GST on low value imported goods changes from 1 July 2018
Coming into effect on July 1st, 2018, the new legislation means any product, such as books, jewellery, electronic devices, sports equipment, cosmetics, or clothing will incur a 10% GST on the price of the item, regardless of its value, when imported into Australia.
Before this legislation, imported goods worth less than AUD$1000 were GST free.
What is the GST legislation on low value imported goods?
From 1 July 2018, the goods and services tax (GST) will apply to retail sales of low-value physical goods ($1000 or less) that have been imported to Australia and sold to consumers.
The existing processes to collect GST on imports above $1000 at the border are unchanged.
It applies to overseas vendors with Australian sales that are subject to GST of AUD75,000 or more turnover per annum.
For tax purposes, these goods are treated as domestic sales and not importations.
- There will be no changes to GST collection at the border for low-value goods.
- There will be no changes to border clearance processes.
Why was this legislation introduced?
The Government is ensuring that all Australian businesses particularly, small retailers are not unfairly disadvantaged by the current GST exemption that applies to imports of low-value goods.
“An important part of the government’s commitment to creating a fairer tax system, supporting our small businesses and creating a level playing field for all Australian businesses.”
Scott Morrison, Australian Treasurer
Currently, Australian retailers are required to charge a 10% GST on all goods they sell to consumers, regardless of the price of the item. However, imported goods under $1000 are exempt from GST charges.
The new GST laws ensure that low-value goods imported by consumers in Australia are treated in the same way as goods that are sold locally.
It means imports of goods worth less than AUD1,000, which are now GST-free, will no longer be exempt from the tax.
Who will be affected?
Affected businesses may be:
- Merchants — who sell goods directly to consumers
- Electronic distribution platforms (EDPs) — such as websites that provide a marketplace for merchants to sell goods to consumers
- Redeliverers — businesses that are engaged by consumers to provide shopping or mailbox services e.g. a service that offers consumers a specific mailing address overseas, and then repackages and forwards the goods onto the consumer.
- Overseas business who sells to Australia
Overseas vendors with Australian sales that are subject to GST of AUD75,000 or more turnover per annum, must:
- register with the Australian Taxation Office (ATO)
- charge and collect GST on sales of low value imported goods to consumers (unless they are GST-free or sales of alcoholic beverages and tobacco products)
- lodge returns with the ATO and make payments to them
- ensure certain information is included in the customs documents for the goods.
The ATO is communicating, educating and assisting affected businesses to comply with the measure.
Further information is available on the ATO website at GST on low value imported goods, including specific Information for transporters and customs brokers.
Preventing GST from being charged twice
Measures are in place to prevent GST being charged twice. The new law is designed so that businesses:
- will not charge GST on a sale when GST will be charged at the border because an item is
- worth over AUD1,000
- a tobacco product or alcoholic beverage
- will not need to charge GST on a sale if it is clear that multiple goods will be shipped to Australia in one consignment worth over AUD1,000 as per the current threshold.
If GST is paid on a sale and then again at the border, the importer (or consumer) will need to seek a refund of the GST from the retailer.
For more information see Preventing GST from being charged twice on the ATO website.
Changes to the Integrated Cargo System
Overseas businesses that are registered for GST and sell low-value goods to Australia are required to provide all relevant information on customs documents, e.g. import declarations or self-assessed clearance documents.
To support the ATO and facilitate the movement of low-value goods across the border, changes have been made to the Integrated Cargo System (ICS) to collect additional information, including:
- an additional field on import declarations and all forms of self-assessed clearance (SAC) declarations, including those made on a cargo report, to allow the capture of a Vendor Registration Number (Vendor ID) – this is either an Australian Business Number or ATO Reference Number
- an additional field on air and sea cargo reports allowing the capture of an importer identifier (if an ABN has been quoted)
- an additional GST exemption code for use on an import declaration when GST has already been paid on imported goods.
This will also help prevent double taxation and assist with data collection.
If you are an overseas business who are suppliers for GST purposes as well as transporters/customs brokers, may need to prepare your business systems and processes for the changes to the ICS before 1 July 2018.
When importing goods into Australia, your company may be liable for customs duty and various taxes – check out our Importing Goods to Australia FAQ to ensure you’re covered!
What to do if your business is affected
If your business meets the AUD$75000 registration turnover:
- Ensure you are registered for GST (your business will be given an ABN number)
- Charge GST to customers for low-value goods (under $1000) from 1 July 2018
- Lodge a return to the ATO.
You should also check that your business systems are ready from 1st July 2018.
To prevent double taxation at the border, ensure that you include accurate reporting on all import documentation and in the Integrated Cargo System. This includes –
- Your Vendor ID (the GST registration number)
- Your Importer ID (the importers Australian Business Number)
- Where applicable, a GST-paid exemption code to identify when GST has been paid at the point of sale.
It will be helpful if you check that your business systems are ready from 1st July 2018.
If your business does not meet the AUD$75000 registration turnover:
All shipments arriving into Australia will require processing through Australian customs, regardless of the entity’s registration for GST.
If the overseas seller is not an Australian company nor registered for GST, the Australian recipient or customer will be contacted to pay the 10% GST plus a processing fee, before the goods can be delivered to the Australian address.
If the recipient or customer refuses to pay the GST and additional fees at this time, the goods will be returned at the senders’ expense.
Who is not required to pay GST?
This new GST legislation only applies to the sales of low value imported goods to consumers in Australia.
If your customer is a registered business, (that is, not a consumer) who purchased the goods for use in their business in Australia you do not charge them GST and they are not required to pay it.
If your business is a recipient of low-value goods, you should notify your suppliers of your GST registration to ensure you are not being charged twice for GST.
If you do need to register for GST with the ATO, we can sort out your paperwork and lodge the forms on your behalf. It should take about 28 days for overseas businesses to register for GST and the cost will be under AUD1000.
GST withholding on new residential property sales from 1 July 2018
From 1 July 2018 purchasers of newly constructed residential properties or new subdivisions must remit GST directly to the ATO as part of settlement. Many existing or soon to be formed contracts will be captured by the new regime, which applies to all contracts entered into after 1 July 2018, and entered into before 1 July 2018 where consideration (other than a deposit) is not provided until after 1 July 2020 (i.e. contracts entered before 1 July 2018 but which do not settle until after 1 July 2020). Transitional arrangements that will exclude contracts signed before 1 July 2018, as long as the transaction settles before 1 July 2020.
The changes will capture sales and ‘long-term leases’ of ‘new residential premises’ as well as ‘potential residential land’ included in a ‘property subdivision plan’ that does not contain a building used for commercial purposes. There are exclusions for ‘commercial residential premises’, ‘new residential premises’ that have been created through ‘substantial renovations’, and some specific types of ‘potential residential land’. Importantly, while the withholding obligations extend predominantly to ‘new residential premises’ and ‘potential residential land’, the notification requirements (discussed below) extend to any ‘residential premises’. Under the new regime:
- Purchasers of new residential property transactions will be required to withhold 1/11th of the purchase price and pay this to the ATO
- The developer will receive a credit for this GST through the normal GST business activity statement lodgement
- A reduced withholding tax rate of 7% can be used where the margin scheme has been applied
- Developers will now be required to provide purchasers with information that assists them in determining whether the withholding applies
- Special transitional provisions are included for project delivery agreements.
Implications for stakeholders
The loss of use of the GST at settlement will have implications for the cash flow of property developers and financiers. If developers elect to use the margin scheme, the amount required to be paid by the purchaser may be greater than the actual GST liability of the developer and they need to wait until the end of the reporting period to receive a refund. The new regime does not impact the usual GST reporting process but does add additional administrative complexity of identifying ‘credits’ processed by the ATO (i.e. withholding payments made to the ATO by purchasers) when lodging each BAS, to ensure that tax liabilities are met. Sellers must also be careful in identifying if the property is a taxable sale of ‘new residential premises’ or ‘potential residential land’ and thus subject to the withholding rules. A supplier must provide a notice in writing to the buyer before selling any residential premises or potential residential land stating whether the buyer needs to withhold GST or not. The supplier’s notice may either be in the contract for sale, or in a separate document. A failure by the supplier to provide the notice will not affect a buyer’s obligation to withhold an amount if the property is a taxable sale of new residential premises or potential residential land. Whilst developers will be most greatly impacted by the changes there are also obligations for buyers. If a buyer is required to withhold, the supplier must provide their name and ABN; the amount that must be withheld and when it is due to be paid to the ATO. Buyers must also make a payment to the ATO on or before the day which settlement occurs. Forms that need to be lodged and instructions were made available on the ATO website here on 1 June 2018.
A failure by the supplier to notify the purchaser regarding GST withholding is a strict liability offence, with a maximum fine that can be imposed by a court of 100 penalty units (currently, $21,000) for individuals or 500 penalty units (currently, $105,000) for corporations. Alternatively, the ATO may impose an administrative penalty of 100 penalty units ($21,000). Failure by the purchaser to withhold the GST withholding and remit it to the ATO gives rise to an administrative penalty under existing provisions (equal to 100% of the amount to be withheld). The penalty will not apply if the purchaser has relied on a notification from the supplier (provided reliance is reasonable), or if the purchaser has provided the supplier with a bank cheque for the GST withholding that is payable to the ATO.
On 26 April the ATO published draft Law Companion Guide LCR 2018/D1 – Purchaser’s obligation to pay an amount for GST on taxable supplies of certain real property which sets out the Commissioner’s view on how the new GST withholding provisions are to apply. The draft ruling discusses the effective date of the requirements, the types of supplies affected, when a purchaser is required to make the payment and how much, the requirement for the vendor to provide a notice to the purchaser and applicable penalties for failing to comply with the requirements. It also contains six useful examples – #1 – New residential premises with purchaser payment, #2 – Potential residential land with purchaser payment, #3 – Potential residential land with no notification and no purchaser payment, #4 – Instalment contract sale with first payment a deposit, #5 – Instalment contract sale with first payment not a deposit and #6 – Where section 14-250 only partly applies. LCR 2018/D1 has yet to be finalised but when it is the guide will operate as a public ruling with effect from 1 July 2018.
If you wish to discuss further, please contact us on 0431 658 603 or send us an email firstname.lastname@example.org .