Measures commonly referred to as the “Netflix Tax” came into effect on 1 July 2017. These bring supplies of intangibles made by non-resident suppliers to Australian consumers within the net of Australia’s goods and services tax (GST) system.
While the measures originally focused on taxing the supply of digital download products to Australian consumers, they also capture the supply of anything (other than goods or real property) that is made by offshore businesses to Australian consumers, unless the supply is otherwise GST-free or input taxed.
The new rules require suppliers to take reasonable steps to ascertain whether the recipient is an Australian consumer. Such steps include making a decision based on the recipient’s Australian Business Number (ABN), other identifying information or a declaration from the recipient that indicates the recipient is registered for Australian GST.
An “Australian consumer” is defined as an Australian tax resident who is not registered for GST purposes or, if registered, who does not acquire the intangible item for the purpose carrying on their enterprise.
Supplies that offshore businesses make to Australian businesses (business-to-business or “B2B” transactions) fall outside the scope of the new measures.
While the changes will apply to a wide range of services and other intangibles, it is expected that digital downloads will comprise the majority of transactions affected.
Digital downloads and electronic distribution platforms
The GST changes include provisions that will apply where digital products are supplied via an electronic distribution platform (EDP). In such cases, the EDP operator will be deemed to be the supplier and will be liable for the GST, rather than the actual supplier of the digital product. This means, taking the “Netflix tax” name as an example, that the Netflix business entity, as the operator of the Netflix EDP, will be considered the supplier of streamed content and be liable for the associated Australian GST – not the creators and entities who license their content for streaming on Netflix. There are special provisions for determining who the supplier is where a supply is made through multiple EDPs without an agreement between the parties.
GST registration threshold
The existing GST registration threshold of AUD$75,000 per annum will also apply to non-resident suppliers of intangibles. Therefore, non-resident suppliers will need to assess whether the annualised value of their supplies to Australian consumers is likely to exceed AUD$75,000. If a supplier’s turnover for supplies to Australian consumers is below the GST registration threshold, they will not be required to register. If their turnover is above the threshold, they will be required to register for GST purposes and remit GST to the ATO on their sales to Australian consumers.
Limited GST registration rules
Non-resident suppliers who are caught by these new provisions may elect to be treated as “limited registration entities”. Limited registration entities will be required to lodge their GST returns on a quarterly basis and will not be entitled to claim input tax credits in respect of any GST included in the costs they may incur in Australia.
In practice, on the basis that an overseas supplier will not have a presence in Australia, we expect minimal costs will be incurred that would otherwise give rise to an input tax credit entitlement.
The ATO has recently activated its online limited GST registration process. As the returns are to be lodged quarterly and the first return will not be due until October 2017, the ATO expects that non-residents will be able to backdate their registrations to 1 July 2017 and report their sales by the due date for the first return.
Some practical considerations for consumers and affected businesses
As noted, the changes have now commenced and non-resident businesses that make supplies to Australian consumers will need to take into account these changes to the GST law.
Australian consumers are likely to see some increases in the amounts these suppliers charge; for example, Adobe’s digital software subscription prices for individuals rose to include GST late in 2016, and Netflix announced plan pricing increases at the end of June 2017.
If you purchase intangibles from offshore suppliers that are for the purposes of carrying on your business – that is, the transaction is a B2B supply – it will be important to make it easy for the supplier to see this. Use your business name and address, ABN and other clear business identifiers so that GST is not mistakenly added to the price.
Supplier businesses affected by the changes will need to consider the following:
- the ability of their systems to implement changes to cater for the new GST rules – including sales systems’ ability to obtain information to confirm whether each customer is an Australian consumer, the ability to identify the amount of GST payable on a supply and to make sure the amount is reported on the periodic GST return lodged with the ATO;
- reviewing their existing terms and conditions of sale to ensure they can recover GST from their customers if needed;
- reviewing websites through which their sales are made, to determine compliance with Australian consumer laws – these generally require that GST-inclusive prices are advertised to consumers; and
- currency conversion issues, if their sales are made in a currency other than Australian dollars.
EDP operators will need to understand their role in the supply chain, assess whether they will have a liability to register for remit GST and agree with relevant parties where the GST will be imposed.
Confused about how these GST changes may affect your personal or business purchases? Wondering how to make sure offshore suppliers will know you’re buying something for your business rather than for yourself? Talk to us about your circumstances to find out more.