LinkedIn, the online network for professionals, began charging GST to its customers in early 2017. This is not an isolated incident-Other international IT companies now charges GST on intangible online purchases from the 1st of July 2017. All the companies with an annual turnover to Australian consumers above $75,000 will be subject to this tax, including international businesses.
Internationally sourced intangible goods include digital products, services or rights. These intangible goods were not previously subject to GST by international companies, however, they are now subject to GST under most of circumstances. For example, if a business sold a 12-month subscription in December 2016, the payment for products received after July 1st 2017 is taxable. Therefore, those international companies may need to charge GST for the July-December 17 subscription.
This GST on ‘intangible’ products and services impacts major off-shore competitors including Amazon, EBay, LinkedIn, etc. Its purpose was to give Australian firms competitive neutrality by ensuring fair and equal treatment of all goods and services. However, users now may have to pay 10% extra on the IT services, causing concerns for business owners.
Implications to your business:
The ATO regulation states that the GST isnot be appliedto digital services or products imported by Australian businesses for professional use under certain circumstances. Suppliers would not charge GST if you state you are registered for the GST and provide them with your ABN. However, if you are not registered for GST, the tax would now be charged. These costs may seem small, but will quickly add up.
The process won’t necessarily be automatic, and needs to be addressed in the contractual terms between suppliers and consumers. Actual impact on companies will largely depend on their GST registration status. While there will not be effects on companies already registered for GST, who are already required to claim taxed inputs for a return, it will have a significant impact for companies who are not registered. Registered consumers would also be taxed for all the purchases that are not classed as business inputs.
At Tailored Accounts, we aim for the active management accounting approach when we help sole traders and companies make informed decisions for their trades. Consultation and tax advisory services have always been our best way for you when you want to maximise your tax advantage and add more values to your businesses.
The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of any agency of the Australian government. Examples of analysis performed within this article are only examples. They should not be utilised in real-world analytic products as they are based only on very limited and dated open source information. Assumptions made within the analysis are not reflective of the position of any Australian government entity.