Taxing digital products and low value goods to change
When the GST Act and Regulations were drafted in 1999, e-commerce was in its infancy – it was not fully envisaged that people would prefer to shop from the comfort of their computer, and now even their mobile devices, rather than visiting a bricks and mortar shop. Over the years however, Australian internet sales have grown rapidly and are now in excess of $20 billion a year.
This has caused dismay from Australian businesses that have increasingly complained about an unequal playing field, since Australian consumers are often able to avoid incurring GST on their internet purchases from non-resident businesses. Online video-on-demand provider Netflix is a prime example where a subscription to its services is not subject to GST under existing laws.
In response to these concerns, the government has introduced amendments that extend GST to supplies of digital products, certain services and low value goods imported by consumers.
As a result of these amendments, Australian consumers will soon find themselves paying 10% more for many online purchases. In addition, many overseas suppliers will be required to register and pay GST, though in some cases the GST liability may be shifted to an electronic distribution platform or goods forwarder. To ease the administrative burden, the ATO will permit some foreign businesses affected by the amendments to hold a limited GST registration.
APPLYING GST TO DIGITAL PRODUCTS & OTHER SERVICES
Amendments to the GST Act, which took effect from 1 July 2017, extend the scope of the GST to digital products and other services imported by Australian consumers.
At the time, the media dubbed the amendments the “Netflix tax” and focused on its application to digital products such as streaming or downloading of movies, music, apps, games and e-books. However, what was missed is that the amendments applied equally to supplies of services such as consultancy and professional service (for example, architectural, legal or educational services).
As a result of the amendments, a supply of digital products and other services will be connected with Australia (and therefore potentially a taxable supply) if the recipient of the supply is an “Australian consumer”.
An Australian consumer, in relation to a supply, is an Australian resident (as defined for income tax purposes) who is not entitled to an input tax credit (ITC) in respect of the acquisition.
To be entitled to an ITC, a consumer must be registered for GST and the supply must be acquired to some extent for an enterprise they carry on. The amendments are therefore intended to capture private consumption only.
Example: Global Movies supplies Fred Fellini with video on demand services. The supply is not performed in Australia and Global Movies does not carry on an enterprise in Australia. Fred Fellini is a resident of Australia, does not carry on an enterprise and is not registered for GST. The supply by Global Movies is connected with Australia as a result of the amendments. Had Fred Fellini not been a resident of Australia, the supply would not have been connected to Australia, even if he was in Australia when the supply was made.
Reasonable belief safeguard
It may not always be practical for a supplier to determine if the recipient of a supply is an Australian consumer. Recognising this, the amendments provide a safeguard; if the entity that would be liable for GST takes reasonable steps to establish whether the recipient of a supply is an Australian consumer and, having taken these steps, reasonably believes that the recipient is not an Australian consumer, they may treat the supply as if it had been made to an entity that was not an Australian consumer.
Example: Peter, an Australian resident who is not registered for GST, orders a video game online from a non-resident supplier while visiting family in London. He pays using a credit card from a UK bank and gives the address and phone number of his relatives as contact information. The supplier reasonably believes that Peter is a not an Australian resident and may therefore treat him as not being an Australian consumer and the supply as not connected with Australia.
In some circumstances, the process for making a supply may be largely automated. Such supplies may also be covered by this safeguard if the business systems and processes provide a reasonable basis for identifying if the recipient is an Australian consumer.
Penalties for misrepresentations by customers and extending the reverse charge provisions
Australian consumers may have incentives to avoid GST by misrepresenting their status. To address this, the amendments broaden the existing administrative penalties for making false or misleading statements.
Furthermore, the amendments extend the compulsory reverse charge rules so that they apply where an Australian business has made a wholly private or domestic acquisition but has made representations that it is not an Australian consumer in respect of the supply. The operation of this reverse charge rule will mean the supply is a taxable supply and the recipient, not the supplier, is liable for GST.
Example: Leslie, an Australian resident registered for GST, acquires a movie from Online Movie Co (OMC) for a wholly private purpose. She is therefore an Australian consumer in relation to the supply. However, Leslie provides OMC with her Australian Business Number (ABN) and declares that she is registered for GST. Accordingly, OMC does not charge GST. Under the extended reverse charge provisions, Leslie is obliged to pay the GST.
Electronic distribution platforms
Consumers may purchase digital products and services via an electronic distribution platform (EDP). The Apple App Store is an example of an EDP, and Amazon is another.
The operators of EDPs are often better resourced and therefore better placed to comply with Australia’s GST laws. On this basis, where supplies are made through an EDP and are connected with Australia under these amendments, responsibility for the GST liability is generally shifted from the supplier to the operator of the EDP. In other circumstances the supplier and operator of the EDP may agree that the operator will be liable for GST on the supply.
Registration and limited registration
Supplies that are connected with Australia because they are made to an Australian consumer will generally count towards the GST registration threshold of $75,000. However, these supplies may also be GST free because they are used or enjoyed outside Australia.
It would be unnecessary for foreign suppliers to register for GST if the only supplies they make that are connected to Australia are also GST-free. Therefore, the amendments ensure such supplies are only included in GST turnover if the supply is made through an enterprise carried on in Australia.
Some entities that are required to register under these amendments will not have any other connection with Australia. These entities will have no claim to ITCs and will therefore not need to claim GST refunds.
To ease the administrative burden on such entities, the ATO will allow them to opt to be a “limited registration entity”. Such entities will only be required to provide minimal information when registering for GST and lodging business activity statements. Limited registration entitles are not entitled to claim ITCs or to have an ABN. They will report quarterly.
ATO ramping up its “e-Audit” option
The ATO has recently published information on its use of “e-Audit” technology, which it has begun to use as part of its tax compliance push. An e-Audit is carried out via technology that tests files stored in a taxpayer’s electronic records, which can verify if the stored data is accurate and complete.
If a business taxpayer is selected for an e-Audit or review, the ATO will use a copy of the associated records — for example, data files held in the taxpayer’s accounting or payroll systems — in order to perform its tests. Although the ATO does have broad access powers to records, it says that generally it will request access to this information.
It may also use an assessment tool it has developed to rate a taxpayer’s system risks in relation to accurate reporting of tax and super obligations. This process can actually have benefits for the taxpayer involved, as the ATO tool can provide an assessment of any particular compliance risks, and can include recommendations to address any ongoing risk issues.
Computer assisted verification: e-Audit and risk assessment
One prerequisite for the ATO’s use of an e-Audit is that the taxpayer maintains electronic financial records. Conducting the e-Audit involves the use of computer assisted verification (CAV) techniques to analyse records, a technique that the ATO admits may not be appropriate in every compliance or client engagement activity. “We may use our information systems risk assessment (ISRA) tool to assess system risks and as part of our assurance and justified trust activities,” the ATO says.
The use of CAV in audits and other compliance activities has certain benefits, according to the ATO, including cost efficiencies and less requests for copies of transactions and reports. It says its specialised software allows it to perform tests on the data without altering the data itself, so that a taxpayer’s records integrity is protected. Also, as it processes a copy of the required data from the taxpayer’s systems, it does not operate the taxpayer’s computer system.
The ISRA tool, mentioned above, includes a series of standard questions that relate to IT governance and regulatory compliance. It is made up of five auditable units:
- System inventory
- Interface inventory
- Customisation inventory
- IT projects and methodologies
- IT governance.
Each of the auditable units has a series of questions weighted according to a predetermined risk rating. Once completed, the ISRA tool will be used to generate a risk rating profile that will be included in an ISRA report. The report incorporates taxpayer feedback, and includes recommendations to address any issues the ATO identifies that may affect the accuracy and completeness of the reporting of the taxpayer’s tax obligations.
Are you hiring or firing? Tax tools, forms, and other template letters
The following links may be helpful for employers when dealing with staff, especially when hiring and managing employees once they are on-board. There are also links to template letters below for use when terminating employment.
PAYG withholding tables
- Tax withheld calculator (for employers and other withholding payers)
- Tax tables
including regular payments (weekly, monthy), Higher Education Loan Program, Student Financial Supplement Scheme (SFSS), Medicare levy adjustments.
Other staff-related forms and tables
- FBT exempt work-related items
- FBT car calculator
- Gross up rates for FBT
- FBT: Application to register
- FBT: Notice of non-lodgment
- Tax table for seniors and pensioners
- Tax table for back payments, commissions, bonuses and similar payments
- Tax table for employment termination payments
- Tax table for return to work payments
- Tax table for unused leave payments on termination of employment
- Tax table for payments made under voluntary agreements
- Tax table for working holiday makers
- Special tax table for individuals employed in the horticultural or shearing industry
Here are some template letters from Fair Work Australia for employers to use when hiring, managing an employee or ending the employment of an employee.
These templates will continue to be updated over time, so while the templates below will be a guide as to what is required, you should check the Fair Work Australia site each time you wish to use them to ensure accuracy.
How to use these templates:
- download the template you want to use and save it to your computer
- fill in the red coloured sections that are also marked in pointy brackets (less-than and more-than symbols)
- delete any information that doesn’t apply to your situation
- delete any blue highlighted instructions
- delete the instructions at the beginning of the template
- proof read the letter and check you’re not missing anything
- check again to make sure no coloured or highlighted sections are left
- insert your logo, business name and contact details at the top of the template
- save and print.
- Job advertisement template (DOCX 4KB) (PDF 292.9KB)
- Job description template (DOCX 3KB) (PDF 216.2KB)
- Telephone screening form (DOCX 2KB) (PDF 295.9KB)
- Reference checking form (DOCX 9KB) (PDF 282.9KB)
- Letter of engagement – casual employee (DOC 75KB) (PDF 7KB)
- Letter of engagement – full-time and part-time employees (DOC 78KB) (PDF 9KB)
- Notice to unsuccessful applicants (DOCX 1KB) (PDF 193.5KB)
- Successful probation letter (DOC 60KB) (PDF 2KB)
- Unsuccessful probation letter (DOC 64KB) (PDF 5KB)
Pay slips and record-keeping
- Pay slip template (DOC 48KB) (PDF 8KB)
- Weekly time and wage records template (DOC 5KB) (PDF 449.1KB)
- Record of employee details (DOC 5KB) (PDF 206.1KB)
- Leave record (DOC 5KB) (PDF 411.7KB)
- Staff meeting records template (DOC 59KB) (PDF 5KB)
- First warning letter (DOCX 9KB) (PDF 212.8KB)
- Final warning letter (DOCX 7KB) (PDF 301.2KB)
- Termination of employment letter (DOCX 6KB) (PDF 371.9KB)
- Termination of employment letter – serious misconduct (DOCX 2KB) (PDF 227.4KB)
- Termination of employment letter – redundancy (DOCX 6KB) (PDF 448.5KB)