From 1 July 2018, Australia will impose GST on the supply of goods valued at equal to or less than AUD 1,000 (ie, low value goods) from outside of Australia to Australian consumers. Australia is the first jurisdiction in the Asia-Pacific region to move ahead with such changes and it is a fundamental shift from the current approach, which excluded supplies of low value goods into Australia by offshore merchants from the GST net. In this alert, we have outlined the key elements of the regime, practical considerations for impacted businesses, and recent compliance guidance released by the Australian Taxation Office (ATO).
Summary of the new regime and impact on online merchants and operators of electronic distribution platforms
Broadly, the regime imposes a GST liability on merchants who sell goods valued at equal to or less than AUD 1,000 to an Australian consumer (ie, a customer who is not registered for GST). This applies where the merchant delivers or facilitates the delivery of those goods into Australia. Sales made on a business-to-business basis (ie, where the recipient is registered for GST) are excluded from the regime.
The regime also provides special deeming rules where the low value goods are supplied through an electronic distribution platform (for example, an online marketplace). If these deeming rules operate, the GST liability shifts to the operator of the platform rather than the merchant of the goods. Additionally, in some cases, a redeliverer may be taken to have the liability and responsibility to register and report the GST.
A registration requirement for those impacted by the regime will only arise where the taxpayer meets the annual GST turnover registration threshold of AUD 75,000. Further, a simplified GST registration system has been put in place that minimises the registration administrative burden through a streamlined application process via an online portal and reduced identification requirements for entities and related individuals (for instance, directors are not required to provide a certified copy of their passport). Entities registered under the simplified system are required to report and pay GST on a quarterly basis, regardless of GST turnover.
The new low value goods regime does not disturb the operation of existing provisions in relation to taxable importations, meaning that practically, the regime creates a tiered system where:
- the overseas merchant, electronic distribution platform operator or redeliverer may be liable for GST on goods valued at equal to or less than AUD 1,000 imported in to Australia; and
- GST will continue to be payable at the border by the importer of record (typically the consumer in business-to-consumer cross-border sales) on goods valued at more than AUD 1,000 imported into Australia.
Our previous alert detailing these changes can be accessed here.
Preparing for the regime
In preparing for the start date of the regime (1 July 2018), those affected by the new regime should consider:
- how their current systems can manage the imposition of GST. For example whether they collect sufficient information to determine customer location, GST registration status, or the amount of GST payable on a supply;
- if terms and conditions of store websites and platforms are required to be amended. For electronic distribution platform operators, this may include reviewing whether existing merchant terms and conditions allow the recovery of GST;
- compliance with Australian consumer law requirements on the display of pricing;
- the impact on customs compliance formalities and potential for double taxation. Changes to the Integrated Cargo System (ICS) will mean that logistics providers and freight forwarders may begin to collect additional information on merchant and platform operator's GST registration details and whether a consignment is being shipped to an entity exempt from the low value goods regime (e.g. by virtue of being a GST-registered business) to avoid the double imposition of GST at the border; and
- whether additional paid services charged by the merchant or platform operator (such as shipping and gift wrapping) are captured by regime.
ATO compliance and enforcement guidance
On 4 April 2018, the ATO released additional guidance on how they intend to approach compliance activities in relation to the low value goods regime.
In this guidance the ATO reiterated that they may seek to impose potentially significant administrative penalties, which can be substantial for Significant Global Entities being entities or groups with global turnover greater than AUD 1 billion, and have several mechanisms to approach collection of GST and penalty amounts for non-compliant entities. These include:
- intercepting funds from Australia that are destined for the overseas merchant or platform operator. This may include the issuance of garnishee notices to banks and financial institutions located in Australia;
- registering the debt in a court in the overseas merchant or platform operator's country; and
- requesting the taxation authority in the overseas merchant or platform operator's country to recover the debt on the ATO’s behalf.
As an allowance to overseas merchants and platform operators, the guidance from the ATO provides for a concessionary penalty regime for entities that make efforts to comply with the new low value goods regime. Where an entity makes a genuine effort to comply with the regime, the ATO will not seek to impose penalties on mistakes made after the introduction of the regime (1 July 2018) for the first year of operation. Further non-imposition of penalties will be considered on a case-by-case basis after that date.
The ATO confirms that they will leverage multiple sources of information to identify non-compliant behaviour, including:
- tracking financial data and the flow of funds from purchasers to overseas suppliers. From 1 July 2017, payment system entities operating in Australia have been required to report transaction information the ATO (the first annual report is due 1 July 2018), thus administrative systems are already in place to capture transaction information;
- obtaining information from other jurisdictions under information sharing agreements and tax treaties;
- online investigations to identify websites and businesses that supply goods to consumers in Australia; and
- customs data on the entry of imports into Australia. As mentioned above, the ICS data fields have been amended to capture more GST-related information on consignments entering Australia, although these fields have not yet been made mandatory.