expects from overseas electronic distribution platforms like Ebay, come across as impractical and impossible, and that is us just being polite.
ATO to enforce imported low value goods GST
Vendor collection model
Beginning in the new financial year the ATO will, in general, enforce a GST on all imported services and digital products. We say this will happen ‘in general’ as low value goods will not attract GST from vendors that fall below a registration threshold. Vendors that are ‘for profit’ are not required to register with the ATO if they have annual sales subject to GST less than AUD$75,000. Vendors that are ‘not for profit’ have a threshold of AUD$150,000. Vendors above the GST registration threshold will need to collect GST at the point of sale and remit that GST to the ATO.
These vendors include:
- Merchants who sell imported services or digital products to Australian consumers
- Electronic distribution platforms (EDP), online marketplaces and app stores that supply imported services or digital products to Australian consumers
- Re-deliverers that collect, accept delivery of, or purchase overseas goods on behalf of consumers based in Australia. They provide goods not normally shipped to Australia by overseas merchants.
Under this model it can clearly be seen that the obligation to collect and remit the GST is placed on the non-resident vendor. Only one vendor is liable for the GST, so if an EDP is responsible for GST on point of sale then the merchant will not.
Merchants and re-deliverers are responsible for low value goods GST on sales made directly to Australian consumers. They are not responsible for low value goods GST made to Australian consumers through an EDP.
Examples of GST vendor collection
ABC is a Chinese merchant that sells products to Australian consumers, and is registered for GST in Australia as it sells more than AUD$75,000 annually. A consumer in Australia wants to buys products from ABC. On the ABC website its products display prices including GST when it somehow works out that GST needs to be applied. ABC charges consumer in Australia AUD$220, of which AUD$20 is GST. This is collected and remitted to the ATO in its GST return.
DEF is a USA vendor that registered for GST in Australia, and allows consumers to buy goods from merchants via an online marketplace. DEF determines that they are responsible for GST on the sales of low value goods made through its platform. The Australian consumer uses DEF’s website to buy a product for AUD$660 including GST from XYZ in China. XYZ organises the shipping of the product to Australia.
DEF is responsible for the GST and remits to the ATO in its GST return the AUD$60 GST it collected on the sale. XYZ does not remit GST to the ATO, and any sales made via DEF are not counted when determining the threshold to register for GST.
A consumer in Australia wants to purchase shoes worth AUD$200 from IJK in Canada. IJK does not ship products to Australia. The Australian consumer contacts TUV to get the shoes. TUV provides the Australian consumer with an address in Canada. The Australian consumer buys the shoes from IJK, which then ships the shoes to the Canadian address. TUV then ships the shoes to Australia. TUV is registered for GST and charges the Australian consumer AUD$44 of which AUD $4 is GST. This is for the service of bringing the shoes to Australia. It also charges the Australian consumer AUD$20 GST on the shoes. This is 10% of the amount the Australian consumer paid to IJK. TUV then remits to the ATO AUD$24 in GST.
Example of Australian merchant selling via EDP
UVW is an Australian business registered for GST and sells product via an EDP. UVW is not is an importer of products and is wholly run in Australia, so UVW is responsible for GST on sale of their products via EDP unless they have entered into a specific agreement with the EDP operator.
No changes at border
Processes for the movement of goods across Australia’s borders are not expected to change. The AUD$1,000 threshold for GST, duty and reporting at the border will remain, and there will be no changes to current border clearance processes. The changes will also not impact the flow of goods across the border. These changes do not apply to tobacco or alcoholic products. These will continue to be taxed at the border crossing, regardless of their value.
Big changes for vendors
Vendors involved in selling low value goods into Australia will have to make significant changes to the business processes in order to comply with the ATO. For example, online retailers like Ebay and Amazon will be required to adjust their systems to allow opportunity for individual sellers to include GST costs.
Read on for more information on GST collection models
Low value goods GST collection: vendor collection model
Low value goods GST vendor reporting
Registered GST vendors will need to ensure all tax information required by the ATO is included on documents for imported low value goods. The ATO will enforce penalties on vendors that fail to meet their reporting requirements.
Help via ICS?
The Department of Home Affairs Integrated Cargo System uses the Integrated Cargo System (ICS) to report all legitimate movement of goods across Australia’s borders. ICS is being extended so it can help vendors meet their ATO reporting requirements. When the start date for the collection of GST is legislated, then the ICS import process includes:
- New GST exemption code for when GST is paid to overseas vendor
- Calculate and store GST foregone liability
- Ability to capture vendor identifier
- Ability to capture importer identifier
The ability for ICS to provide this additional information, especially the GST-paid exemption code, will prevent the double charging of GST. Otherwise GST charged at the point of sale could then be charged again at the border crossing. Note that the Department of Home Affairs will not issue refunds if GST is charged a second time at the border. Refunds must be sought from the vendor.
ATO travels the world to present low value goods GST
The ATO is busy travelling the world presenting the changes to Australian GST on low value imported goods. They are hosting a number of information seminars in strategic overseas locations in countries like the United States and China. The workshops are about the how the changes on GST will affect them when they sell low value imported goods to consumers in Australia. These seminars are for the affected merchants, EDPs, re-deliverers and their tax advisors, and cover:
- Overview of GST vendor collection model
- What are low value imported goods
- How suppliers and deemed suppliers are affected for GST purposes
- Rules on consumer and business purchases
- Customs and invoicing and information
- GST registration, payments and returns
- How ATO will enforce compliance
- Comparison to GST law on imported services and digital products
So before things get complicated, we suggest ordering in advance before the low value goods GST hits. Contact us online or send us a message on Facebook if you need help getting your low value goods in before the new financial year.