GST: New Rules Apply!
From 1 July 2017, the GST legislation seeks to extend GST to inbound supplies of digital products, services and other intangibles into Australia where these are supplied from offshore to Australian consumers by non-resident entities.
The aim of the legislation is to tax ‘private consumption’ by Australian consumers of inbound consumer services supplied by non-residents (Business to Consumer transactions or B2C) and recognise that if GST was imposed on such supplies made to a GST registered business (Business to Business transactions or B2B) then in all likelihood the business would claim a GST credit. The broad scope of the amendments relevant to non-resident entities are:
- Non-resident entities will now need to consider whether there is a GST liability on the inbound supply of services to Australian customers where the Australian turnover associated with such services is greater than $75,000 per annum.
- The scope of supplies of that GST could be imposed on, is determined by whether it is …a supply of anything other than goods or real property… Goods and real property are subject to other taxing provisions. The words supply of anything are wide and, for example, could apply to supplies of digital products, movie streaming, music downloads, professional services, rights, insurance and gaming.
- B2C transactions are subject to GST where the supply is made to an Australian consumer as defined. Broadly, an Australian consumer is an Australian resident that either is not registered for GST or, if they are registered acquires the services for private use. There are special rules applying if the services are supplied through the operator of an electronic distribution platform.
- B2B transactions with GST registered businesses are not subject to GST. However, non-resident suppliers will need to take reasonable steps to obtain information as justifying why it is a non-taxable B2B transaction and not a transaction with an Australian consumer. As well as taking the reasonable steps, the non-resident suppliers will need to identify the business customer ABN and obtain a declaration from the business customer that they are registered for GST.
- There has been amendments to the reverse charge rules, for businesses who may be registered for GST but are not entitled to claim input tax credits on certain supplies.
Impact on Australian business
Whilst the changes are envisaged to have an impact on the GST liability calculation of a limited number of non-resident suppliers of services into Australia, there are some potential issues for Australian business to consider, being:
- Australian businesses supplying services who have been competing with offshore suppliers in the B2C space, may find that their services are more price competitive, provided the non-resident supplier adopts the correct treatment and calculates GST on the relevant inbound services.
- When processing invoices from non-resident suppliers, Australian business purchasers should check whether GST has been added to invoices or charges from 1 July 2017. If GST has been added, then a decision will need to be made as to whether to seek clarification from the offshore supplier or whether the GST charged can be claimed as an input tax credit.
- Non-resident suppliers of the relevant services are required to identify customers when they are not charging GST on supplies in B2B transactions. The non-resident supplier may ask for declarations or seek to amend terms and conditions of agreements. Australian businesses should closely review the words of any declarations or amendments to terms and conditions. Further, it should be ensured that any declarations or amendment to terms and conditions are limited to the changes to GST and not being used as an opportunity to amend other terms and conditions or impose downstream liabilities on the purchaser.
- Businesses subject to the reverse charge provisions on acquisitions will need to consider the impact of the amendments on relevant acquisitions.
If you have any questions on how these changes will impact your business, feel free to contact me or click the button below to for a list of our experts.