GST on digital products
When are digital products imported to Australia subject to GST?
Purchasing digital products such as movies, music, podcasts, e-books and more, is something that we all now do regularly. It’s important to consider that these purchases will potentially be subject to GST.
Legislation for GST on digital products
As of 1 July 2017, legislation has been in effect which amends Section 9-25 of the GST Act to make the supply of digital products and services imported by Australian consumers ‘connected with Australia’ subject to GST. The legislation is intended to ensure that foreign businesses (non-Australian-resident businesses) which supply digital products or imported services to Australian consumers are treated in a similar way to Australian businesses, from a GST standpoint.
Supplies which are included in the law include streaming or downloading movies, music, apps, games, e-books, online supplies of software, digital subscriptions and other digital products. Also included are offshore services such as website design, publishing services, consultancy, and professional services. The law applies if these supplies are made by a non-resident business that does not make the supply through an Australian-based enterprise.
What is an Australian Consumer?
The concept of an ‘Australian consumer’ is central to this law. GST will only apply where an Australian consumer imports the supply. This requires that both of the following conditions are met:
- the recipient is an Australian resident for tax purposes, and
- either the recipient is not registered for GST or, if they are registered, the recipient does not acquire the supply for use in their business. Therefore, if the recipient is an Australian resident and makes the purchase solely or even partly for business purposes, GST will not apply.
Safeguards for suppliers
Sometimes the foreign supplier may have a limited ability to assess the residency and GST registration status of the recipient. In these cases, safeguards built into the legislation provide that the non-resident supplier can treat the supply as non-taxable where the supplier has taken reasonable steps to obtain information regarding whether the recipient is an Australian consumer, then having taken these steps, they reasonably believe that the recipient is not an Australian consumer.
These safeguards apply (meaning no GST is required to be charged) even where it is later found that the supply is indeed taxable.
On the other hand, where the non-resident supplier believes the recipient is registered for GST (therefore not an Australian consumer) then they may treat the supply as GST-free but only where the recipient has provided to them their ABN and a declaration or other information that the recipient is registered for GST (this declaration can be verbal).
Simplified registration for suppliers
Due to the compliance challenges faced under the new law, the ATO has designed a simplified/limited electronic GST registration and payment process for non-resident businesses who make or intend to make sales of imported services or imported digital products to Australian consumers.
This fully secure online platform allows businesses to register, lodge and pay the Australian GST online, manage account details, as well as authorising others to access their account.
To register and use this platform non-resident businesses:
- are not required to prove their identity
- use an ATO reference number instead of an ABN
- cannot claim GST credits for acquisitions made in the course of making a taxable supply
- cannot issue Tax Invoices or adjustment notes
- must lodge GST returns and pay GST quarterly
- can pay electronically via SWIFT bank transfer or credit card.
Alternatively, non-resident businesses can register for GST in the standard way. In this case these businesses will require an ABN, can claim GST credits, must issue tax invoices (unless the supply is less than $82.50 including GST), and must complete activity statements to report and remit GST to the ATO.
How can Greenwich & Co help you?
If you have a non-Australian-resident business which sells digital products to Australian consumers and would like further information about GST implications speak to us today.