Australian Tax Regulation Creates Threshold for Overseas Retailers
MELBOURNE, Australia – Australian shoppers and overseas retailers will face changes as the AUD 1,000 (648 euro) Good and Services Tax (GST) free threshold on imported goods is being removed. Overseas retailers like webshops in Europe and the US who sell more than AUD 75,000 (48,600 euro) in goods annually to Australian buyers will even be required to collect the GST.
To date, overseas online orders such as tyres and lower value bike parts saved on both GST as well as customs duty and administration costs. The changes on 1 July 2018 means that consumers still don’t have the customs duty and administration costs on these low-value imports, but now have the 10% tax which will be collected directly by the retailer.
Australian Business Support
Within the Australian cycling industry, many of the distributers (and by default, bike shops) have been supporting the trade body, Bicycle Industries Australia (BIA) which joined a retail trade coalition that has been vocal in pushing the federal government to update the import rules. Any moves by the government to reduce overseas retailers undercutting is welcomed and this is the seen as the first step.
Overseas retailers usually remove their own local tax (such as VAT in the UK) on the orders which are ‘exports’ and the customers save on GST and Duty due as well which can provide a significant price advantage. This is compounded by aggressive pricing and focus on high-volume and low-margin sales and some brands such as Mavic responded by forcibly blocking all online sales to Australia.
Australian consumers are critical
In contrast, many consumers are critical as they perceive this as another move by Australian business and politics to increase prices and penalize them with the ‘Australia Tax’. When retailers started gaining traction in their moves to sway the government a 2012 small survey on Bicycles Network Australia revealed that 88% of consumers would not change their purchase behavior if GST was applied to the low-value imports. Since this survey, Australian bike shops have become more competitive online and arguably, the percentage of Australian online sales of bikes and cycling accessories has increased against overseas sales.
A major hurdle for industry-wide changes has been the administrative burden. The cost of collecting GST on low value items was broadly reported as prohibitive. The solution; put the responsibility directly onto the overseas retailers, if they want to do business with Australia they will have to register with the Australian Tax Office (ATO), collect and pay tax. The changes means that Australian Customs won’t face the burden of painstakingly collecting taxes on low-value import. Instead the ATO takes on the administrative responsibility and with this creates separation with the role of customs.
The Australian Tax Office is relying on overseas business to register with them and to comply if they want to do business with consumers in Australia. The AUD $75,000 threshold allows businesses with smaller sales volumes to continue to sell to Australian customers without collecting GST and without additional administrative burden. This onus on the overseas retailers to collect GST saves private buyers from inconvenience however it simultaneously makes it increasingly complicated for overseas businesses who are faced a tangled web of market restrictions, compliance and standards along with logistics and customs requirements which are unique to Australia.
In the cycling industry, the bulk of overseas online sales to Australian customers are lower value items so these changes will affect most purchases. In practical terms, customers can expect the overseas bike shops to add and collect tax while for higher value items such as wheelsets and complete bikes that exceed the AUD 1000 threshold, tax is not collected by the retailer and instead is first levied when the shipment arrives in Australia.
Interview with the Australian Tax Office
To understand the changes and implications for both Australian private buyers, for Australian retail trade and for overseas online retailers selling directly to Australian customers, a spokesperson from the Australian Tax Office has responded to questions.
Christopher Jones: Overseas retailers with an expected annual sale value of over $75,000 to Australia are required to register with the ATO and collect GST. Can you comment on the acceptance of this and whether you expect a last-minute rush for GST registration?
ATO spokesperson: This change has been made to ensure a level playing field for Australian and overseas businesses. With just under two months before implementation, the ATO has received a number of early registrations but we expect the bulk of entities to register in the period from April to June. Business engagement with the ATO has been constructive and encouraging.
CJ: If an overseas retailer is collecting GST, what is the process or procedure for the ATO to recover this?
ATO spokesperson: Overseas businesses that meet the AUD 75,000 registration threshold will need to:
- register for GST
- charge GST on sales of low value imports (unless they are GST-free), and
- lodge returns to the ATO.
These businesses may be merchants who sell goods, electronic distribution platform operators or re-deliverers. Merchants do not count their offshore supplies made through electronic distribution platforms in determining if they meet the AUD 75,000 threshold. Merchant should count their direct sales from outside Australia and all other supplies subject to GST under existing rules. There are also rules for platforms and re-deliverers that are explained on our website.
Similar to Australian businesses, overseas businesses who meet the threshold will need to lodge returns to the ATO. To make it easier to comply, the ATO has established a simplified pay only registration system designed for international businesses. Overseas businesses can also register through the standard GST registration system and lodge business activity statements.
CJ: When an overseas entity is collecting the Australian GST for the ATO, how is this recorded in their accounts for the purpose of book-keeping and local tax returns (in consideration of avoiding double-taxation).
ATO spokesperson: Affected businesses will not be expected to have any specific record-keeping method that they must adhere to, provided that they keep:
- accurate records which explain the GST treatment of their Australia supplies
- them on paper or electronically and
- GST records for 5 years.
CJ: The ATO website lists three ‘collection’ points for GST; either the merchant, the marketplace or a ‘re-deliverer’. In the case that the merchant is not registered for GST and has low value sales to Australia (and does not exceed the AUD 75,000 threshold), the ATO website says that these merchants will not charge GST. Can you confirm this?
ATO spokesperson: Businesses that do not meet the threshold should not charge GST on their sales.
CJ: How does this work for businesses that are registered to collect GST but record an annual sales volume lower than AUD 75,000 to Australian customers?
ATO spokesperson: Businesses must count supplies that are connected with Australia in determining if they are required to register. As such, businesses that sell low value imported goods have to register for Australian GST if they sell goods to consumers in Australia for less than AUD 1,000 per item and the total of these sales (and any other sales to which GST applies, such as digital services ) is more than AUD 75,000 in a 12 month period.
Once a supplier is registered for GST, the GST should be charged on supplies that are connected with Australia and are not GST-free or input taxed. They should also not charge GST on supplies of low value imported goods made to GST registered business – provided that the business provides their ABN and a statement that they are registered for GST.
Once registered, a supplier needs to remain registered for 12 months unless they no longer carry on an enterprise. If after 12 months their current and projected GST registration turnover falls below AUD 75,000, then they may deregister.
CJ: In the case that a smaller overseas business unexpectedly exceeds the AUD 75,000 threshold, what happens? Are they liable to pay the ‘uncollected’ GST or is AUD 75,000 a threshold and they only are liable for GST payments above this value?
ATO spokesperson: When a business reaches the threshold of AUD 75,000 in sales to consumers in Australia in a 12 month period, they must register for GST within 21 days and apply GST to sales from the date they were required to be registered.
CJ: Australian customs will still clear imports values over AUD 1000. What is the implication for an overseas business registered to collect GST and with an annual sales volume over AUD 75,000 – do they now collect GST?
ATO spokesperson: High value imports (above AUD 1,000) are subject to GST at the border regardless of whether the supplier is registered for GST. There are exceptions including:
- imported goods that are GST-free (such as food items)
- low value imported goods bought together and consigned to Australia in one shipment, where the supplier has taxed these goods at the point of sale.
Items valued above AUD 1,000 have existing processes in place that ensure the correct amounts are collected in GST, duty and processing fees and are taxed at the border.
CJ: How should an private Australian buyer know or verify that the overseas retailer is collecting GST – does the consumer have a responsibility or should they assume that the retailers is responsible for compliance?
ATO spokesperson: It will not be the consumer’s responsibility to verify whether an overseas retailer is responsible for collection of the GST. However, GST registered businesses selling low value goods to consumers in Australia will have documentary requirements. They are required to issue notices to consumers about GST on the sale and provide certain GST information for inclusion in import documents (one commercial document can be used to fulfil both requirements).
CJ: How is a package documented so that it is known whether GST has been paid? What does a private buyer and a business need to know about any labels or documentation?
ATO spokesperson: When a business charges GST, they are required to ensure that correct information is provided to customers and included on import documents for the goods. They will ask their transporters or customs brokers in the country of export to collect this information and make sure it is provided to transporters or customs brokers in Australia. There is a field on both the self-assessed clearance declaration (with tariff lines) and the import declaration to include a GST exemption code of PAID, where relevant.
CJ: Are you able to comment on the added cost for implementation and administration of the GST collection on low value imports compared with the expected income – are the costs offset through the collected GST or will increased overheads mean that it costs more that it earns?
ATO spokesperson: For goods valued AUD 1,000 or less in import the GST will be applied at the point of sale and additional customs charges will not apply. This method of collecting GST through suppliers, electronic distribution platform operators or re-deliverers was considered to be more cost effective then collecting the GST on import.
For goods imported in a consignment over AUD 1,000, the existing processes continue to apply and any GST, customs duty and clearance charges will be charged to the importer at the border.
CJ: Will the new rules become a disincentive for overseas retailers to sell to Australian customers? GST collection demands extra administration and Australia, within the world stage, is a small market. Each rule or process unique that is unique to Australia and increases administration can limit the willingness of brands to deal with Australian consumers.
ATO spokesperson: The new rules are designed to ensure Australian businesses can compete on a level playing field with overseas sales.
Source: Bicycles Network Australia