Identifying the best low value goods GST Collection Model

The low value goods GST collection has to be resolved by the Government as the threshold for low value goods will officially end this July 2018. Online retailers are doing their best to comply with the rules but one thing remains uncertain, how will the GST be collected?

Steps online retailers has to follow before the July 2018 low value goods GST collection

Prior to the 2018 implementation, the following has to be assessed and done by online retailers:

Identify supplies of low value goods imported to Australian consumers

From the list of items sold on their online shop, they should identify (if not mark) the items that “can” be imported to Australia. This will easily alert the buyer if they wish to purchase the item into Australia or not.

Assess pricing changes required for imposition of GST

Your system should easily calculate the price of the item after adding the GST cost.

Review agreements to ensure appropriate GST clauses are included

Online retailers have the obligation to learn more about the GST clauses that will apply to their goods.

Update customer communications

Necessary communication should be sent out to customers so they will be aware of the increase rates you’ll be providing.

Register under the full or limited registration

Enquires if the company has to be registered under full or limited registration.

Consider how to deal with the AUD 1,000 threshold i.e. at an item level or basket level

Does your online store have the capacity to sell multiple items? You then have to consider the how you’ll deal if the goods gets to the basket level, which could be very tricky.

Consider foreign currency exchange requirements

Never forget about foreign currency exchange requirements especially if your online items come from various countries.

Consider any additional charges (e.g. transport and gift wrapping) and whether GST will apply

Lastly, see if your additional services requires GST. Of course, you need to add this into your system to avoid problems.

Low value goods GST collection preparation for online retailersLow value goods GST collection preparation for online retailers

The challenge facing the Low Value Goods Threshold GST collection

There are many things online retailers has to prepare prior to July 2018. But the greatest challenge they and the government face is how to handle the GST collection. These are some of the options they have presented:

  • Border Transporter Model
  • Hybrid Border Transporter Model
  • Vendor Collection Model

The cost of compliance for the GST on low value goods

The online retail industry does not oppose having to pay GST on their goods, but what the big players are crying “foul” at is the way these GST will be collected. Apparently, the government wants “them” to handle it.

At present, the Government collects these GST via the Customs and Australia Post agencies, but they soon discovered it will cost them more if they handle the GST collection via the same principle. Thus they wish to transfer the responsibility to the online retailer. Sadly, they fail to realise that these are not “retailers” but simply online marketplaces. They are not the one who sells the good but only a virtual platform created for online retailers to sell their good.
So what happens next?

Traditional or border collection model

This model is the one used for GST collection for goods valued above $1000. Here, the customs authorities assess the value of the imported goods and hold them until the appropriate GST payment is made by the recipient (also known as the ‘ransom’ model).

Low value goods GST collection: the traditional methodLow value goods GST collection: the traditional method

The Hybrid Border/Transporter Model

This is one of the very first transport options presented for GST collection. It involves both the Customs Border and the transporter which may either be the:

  • Postal authority
  • Courier
  • Freight forwarder

How the Hybrid Transporter Model works

The modernised border transporter model is the solution offered by many of the online retailers as it solves the complexity problem of the hybrid/border transporter model.

Step 1: The customer purchases a low value imported goods (LVIG) for importation into Australia.
Step 2: The supplier collects the payment for the goods, that includes the transport charges, from the customer and the GST.
Step 3: The supplier selects a transporter (freight forwarder) and forwards the information about the letter or parcel to them. The transporter get the payment from the supplier as it has already been premarked-up by the supplier (seller).
Step 4: Information about the cargo is lodged by the transporter whilst GST payment is paid to the ATO by the transporter.

Low value goods GST collection: modernised transporter modelLow value goods GST collection: modernised transporter model – source

Online retailers believe this is a better GST collection model which will benefit both the Government and them. However, the government had another model in mind – vendor collection model.

Australia Post argues that if the GST collection will be done by them, it would cost the federal government roughly $900 million a year. This is over the $300 million revenue that they would only collect from the GST – sources Guardian and Taxathand

Vendor collection model

This model as proposed by the Treasury Laws Amendment (GST Low Value Goods) Bill 2017 removes the burden from the Australia Post infrastructure, processing time and costs for doing business.

Under this model, the obligation to collect and remit the GST is placed on the non-resident vendor. He is also required to register for GST in the destination jurisdiction. Thus, the need for online retailers to adjust the settings of their systems to give opportunity for individual sellers to include GST costs.

Low value goods GST collection: vendor collection modelLow value goods GST collection: vendor collection model

However, this will mean more costs to these online retailers, which they argue will cause them to go bankrupt. Thus they may rather just not sell in Australia.

Australian Retailers Association support this model.

These seems so much to accomplish within a few more months before the implementation, but these online retailers have to comply with these rules if they wish to operate in AU.

What is it for online retailers?

With much of these changes, you have to partner with a freight forwarder that is knowledgeable and skilled in calculating GST charges. Here at Franklin’s we have in-house customs broker and freight forwarders who can deliver these services for you. No need to speak with two different companies. We have you covered. Talk to us.