Introduction
In recent years, the Australian Taxation Office (ATO) has redefined its Goods and Services Tax (GST) regulations concerning offshore supplies of digital products and services to Australian consumers. We’ve summarised below the current rules and obligations that foreign businesses need to be aware of when making supplies of digital products and services to Australian consumers.
Legislative Background
The GST treatment of digital products and services in Australia is governed by the ‘A New Tax System (Goods and Services Tax) Act 1999’. Initially, from 1 July 2017, foreign entities supplying digital products and services to Australian consumers were brought under the GST regime. This move aimed to align the tax treatment of domestic and foreign suppliers fairly and consistently.
GST Registration and Liability
Non-resident businesses selling imported services or digital products to Australian consumers, with an annual turnover threshold of A$75,000 or more, must register for GST. Once registered, these businesses must report and remit GST to the ATO for sales made to Australian consumers.
Determining Connection with Australia
A crucial aspect of the GST regulation involves determining whether a supply is ‘connected’ with Australia. According to the Goods and Services Tax Ruling GSTR 2019/1, a supply is considered connected if:
- It is done within the ‘indirect tax zone’, typically referred to as Australia.
- The supplier carries on an enterprise in Australia and makes the supply through that enterprise.
- The supply involves a ‘thing’ done in Australia.
It’s important to note that some supplies by non-residents may be treated as ‘disconnected’ from Australia, exempting them from GST obligations.
Digital Supplies Specifics
The GST ruling further elaborates on the treatment of digital supplies such as e-books, streaming services, digital software, and online training. A digital supply is typically not considered connected with Australia if:
- It is made by a non-resident who does not have an Australian GST presence.
- It is not made to an Australian consumer.
- The supply is made to an Australian-based business recipient, and the ‘thing’ is done in Australia.
Therefore, the location where a digital supply is ‘done’ becomes crucial in determining GST applicability.
Conclusion
The evolving landscape of GST regulations for offshore digital products and services requires that foreign suppliers stay informed and compliant with Australian tax laws. Understanding these rules ensures that non-resident suppliers can navigate the Australian market effectively while adhering to the legal requirements.
Author: Darren O’Malley
*Correct as of 04 December 2023
*Disclaimer – this article has been produced by Kreston Stanley Williamson as a service to its clients and associates. The information contained in the article is for general comment only and is not intended to be advice on any particular matter. Before acting on any areas contained in this article, it is imperative you seek specific advice relating to your particular circumstances. Liability is limited by a scheme approved under professional standards legislation.
