From 1 July this year, GST applies to imports of services and digital products to Australian consumers. However businesses registered for GST don't need to pay it.
To avoid being unnecessarily charged, Australian businesses registered for GST need to:
- Advise suppliers that they are registered for GST, and
- Provide them with their ABN.
How the new GST rules will work
International sellers will register, collect and remit GST
International sellers of services and digital products must register with the ATO if they will sell more than $75,000 to Australian consumers in a year (until 1 July 2018, they don't need to if transactions are less than $1000 each). They need to report and pay 1/11th of their sales to the ATO as GST. They may increase their prices to Australians to cover this GST cost.
Sellers must not charge the GST if the Australian buyer has advised the seller that it is registered for GST and of its ABN.
The rules capture many supplies
From the smallest plugin at your website or extension on your browser, all cloud software and tools, to streaming and media suppliers like Amazon, Apple, Netflix and Spotify. It also includes consultancy and contracting services, either specific contractors you might work with to services provided through platforms such as Upwork, Fiverr, and 99designs.
It won’t necessarily be clear if suppliers are registered for GST and are charging it.
While some suppliers must register, others may register voluntarily. We also expect some will not be aware of the requirement, or may not comply.
You can’t rely on a price change to know if you are being charged GST.
Suppliers may absorb some or all of the 1/11th they’ll need to pay to the ATO.
Overseas suppliers are not required to issue tax invoices.
Rather than the “normal” GST credit process where tax invoices are kept to substantiate GST credits claimed on BASs, the system works by allowing businesses to avoid being charged GST in the first place.
If you neglect to advise your supplier of your ABN and they charge you GST, it might be difficult to get it back.
What you should do
We recommend Australian businesses registered for GST do the following:
Watch out for, and action any emails from your overseas suppliers inviting you to give them your ABN. This is typically done through account settings or similar.
Keep a list of those advised as it will be difficult to remember and a pain to double check later.
Review your accounts or bank statements to develop a list of overseas suppliers of digital goods and services.
Of that list, focusing on those bigger ones (likely with > $75k Australian sales), first look for any recent price changes, but regardless if material enough, proactively contact them to ask if they’re registered and find out the process to notify them of your ABN and GST registration.
For bookkeepers, when recording payments to these suppliers in accounting software, don’t record any GST in the transaction as there should be none. It should be recorded as a GST free purchase (though for businesses with less than $10m GST turnover it won’t be reported on the BAS either way with the new simplified BAS rules).
The new rules are significantly more onerous on overseas suppliers now required to report and pay GST.
Where to find more information
The ATO website offers a basic overview of the system with links to further information.
Questions? Contact us if you need assistance.