Editor’s Note (26 June 2017): Australia’s ‘Netflix tax’ is coming into force on July 1 2017, with subscription prices going up 10 percent. This article was originally published on 24 February 2016 and the author has updated it to reflect the latest Federal Government changes.
In February 2016, Treasurer Scott Morrison introduced draft laws to Parliament to apply the Goods and Services Tax (GST) on digital goods, such as eBooks, apps, games, movies and books purchased by Australians from overseas vendors. The so-called ‘Netflix tax‘, seeking to level the playing field between overseas businesses and their Australian counterparts, will generate $350 million in estimated revenue over four years. Tax experts concluded that the absence of GST on digital goods and services has been increasingly untenable, and GST must be applied to overseas vendors to raise revenue.
How will the ‘Netflix Tax’ work?
The legislation (The Tax and Superannuation Laws Amendment (2016 Measures No. 1) Bill 2016) sets out the requirements for overseas businesses to collect and later remit GST on all products and goods purchased by Australian consumers. This move is in line with Organisation for Economic Co-operation and Development (OECD) guidelines, which currently requires consumption of goods be taxed in the destination country of imported digital goods and services. The OECD recognised that $240 billion is lost in revenue globally from profit shifting and lost tax. The draft legislation requires overseas companies that sell more than AUD$75,000 worth of goods annually to Australian consumers to register their products for GST.
The scheme is expected to cost $1.5 million to establish within the Australian Taxation Office and is planned to commence July 2017. It is forecasted to generate an additional $150 million in its first year of operation and $200 million in its second year from Australian consumers. The States and Territories will receive the revenue from the GST raised. The move will not affect international companies already collecting tax from Australians, such as Apple iTunes and Spotify. It will target big players such as Netflix, Amazon, Kobo, Tidal, and Adobe.
Netflix and Chill
For users of Netflix, the streaming platform currently has three pricing tiers to choose from. Across all three tiers, viewers will end up paying the approximate equivalent of an extra month for a year’s worth of streaming.
|Old monthly pricing||Additional cost per year (after 10% GST increase)|
|Standard Definition Plan||$8.99||$10.68|
|High Definition Plan||$11.99||$14.28|
|Ultra High Definition||$14.99||$17.88|
The Federal Government has also announced GST will be charged for low-value goods (less than $1,000) and imported into Australia from 1 July 2018. This change aims to address the continued growth in online shopping as well as the competitive disadvantage for domestic retailers selling equivalent goods.
Local retailers have argued that they face with an unfair competitive advantage as offshore retailers are not required to charge GST on the goods they sell. By applying the same tax regime on imported low-value goods by consumers with goods that are sourced domestically, the Bill is intended to even the playing field between local bricks and mortar retailers and offshore retailers.
How international companies and suppliers will implement the tax is still to be determined. The Bill has called for overseas companies to take ‘reasonable steps’ to ascertain whether buyers are from Australia, such as a .com.au email address or from an Australian issued credit card. However, both of these can easily be circumvented with gift cards and generic email addresses. Tax experts have admitted that drafting the legislation will be easy and “the challenge will be collecting the cash.”
If you are selling intangible or virtual goods or provide consultancy and professional services for customers in Australia, the upcoming tax changes may affect you. Get in touch with our commercial lawyers to determine whether these GST reforms will affect your business.