When are digital products ‘connected with Australia’ for GST purposes?
With the purchase of digital products such as the streaming or downloading of movies, apps, and e-books and so on becoming exponentially more popular, it is timely to examine the recently-introduced 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 (such as legal advice, architectural services and so on).
Australian consumer
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 (this declaration can be in any form including verbal).
Simplified registration
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 who 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.
Takeaway points
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 the whether customers are an ‘Australian consumer’. 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.
Harper Group Pty Ltd Chartered Accountants Frankston Ph 9770 1547
Disclaimer: All information provided in this article is of a general nature only and is not personal financial or investment advice. Also, changes in legislation may occur frequently. We recommend that our formal advice be obtained before acting on the basis of this information.