Government makes significant amendments to the GST cross border rules
This is a guest post by Jonathan Ackerman from Ackerman Consulting.
The Government has introduced a bill into Parliament to effect significant amendments to the GST cross border rules. The most interesting aspect of the legislation is the amendments to business to business cross border transactions. These make major changes to the cross border rules and are likely to impact on almost every business to business cross border transaction. Every inbound and outbound arrangement will need to be reviewed in the light of the new rules and many cross border contracts will likely need to be updated, particularly if businesses want to take advantage of the concessional amendments contained in the bill.
The current GST cross border rules are very broad, requiring many non-residents to register for GST and many Australian businesses to charge GST to non-resident customers, often for no net gain to the revenue. Many non-residents and Australian businesses with non-resident customers do not understand the rules and often have a GST exposure of which they are not even aware. The rules are also complex: since GST commenced, the ATO has issued some 10 GST rulings comprising almost 1,000 pages of commentary on these rules alone.
The amendments were first flagged in 2009 and are only now being implemented. The bill encompasses a range of amendments designed to limit the circumstances where GST needs to be charged in cross border business to business transactions. In particular, the following scenarios should no longer give rise to a GST liability:
- Services and other intangibles supplied by non-residents to Australian businesses. An example in this category is a non-resident franchisor that grants a right to operate a franchise to an Australian franchisee in return for a franchise fee.
- Goods sold by non-resident vendors to Australian business customers where the customer imports the goods into Australia and the vendor installs or assembles the goods in Australia. An example in this category is a non-resident IT vendor that sells IT hardware to a business customer in Australia where the customer imports the hardware into Australia and the vendor installs the hardware at the customer’s premises in Australia.
- Services and other intangibles supplied by a non-resident supplier to a non-resident business customer. An example in this category is a global consulting and billing contract between non-residents where the services are to be performed by an Australian subsidiary of one non-resident for the Australian subsidiary of the other.
- Goods leased in Australia by a non-resident lessor to a non-resident lessee. An example in this category is a non-resident lessor that leases an aircraft in Australia to another non-resident lessee.
- Services and other intangibles supplied by Australian businesses to non-resident customers that are provided to a business in Australia or an employee or officer of a business in Australia. An example in this category is an Australian supplier that provides a training course for a non-resident’s employees in Australia.
The amendments should reduce the number of non-residents in the GST system and limit the circumstances where Australian suppliers need to charge GST to non-residents. However, the cross border provisions will become more complex as a result of the amendments, since the proposed amendments generally operate by way of exceptions to the existing rules. The start date for the new rules depends on when the bill receives Royal Assent, but will most likely be 1 July 2016 or 1 October 2016.
The transitional provisions in the bill also mean that most existing arrangements will continue to be governed by the previous rules unless the parties agree otherwise. Accordingly, every cross border arrangement will need to be reviewed in the light of the new rules, particularly if businesses want to take advantage of the concessional amendments contained in the bill. Most cross border contracts will likely need to be updated.
The bill also implements the so-called ‘Netflix tax’, that is, the extension of GST to digital products and other services provided by non-residents to Australian consumers. The Netflix tax will apply from 1 July 2017. The Government has also announced amendments to apply GST to low value imported goods (i.e. those worth less than $1,000). This is likely to apply the same non-resident registration model as the Netflix tax.
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