GST Changes are on the Horizon

When the GST came into effect almost two decades ago many compromises were made in its design to create a workable tax. From 1 July 2018, however, one of those compromises will disappear, and almost all Australians will be affected.

The GST applies a 10% tax to most consumer goods, with important exemptions carved out for certain items. One exemption many are unaware of is that goods and services under $1000, which are bought from overseas, are not liable for GST. This exemption was made at the time because it was considered too difficult to apply the tax to overseas retailers, and because the value of overseas purchases was negligible. Times have changed, and Australians now regularly make purchases from overseas, almost entirely online. Local retailers have been complaining about this being unfair, and now the government intends to close this ‘loophole’.

For ordinary Australians this means they will likely start paying GST on foreign purchases, although this will just mean a price increase as the retailer itself is responsible for collecting and paying the tax. If you operate an overseas based business importing goods to Australia you will have to register for GST and pay it for the first time if you sell more than $75,000 in Australia each year. Businesses should make sure they look at their affairs now and check whether they need to register, and if based in Australia should check if their foreign supplies are paying GST and if they need to do so. There may also be situations where foreign supplies are paying the tax unnecessarily, so it pays to familiarise yourself with the rules.

The new rules raise the same obvious question which motivated the exemption in the first place: how will this be enforced? Although many foreign sellers also have operations in Australia, those that are entirely web based and ship their products by post may well be beyond the jurisdiction of the ATO, and impossible to collect tax from. Australia can in theory seize the goods at the border, but identifying them from legitimate imports would cost much more than is raised. So far it’s not entirely clear, particularly in countries that don’t wish to cooperate, but no doubt the ATO is working on enforcement strategies. For now, best to check if your GST arrangements have changed, and do your online shopping before July.

The information contained in this blog is General in nature and does not take into account your personal circumstances. You are advised to seek independent advice from a Financial Adviser before acting on any information contained herein.