GST on online shopping - the tax holiday is coming to an end
Tax Alert - December 2017
By Robyn Walker
Currently in New Zealand, goods can be purchased from overseas with a value of up to $400 before GST will be added to the cost at the New Zealand border. Conversely New Zealand retailers can sell their products outside of New Zealand and not charge New Zealand GST. With Christmas looming and many taking to the internet (or the phone, or mail order) to buy and sell products it’s timely to consider how the GST implications of online shopping will soon be changing.
Australian GST deadline looming
If you’re a business selling goods to consumers in Australia then 1 July 2018 is an important date. This is when it may be necessary to register for and start charging Australian GST on your sales.
These rules have been in the works for a number of years now, but it is only now that all the obstacles to Australia implementing these rules have been removed. Equivalent rules for applying GST on online services took effect from 1 July 2017.
Some key requirements to be aware of:
Who: Non-Australian businesses who are making (or projected to make) supplies to Australian consumers of AU$75,000 or more per annum may be required to register and charge Australian GST on sales to these customers. In some instances the GST obligations may fall to another party, such as an online marketplace operator or redelivery service provider.
What: Under the new Vendor Registration Model suppliers will need to add Australian GST of 10% to any supplies of “low value goods” to Australian consumers (i.e. not GST registered businesses). The “low value good” threshold in Australia is AU$1,000. Generally sales of goods costing over AU$1,000 do not require GST to be charged (GST will continue be collected at the border instead). If multiple products are sold at the same time, exceeding the AU$1,000 threshold it is necessary to determine whether the goods will be consigned together or separately to determine if GST should apply.
When: The rules will apply from 1 July 2018. Businesses subject to the rules will need to start thinking now about how they will comply with the new rules and get themselves ready to register for Australian GST (with a full registration for GST or under a new simplified registration process). It’s our understanding that a full registration for GST can take some time to be processed by the Australian Tax Office (ATO), so this shouldn’t be left to the last minute.
How: There are a number of complicated design features associated with these rules. Businesses selling over the internet will need to consider upgrading ecommerce software to deal with complications from these rules. Some of the issues which will need to be grappled with include determining where customers are based, converting NZD currency amounts to AUD to determine whether a customer is buying low value goods, determining whether customers are end-consumers or GST registered businesses, determining whether goods will be consigned together or separately, ensuring New Zealand GST is not also charged, and determining how returned or replacement goods will be dealt with. These questions may lead businesses to consider how they transact with customers, and in particular whether enough profit is derived from Australia to justify these new compliance costs, or whether another avenue of selling (such as through an online marketplace, or not shipping direct to Australia and allowing redelivery services to be used by customers) is worth considering.
New Revenue Minister says collecting GST on overseas online purchases is the ‘right thing to do’
On the back of Australia moving ahead with its new GST rules, it has been confirmed that New Zealand is considering collecting GST on online purchases of “low value goods” by New Zealand consumers. However the implementation of such a tax might still be some time off.
It has been confirmed by the Minister of Revenue Hon Stuart Nash that the issue of collecting GST on low value goods will be considered by the Tax Working Group. This provides further time for full consideration of the pros and cons of levying such a tax and what the most appropriate mechanism would be. The Minister is quoted as saying collecting GST on overseas online purchases is the “right thing to do”, and therefore it still seems likely that we will eventually see GST being applied to goods being sold to New Zealanders from offshore.
For more details about the Tax Working Group, please refer to our earlier article.
Currently a “low value good” is one where the combined GST and duty owing is NZ$60 or less (this roughly equates to a purchase worth NZ$400, subject to the application of duties).
The options available for the Tax Working Group to consider include lowering the collection threshold to have the tax collected at the border. An alternative is to follow the lead of Australia and have non-resident suppliers register for GST and levy GST on transactions (discussed above).
From October 2016 Inland Revenue has required non-resident suppliers of online services to register and start charging GST, with the number of registrations and GST collected far exceeding expectations. The success of that system, combined with monitoring the success of the Australian regime may help with the decision making.
New Zealand is committed to following the Generic Tax Policy Process when implementing tax changes, therefore if a recommendation is made by the Tax Working Group we would expect to see consultation on any proposals before they are legislated for. It is therefore difficult to see any changes to the current rules having effect before 2020.
December 2017 Tax Alert contents
- Tax Alert - December 2017
- BEPS proposals now before New Zealand Parliament
- Terms of reference announced for Tax Working Group
- R&D Tax Credits: Reflections from New Zealand and Australia
- Is AIM the right provisional tax method for you?
- GST on online shopping – the holiday is coming to an end
- Proving arm’s length pricing is set to become a taxpayer’s burden
- Impact of changes to the look-through company rules
- Are your GST processes and controls up to scratch?
- Recent tax developments