GST on supplies of digital products and other services to consumers from 1 July 2017
- 24 July 2017
With effect from 1 July 2017, GST applies to supplies of digital products and other services to Australian consumers by foreign entities. Such supplies will be subject to GST in a similar way to equivalent supplies made by Australian entities to domestic consumers. In particular:
- supplies of things other than goods or real property made to a recipient who is an “Australian consumer” (see below) are taken to be connected with Australia. This will generally bring the following into the GST net:
- supplies of digital products such as streaming or downloading of movies, music, apps, games and e-books
- other services such as consultancy and professional services supplied from overseas to an Australian consumer.
- where a supply of anything other than goods or real property supplied to an Australian consumer from offshore (an inbound intangible consumer supply) is made through an “electronic distribution platform”, the operator of the platform instead of the actual supplier is taxed. This represents a significant departure from the general rules that make the actual supplier liable, although there are some exceptions.
A GST registration threshold of AUD 75,000 per annum will apply to businesses consistent with the registration threshold applying to domestic suppliers. A business making sales into Australia with an annual value under this threshold will not need to register for GST.
An “Australian consumer” is an entity that is:
- an Australian resident (but not an Australian resident solely because they are a resident of the external territories where GST does not apply); and
- either is not registered for GST, or is registered for GST but does not acquire the supply wholly or partly for the purpose of an enterprise it carries on.
Accordingly, a business recipient of a supply that makes the acquisition only partly for business purposes will not be an Australian consumer. However, to the extent that it cannot claim an input tax credit on the acquisition, the reverse charge rules apply. Therefore, it will generally be liable for GST on the portion of the acquisition for which a credit cannot be claimed.
Determining consumer status
An overseas entity making supplies to Australia needs to determine whether its customer is an “Australian resident” or not. Therefore, it is not the place of consumption of the supply but rather the identity of the consumer as an Australian resident wherever consumption occurs that is the determining factor. Identifying a customer as such may not be an easy task. Therefore, the rules provide that a supplier is treated in some situations as not being liable i.e. it is treated as making a supply to an entity that is not an Australian consumer.
Liability to GST will not apply where a supplier takes reasonable steps to obtain information about whether or not the recipient of the supply is an Australian consumer and, after taking those steps, the supplier reasonably believes that the recipient is not an Australian consumer. If usual business systems and processes provide the supplier with a reasonable basis for forming a reasonable belief about whether someone is an Australian consumer, this should be sufficient.
ATO GST Ruling GSTR 2017/1 explains how an overseas-based supplier can decide whether a recipient of a supply is an Australian consumer, and sets out the evidence the overseas supplier should have, or what steps it should take to collect evidence, in establishing if the supply is not made to an Australian consumer.
If a supplier forms an opinion that an entity is not an Australian consumer based on the entity being registered for GST, then such an opinion will only be reasonable if the supplier has both obtained the recipient’s Australian Business Number (ABN), and received from the other entity a declaration or other information indicating that the other entity is registered for GST.
Electronic distribution platform
An “electronic distribution platform” is a service (including a website, internet portal, gateway, store or marketplace) that allows businesses to make supplies available to end-users. The service must be delivered by means of electronic communication and the supplies must also be made by means of electronic communication. However, a carriage service (within the meaning of the Telecommunications Act 1997) providing access to a payment system, processing payments or providing vouchers does not qualify as an “electronic distribution platform”. The exclusion is intended to ensure that a provider of ordinary telecommunications services or credit card service providers is not caught within the scheme simply by reason of the fact that a purchase occurs through use of its network.
Operator of electronic distribution platform
Where the operator of an electronic distribution platform is made liable for GST, identification of the “operator” will be required. The legislation does not define the concept of “operator” of a platform. Where a transaction occurs over the internet, it could be expected that this will involve multiple networks, owned and/or operated by more than one person, that is, there will be multiple operators.
The GST Act appears to recognise this in assuming that an intangible consumer supply may be made through more than one electronic distribution platform operated by different entities and establishing rules for identifying which operator will have the GST liability. It would appear that regardless of whether or not the operator of a platform is an “entity” the legislation could apply.
Transactions through electronic distribution platform
Special rules apply in allocating GST liability where there is an “inbound intangible consumer supply”, i.e. an offshore supply of anything other than goods or real property to an Australian consumer. For these supplies:
no tax invoice or adjustment note is required;
non-resident suppliers may elect to be limited registration entities; and
where they are made through an electronic distribution platform the operator of the platform, not the actual supplier, is liable for the GST
These rules do not apply where the thing is done wholly in Australia or is supplied through an enterprise that the supplier carries on in Australia.
Where a supply is made through an electronic distribution platform, the operator of the platform is treated as having made the supply as part of its enterprise, subject to an exception where:
- the operator and the actual supplier have agreed in writing that the supplier is liable for the GST
- the recipient is notified, and
- the operator does not control any of the key elements of the supply, for example, in setting the terms and conditions of the supply or in authorising payment or delivery.
Where a supply is made through multiple distribution platforms, the first operator to authorise a charge or receive consideration for the supply is normally treated as making the supply. Failing that, it is the first operator to authorise delivery. Alternatively, the operators can agree among themselves which operator is liable.
The Treasurer has the power to declare inbound intangible consumer supplies made by non-residents to be GST-free where this is necessary to comply with Australia’s international obligations, and the supply would be GST-free if made within Australia. A corresponding rule applies for input taxed supplies. This will ensure that supplies of bank accounts and superannuation interests by foreign financial institutions remain input taxed.
Simplified GST registration arrangements will be available for non-resident suppliers of inbound intangible consumer supplies. By electing to become a “limited registration” entity, the non-resident will only need to provide minimal information when they register and provide GST returns. However, such limited registration entities:
- will not be entitled to input tax credits for GST incurred;
- are not entitled to an Australian Business Number;
- are not recorded in the Australian Business Register;
- must have quarterly tax periods; and
- cannot elect to pay GST by instalments.
An entity may become a limited registration entity by applying to the Commissioner in the approved form if they have made or expect to make at least one inbound intangible consumer supply, whether or not they are currently registered for GST.
We encourage you to contact your Walker Wayland NSW GST contactc if you wish to discuss any aspects of the GST changes further.