While there are many more interesting and fun aspects to consider when setting up an e-commerce business or considering a digital transformation of your bricks and mortar business, the GST consequences are important and if not considered carefully, can be quite costly.
GST is quite a complex area of tax legislation in Australia, and I wanted to touch on a few frequent questions or concerns we deal with in relation to e-commerce businesses.
Firstly, does GST apply to goods imported into the country for use in my business?
Given the global nature of business’ and growing ease of transacting (prior to COVID-19 anyway), many more businesses are acquiring their goods from overseas. Historically, many would have assumed that GST wouldn’t apply because the goods are coming from an overseas supplier. This is not the case. Depending on the value of the goods imported, GST is payable at customs when the goods reach Australia. It is paid at the same time as customs duty. The GST is levied based on the taxable value of the goods, technically referred to as the customs value.
One thing that some people may not know is that customs generally won’t release the goods until the GST and customs duty has been paid. This can create cashflow concerns as often a business will pay for the goods from their overseas supplier at one point in time and then the GST will be applied when the goods arrive in Australia. This charge is often levied by the logistics company (depending on the scale of your imports).
A business can apply to defer the GST on their imports until they lodge the activity statement for that relevant period which assists with the cashflow impact of these GST amounts.
There are several criteria with the majority relating to the frequency and method by which a business lodges its BAS. Once entered into the deferral scheme system, the GST is not paid on import, but traced through into their BAS. This means that the GST on the import is cash neutral in the BAS for these businesses as the credit that would usually be received for GST paid on purchases is offset by the GST due on the importations.
If you are interested in this scheme, the criteria for the deferred GST scheme are as follows. You must
- Have an Australian business number (ABN)
- Be registered for GST (you can register for GST and apply for an ABN on the one form if you don’t already have an ABN)
- Lodge your activity statements online and pay electronically
- Lodge your activity statements monthly (if you are currently lodging quarterly, this will be changed to monthly once we receive and approve your application)
- Ensure the goods or excise-equivalent goods are for home consumption, and
- If you are a member of a GST group, ensure your nominated representative is registered for the DGST scheme.
A newer part of GST legislation is also important to consider and that’s the GST applicable to low value goods.
This is more relevant to businesses operating from outside of Australia and considering whether they need to apply GST to the sales made into Australia. In recent years, the Australian Government and the ATO have tightened up the regulations on this area of the law (as it’s been well publicised that big corporate entities have not paid sufficient tax in Australia).
Part of this new legislation relates to the GST payable on low value goods imported by consumers into Australia from 1 July 2018. Businesses still need to meet the registration threshold of $75,000 AUD however at this point, they will charge GST like all other businesses operating within Australia. They will be required to charge GST on their sales, unless they are GST-free and they will be required to lodge BAS with the ATO. These businesses may be merchants who sell goods, electronic distribution platform operators or re-deliverers. The following critereia apply when considering whether the business is required to charge GST:
- It is connected with Australia
- It is registered or required to be registered for GST
- It is made for payment and is part of conducting your business (or it is treated as being part of your business because you are an electronic distribution platform operator or a re-deliverer)
- The good sold is not GST-free or input taxed.
What if the business is supplying a service or a digital supply rather than a physical item?
There have also been changes in recent years to the GST applicable to imported services (rather than goods) or digital products that are sold to Australian Consumers. This forms part of the definition of the key criteria above “connected with Australia”. GST does not apply to sales of imported services or digital products made to Australian GST registered businesses who are making the purchase for business use.
What you might be thinking here is how do you determine if a consumer is a business consumer? The ATO provides guidance on this aspect and suggests that you would request from the consumer their ABN or a declaration that they are registered for GST. This explains why a lot of overseas vendors will request your address and phone number even for services and digital purchases to verify whether you are an Australian consumer and whether they need to apply GST.
As you can probably tell, this legislation is quite complex and has a few areas to consider. Please contact us to assess your individual circumstances.
Lastly, lets approach this from a different perspective, what if you are an Australian based business wanting to sell your goods or services online – what does the GST legislation mean for the export sales?
Generally, goods and services exported from Australia are GST-free. Regarding goods exported from Australia, these will be treated as GST free sales however you are still entitled to claim the GST credits in relation to acquisitions made to produce these goods or purchase them for sale. Goods sold outside of Australia are generally GST free if they are exported from Australia within 60 days of the first of the following two events:
- the supplier receiving any payment for the goods
- the supplier issuing an invoice for the goods
This 60-day period can be extended if you apply to the ATO with your circumstances.
Services are usually GST free whereby the recipient of the service is outside Australia and the service is used outside of Australia.
The above discussion points are just a few sections of the GST act that we come across when dealing with e-commerce business’ or any business really that operates internationally. If you are considering undertaking any of the transactions itemised above, or if you have any tricky questions – please contact us at William Buck.