New GST legislation is coming in 2017 and 2018. Here’s what you need to know.
The Australian government has slated new GST legislation to commence on July 1, 2017 and 2018. The new legislation affects business owners and individuals differently, so it’s a good idea to be aware of these Australian import tax changes and prepare accordingly.
There are two main changes you need to know about. The first is a fresh tax on low-value imported goods while the second is a new tax on digital products or services.
What is changing in 2017?
There are two new indirect tax updates in 2017. Both will apply the 10% GST tax to additional products and services.
- GST on digital products and services. This "Netflix tax" is GST on digital goods and services, and applies to things like music bought online and digital streaming services. GST has been collected on these since 1 July 2017.
- GST on low-value imported goods. This low value import tax (LVIT) is GST on imported worth less than $1,000. As of 1 July 2017 this applies to products sold by Australian retailers. For overseas retailers, the start date has been pushed back to 1 July 2018, subject to legislation.
New GST on low-value imported goods
From July onwards, all goods imported by Australian consumers, even those worth less than $1,000, will be subject to 10% GST.
International vendors who sell to Australians and make more than $75,000 per year doing so will be required to register and charge GST. Previously, this only applied to vendors who were selling items valued at over $1,000 each.
How does this affect me?
Most online stores are not Australian, and most goods are worth less than $1,000. This means that come July 2017, you will generally be paying 10% more for things bought online from overseas retailers, such as clothing, electronics and many more.
Why is it happening?
This change is partly a response to the continuous growth of shopping and partly a way to ensure that both Australian and foreign low-value goods are subject to the same tax regime.
In short, it is filling in a missing gap and levelling the playing field between Australian and imported products.
What will cost more?
This new GST levy will apply to everything you buy except in the following circumstances:
- It is worth more than $1,000, in which case GST already applies and there will be no change.
- The store or supplier is Australian, in which case GST also already applies and there will be no change.
Come July 2017, you should expect to pay 10% more for clothing, electronics, media, art, toys, furniture and anything else bought online for under $1,000, unless it’s an Australian seller.
This GST change will also take effect on July 1, 2017. Simply put, it applies the 10% GST tax to all digital goods and services distributed to Australian consumers.
- Digital goods refer to products without a physical component such as music, movies, games and ebooks.
- Digital services refer to professional services provided in an electronic capacity, such as those of architects, artists, designers and more.
- Streaming services like Netflix, paid content subscriptions, printable electronic tickets and many more all count as digital goods and services.
This import tax update is very broad. If something is ambiguous or you’re unsure if something counts as a digital product or service, it probably does.
How does this affect me?
As an Australian consumer, you will most likely start paying an extra 10% GST for Netflix and other video streaming services as well as for online subscriptions, digitally distributed books, movies and games. You’ll even have to pay GST on virtual goods and currency for use in apps and online games.
You may also find an extra 10% on the costs of services provided electronically, such as online legal services or design jobs done by overseas contractors.
If you are making a total of $75,000 per year or more from selling goods or providing services to Australian consumers, whether digital, physical or a combination of the two, then you will be required to register for GST. If you’re just visiting Australia, remember that the tourist refund scheme can get you a full GST refund before returning home.
Why is this happening?
Sales of digital goods and services are rapidly growing and outpacing the traditional market. Many services that were previously done in person are now being done electronically, meaning they’re still doing the same thing, but aren’t paying the required taxes.
This “Netflix tax” is a broad change that blankets all vaguely defined digital, electronic and online businesses. The definition encompasses both current and future businesses, including digital products and services that don’t even exist yet.
What will cost more?
The digital goods and services tax will place the burden directly on sellers. They will be required to sign up for GST and pay one eleventh of the cost of every digital product or service transaction to the government. Sellers will typically pass this cost onto the consumer in the form of a 10% price increase.
As such, you should expect a 10% GST price increase on any and all digital goods and services, as long as the seller is not an Australian business and turns over more than $75,000 in annual sales to Australia.
What stores will be affected?
The 2017 indirect tax updates will affect most stores. To give you an idea of the extent of this GST legislation, here’s how a few different industries will see their prices change.
Clothing stores may be subject to the new “low-value imported goods” GST. If they’re an Australian business, then they probably already charge GST and you won’t see a difference. If not, then they will need to pay the GST. The majority of online clothing stores, with the notable exception of THE ICONIC, will see a 10% price increase on most products.
Even an Australian store might be subject to the new tax. David Jones, for example, imports a lot of goods from overseas. Many of these imported products will now be subject to GST where they previously weren’t.
Electronics stores might feel the impact of both the “low-value imported goods” and the “digital goods and services” GST. Apple, for example, may start charging 10% GST on downloads like music and apps, and Apple products valued at less than $1,000 will also start being taxed.
Electronics are mostly imported, and there are few dedicated Australian electronics stores. Generally speaking, you should expect no change for laptops and other gadgets worth more than $1,000, but there will be a 10% price increase on cheaper products and digital goods.
Online retailers are one of the groups most affected by the upcoming GST changes. Giants like eBay will need to pay the new tax on most goods sold to Australians, and Amazon will see a 10% price hike in Australia across all digital media, such as ebooks. Meanwhile, Amazon’s physical products, being almost entirely imported from outside of Australia, will also start being subject to GST.
While the new GST legislation has been drafted, its exact regulations are still under construction. There’s no doubt that GST changes will be coming in July 2017, but questions about its enforcement and management are still up in the air. What we do know is that a lot of Australian shoppers will see prices increase. Fortunately, it’s nothing that you can’t offset with a handful of free coupons.