What will the ‘Netflix Tax’ Cost You?

Shirley Liu 21 April 2015

Netflix tax

Jump in on Netflix’s very attractive price for internet TV streaming while you can as the cost is set to go up in Hockey’s new, tax reformed future.

UPDATE 7/05/2015: It's happening. According to Fairfax Media, the proposed 'Netflix Tax' will be included in the upcoming federal budget. The decision, strongly supported by Assistant Treasurer Josh Frydenberg, will put a GST on imported 'intangibles', like e-books, videos, software and music and, unfortunately, Netflix.

This will push subscription prices of the insanely popular streaming service up by 10%. These changes should raise the monthly pricing for the basic package to $9.90, the standard package to $13.20 and the premium package to $16.50. The price jump nearly puts the American competitor on a level playing field with Fairfax Media owned, Stan. Thankfully, even with the added tax, the Netflix admission price doesn't come close to Presto's $14.99 price tag.

Josh Frydenberg isn't just stopping there. Once the budget is wrapped up he'll be aiming to convince state treasurers to extend the GST to low value parcels. Whereas the current threshold sits at $1,000, previous attempts have aimed to lower it to $500. But, Frydenberg is ambitiously looking to lower it further again, possibly within the ballpark of Canada's threshold, which sits at measly $20.

Original story as follows.. 

The decision to tax 'intangible' products like these first came about after a 2012 review by former premiers Nick Greiner and John Brumby, where it was found that lost revenue on software downloads amassed to around $1 billion a year. And, by 2015, the decision had garnered support from NSW premiere, Mike Baird, the Australian National Retailers' Association and the Shop, Distributive & Allied Employee's Association.

According the government's expenditure review committee, the changes will be a fairly easy task, and will require only a small redraft of the Tax Act.

Over the weekend, Australian Treasurer, Joe Hockey, and British Chancellor of the Exchequer, George Osborne, struck an important deal which will see the two nations work together to target and eradicate profit shifting by multinational companies. The practices sees large companies funnel income from one region to another to avoid paying, or charging, correct taxes. An offshoot of this deal also aims to see elements such as the GST enforced on overseas purchases made by Australians, and on purchases from overseas companies operating in Australia.

Ten companies are specifically under investigation already, and it has emerged that Google, Apple and Microsoft are three currently being audited. The others remain under wraps, although Hockey himself has signalled his intention to tackle the 'Netflix Tax,' revealing that the streaming service is on his radar and likely to get caught up in the reforms.

'We are going together to lead the world and ensure that we work with the OECD in developing the very best practices that will absolutely ensure that companies earning profits pay tax in the jurisdictions where they earn the profits,' Hockey stated. While Assistant Treasurer, Josh Frydenberg, said, 'Netflix is just another example of the growing digitisation of the Australian economy, and the challenges related to taxing the trade of services and intangibles across borders.'

Hockey’s tax reforms have large implications for services such as Netflix. The US-based company launched in Australia in March and was able to undercut local rivals such as Stan and Presto by not charging GST. While not collecting GST is certainly a benefit to consumers – saving them 10% - for the government it is a significant loss, as that GST is not returned to the economy – a leak that sees billions in potential revenue go missing.

What Netflix is currently doing with its pricing is not illegal. The company is not considered a 'local entity' and is therefore not tied to Australian tax laws. But if Hockey can get the various States and Territories to sign-off on his plans, Netflix – like many other online goods – is set to rise 10% in the near future.

If you’re wondering whether it is worth signing-up to Netflix, take a look at our comprehensive list at the available TV shows on the service here in Australia.


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