Although Goods and Services Tax (GST) is a domestic tax, it now also applies to goods imported from overseas. This is due to a new GST law which came into effect in July 2018. Consequently, this affects both Australian businesses and customers. Local businesses which use drop shipping in the sale of goods must reassess whether they need to become GST-registered. Firms who import goods from overseas must ensure their suppliers do not incorrectly charge them GST. Customers who buy goods from overseas must now also pay GST on low value goods.
This article will discuss the situations in which businesses and consumers are now liable for GST below.
Businesses that use Drop Shipping
Drop shipping involves the sale of goods that businesses store overseas at the time of sale, which they then send directly to customers in Australia. Most notably, businesses now need to become GST-registered if their annual GST turnover, including income from drop shipping sales, is AUD$75 000 or more. To learn about other circumstances where businesses need to become GST-registered, see ‘When Do I Need to Register for GST?’.
Once a business is GST-registered, they should charge GST at the point of sale in their Tax Invoice. Under the new law, this requirement now extends to situations where businesses use drop shipping to sell low value goods – that is, goods worth AUD$1 000 or less. An exception to this is if a GST-exempt good is being sold. The situation is also different for the sale of goods worth more than AUD$1 000. In this case, the Department of Home Affairs still collects GST on these products at the Australian border.
Businesses that Import Goods
Australian GST-registered businesses now need to ensure they are not charged GST by overseas suppliers when buying low value goods for business use, as GST is only meant to be imposed on consumers as opposed to retailers. To do so, these organisations should give suppliers their ABN, in addition to a statement showing they are GST-registered.
Businesses that are incorrectly charged GST should speak to their supplier to seek a refund. Otherwise, you may be able to claim a GST credit in your business activity statement if:
- You are liable to pay for the goods purchased
- You paid AUD$82.50 or less for the product, or have a tax invoice containing the supplier’s ABN
- The GST charged has not been refunded by the supplier (however, businesses must repay the GST credit claimed if the supplier later reimburses you), and
- There is no evidence the supplier did not remit to the ATO the GST charged, which means the supplier presumably did pay the amount of GST charged to the ATO.
Customers that Import Goods
Customers typically import goods when they purchase products online from overseas businesses, such as ASOS or an eBay store. Previously, customers only had to pay GST on these imported goods if they were worth more than AUD$1 000. However, the new law now requires customers to also pay GST on imported goods worth AUD$1 000 or less. Exceptions to this rule include GST-exempt goods.
It is important to know the implications of the new GST law if you are an Australian business or consumer. Indeed, if you import goods from overseas or use drop shipping to sell goods, it can affect your tax liability. For further assistance, it is advisable to consult a business lawyer or accountant.
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