At A&A we have assisted many offshore suppliers in complying with their Australian GST obligations, especially in the realm of low value imported goods (LVIG). With our experience, we have seen a number of a common issues arise which are important to stay across as you navigate this territory of taxation.
GST on LVIG: About the scheme
Australia pioneered the way internationally on a comprehensive scheme for applying Goods and Services Tax (GST) on imported low value consumer goods. Introduced on 1 July 2018, the scheme provides a more level playing field for local suppliers and has resulted in many other jurisdictions following suit.
Prior to the introduction of the LVIG regime, buying goods worth less than $1,000 from an offshore supplier would likely be a cheaper option for an Australian consumer compared to purchasing the goods from a local supplier. Indeed, there was clear inequality and competitive advantage for foreign suppliers that warranted change.
Under the LVIG regime, an offshore supplier which includes merchants, online marketplaces or re-deliverers, is required to collect GST at the point of sale and remit the amount to the Australian Taxation Office (ATO) if their total sales to Australia exceeds the GST turnover threshold of $75,000. Consequently, the offshore supplier is required to be registered with the ATO. Under the rules, they have the option to be registered under either the standard or simplified GST registration.
Our top three tips on GST for LVIG:
The regime is in its fourth year of operation which has given us considerable experience assisting offshore suppliers in complying with their Australian GST obligations and in educating them on the key considerations.
What are some of the key areas to stay across?
1. Complying with registration thresholds
An offshore supplier is required to be registered once they exceed the annual turnover threshold of $75,000 and then start collecting GST on its LVIG sales to Australian consumer.
The problem most entities normally encounter is determining at what particular point the registration is triggered as the legislation outlines two trigger points, current GST turnover and projected turnover. Where the former is easier to determine, we note there is a tendency to overlook the latter.
In broad terms, an offshore supplier satisfies the GST import threshold if either:
- its current GST turnover (i.e. turnover for the current month and the previous 11 months) totals $75,000 or more; or
- its projected GST turnover (i.e. total turnover that have been made or are likely to make to Australian consumers for the current month and the next 11 months) totals $75,000 or more.
The term “likely to make” is not specifically defined by the GST law. The ATO is of the view that the phrase means that on the balance of probabilities, it can be expected that the supply is more likely than not to be made. In addition, for the purpose of calculating the sales that are likely to be made, the ATO will accept a calculation based on a bona fide business plan, accounting budget or some other reasonable estimate.
It is crucial that the sales numbers to Australian consumers are closely monitored to ensure that registration is made as soon as the threshold is exceeded or projected to be exceeded. The law requires registration to be made within 21 days from the date of triggering the threshold.
Based on our experience, late registration will likely result in late submission of GST returns. Consequently, there will be imposition of general interest charge (GIC) for the late payment of GST to the ATO. While the ATO has been relatively generous in automatically remitting the GIC where the delay is only for a few GST returns, that may not be the case where it involves considerable number of GST returns.
2. Staying across the interaction between LVIG regime and taxable importation
As previously mentioned, the LVIG rules only apply to LVIG with customs value of $1,000 or less. For LVIG imported in a single consignment delivered to an Australian customer worth over $1,000, any GST, customs duty and clearance charges will be charged to the importer at the Australian border under the existing processes (i.e. taxable importation GST rules). In this case, the supplier must not charge GST at the point of sale.
In many instances, this has been problematic for suppliers as the onus is on them to determine whether a supply of LVIG is valued more than $1,000 and made in one consignment. The GST laws expect the supplier to take reasonable steps and having taken these steps, to form a reasonable belief that the consignment will be a taxable importation, failing which the supply must be treated under the LVIG rules.
To satisfy this requirement a supplier may rely on the business systems approach where the supplier's usual business systems and processes provide a reasonable basis for forming a reasonable belief about whether goods supplied will be a taxable importation. If such approach is not sufficient to form a reasonable belief, a supplier may also take reasonable steps beyond their usual business processes to obtain this information (reasonable steps approach). In the ATO’s view, the following constitutes ‘reasonable steps’:
- actively taking steps to seek additional information not normally provided by its usual business systems and processes about how a supply of goods will be sent to Australia, and
- acting on additional information it receives about how a supply of goods will be sent to Australia that is outside what is normally generated by its business systems and processes.
After having applied the above approaches and where the offshore supplier reasonably believes that such a consignment is a taxable importation, no GST need to be accounted for at the point of sale. Conversely, if the supplier is still not certain whether the consignment will be a taxable importation, it must collect GST at the point of sale.
In terms of documenting the applied GST treatment, the offshore supplier must ensure the following information is provided in the customs documents for goods entering Australia:
- GST registration number of the offshore supplier (either an ARN (ATO reference number) or an ABN (Australian business number)
- ABN of the purchaser, if available.
- Whether GST has been charged on the sale of each of the goods. Indicate a GST exemption code “paid” where GST was charged at the point of sale.
Failure to correctly distinguish between a LVIG and taxable importation could potentially result in the supply being taxed twice; at the point of sale as well as at the Australian border. The ATO and Australian Border Force have made it very clear that they would not refund the overpaid GST to the Australian purchaser. Instead, the Australian purchaser should request for refund from the offshore suppliers. In turn, the offshore supplier needs to rectify the mistake in its GST returns to claim for the GST amount wrongly accounted for.
Indeed, the classification of sales into Australia by offshore suppliers can be confusing and technical. It is crucial to ensure this is done correctly as the law placed the onus on the offshore supplier and there will be penalty for failure to comply with the relevant requirements.
3. The concept of Consumer versus Business supplies
It is imperative that offshore suppliers are aware that not all sales of LVIG into Australia are subject to GST. The legislation provides an exception when sales are made to Australian businesses. More specifically, an offshore supplier does not need to charge GST on a sale of LVIG to an Australian GST-registered business if the offshore supplier has been provided with the Australian Business Number (ABN) of the purchaser and confirmation that they are GST-registered.
It is not always clear whether a purchaser is GST-registered, making it difficult for offshore suppliers to know if they are required to charge GST at the point of sale. A purchaser may have an ABN but not GST-registered.
Suppliers can rely on a safe harbour whereby they can treat a recipient as being a GST-registered business if they ‘reasonably believe’ that the recipient is not a standard consumer. In the ATO’s view, this belief is only reasonable if:
- the recipient's ABN (or other prescribed information) has been disclosed to them, and
- the recipient has provided a declaration or other information which indicates that they are registered for GST.
Suppliers are expected to take reasonable steps to verify the validity of this information. Utilising the Australian Business Registrars “ABN Lookup tool” is suggested as a mean of checking that ABNs are legitimate and if the business is in fact GST-registered. There is even the option to integrate this tool into your own internal systems. Refer to https://abr.business.gov.au/Tools/WebServices for further details.
Ultimately, the reasonable steps you need to take will vary depending on your commercial arrangements, business practices, the cost of taking steps, and the size and scale of your operations.
Summary
The ATO have access to various sources such as data matching, financial data tracking and information sharing arrangement with other jurisdictions, as part of its tools to enforce compliance under the LVG regime. Therefore, it is imperative that offshore supplier carefully considers its dealing with Australia and diligently assess their tax compliance obligations.
Whilst it may seem complicated to navigate, our experience is that a team with the right technical knowledge and pro-active approach will ensure you are not penalised financially.
Due to the intricacies of the rules, we strongly urge you to seek professional advice when dealing with this matter.
Please reach out to Khairudin Lamsah or Cameron Allen should you have any specific enquiries in regard to GST on LVIG.
+61 3 9939 4488