Do you come from a land down under?
Okay, no, we won’t commence a singalong to Men at Work’s guilty pleasure hit from 1980. This article is about something you’re unlikely to hear at the pub…
Goods and Services Tax on digital products in Australia.
The continental country, known for its kangaroos and koala bears, is also home to just over 24 million people who are known for spending a good chunk of their money on digital goods. To be precise, the average Australian spends $3,427 per year on digital products. This 2018 statistic comes from Ernst & Young, who also describe Australians as having “an insatiable appetite for digital goods and services.” And you want to get in on it, right?
Well, whether you come from the land down under, or you just want to sell your products there, the information below will keep your business fully tax compliant and save you a lot of trouble.
What are digital products?
A digital product is anything the customer receives or accesses via the internet. After making a purchase online, the customer gets an email, downloads a file or a program, or logs into a service portal. These are all instances of digital products. If the customer makes a purchase online, and then receives the good via snail mail, that’s a physical product...and not what this article is about. :)
As a term, “digital product” is slippery. First a digital product is referred to as many other things: digital good, digital service, electronic good, electronic service, e-good, and so on. Second, rarely will you find a hard-and-fast definition — or a comprehensive definition — of what a digital product actually is.
Australia is a great example of this slipperiness. Check out the Australian Tax Office’s official statement about digital taxes:
“This includes digital products such as streaming or downloading of movies, music, apps, games, e-books as well as services such as architectural or legal services.”
Pay close attention to the language: “includes...such as…” They’re not providing an exhaustive list of what’s considered a digital product in Australia. No, no, this is merely a list of some examples. The definition is open-ended to include untold other products as well.
Do you sell online yoga courses? What about PhotoShop templates for photographers? Those count as digital products, too, even if the Australian Tax Office doesn’t name them directly.
If you want to learn more about the nitty gritty of digital product definitions, not just in Australia but around the world, check out our article explaining what exactly a digital good is.
What is GST?
Goods and Services Tax (GST) is one of the various consumption taxes chosen by governments and applied to sales of goods and services (as you might have guessed!). Other countries might use Value-added Tax (VAT), the United States uses sales tax, and Australia has GST.
How GST works
GST is levied at every step of production, and it’s usually just a flat-rate percentage of the transaction. In Australia that rate is 10%.
In Australia a business pays GST for every good or service that helps them create the end product. Then when the end product is sold, the buyer pays GST to the business. That business must pay the customer’s tax forward to the government when taxes are due. At the same time, they get refunded for all the GST they themselves paid before, during the production process.
As you can see, the GST is refunded to everyone through tax credits, except the end consumer. So the only one paying the tax is the final buyer. As a seller, your business is just the tax middleman between the consumer and the government.
What are the digital tax laws in Australia?
All business owners importing digital products to Australia, listen up! Currently Australian tax law is split between B2C and B2B sales.
For B2C sales, the GST requirement only applies if your business passes the annual threshold turnover of $75,000. In normal words, if your yearly sales to private (non-business) customers totals more than A$75,000*, then you have to:
- Register for GST in Australia
- Charge 10% GST on all of your B2C sales there
- File and pay that tax to the ATO
If you remain under the tax registration threshold, then you don’t need to worry about GST at all!
If you’re an overseas business selling exclusively B2B, then you're not required to register for GST. These sales use the reverse-charge mechanism, so your Australian GST-registered buyers actually handle the tax, not you.
However, if you sell a mix of B2B and B2C, then the above sales thresholds and registration rules apply to you!
Do I need to register my business for GST in Australia?
As an independent seller, you must register for GST if your digital sales in surpass Australia’s annual threshold of A$75,000. If you don’t pass the limit, then you don’t need to register.
But — and this is an important “but” — if you use an online marketplace to sell your products, then it’s likely the marketplace operator is responsible for GST… not you! And it’s possible you don’t need to register for taxes after all.
Electronic Distribution Platforms (EDP) and Australian GST
According to the ATO, an electronic distribution platform “includes (but is not limited to) a website, internet portal, gateway, store or marketplace.” So this could be anything from Amazon to the Apple App Store.
Any sales made through an EDP
- Do not count toward your annual sales threshold
- Are not your GST responsibility!
Instead the operator of the EDP is liable for these taxes, and it’s their responsibility to inform the customer, charge, collect, and pay GST.
So, as a foreign seller, if all of your sales to Australian customers are made through an EDP, then you don’t need to register for taxes. However if you also sell outside of an EDP, such as directly through your own website, then registration depends on whether you pass the threshold. If you do, you’ll still need to register for taxes to handle only the GST collected on those direct sales.
If you want to read more about this straight from the source, see ATO’s information on when merchants or EDPs are responsible for GST.
How do I register for GST in Australia?
Australia offers two methods of tax registration for non-Australian businesses: the simplified and the standard. Each method has its pros and cons, so choose the one that suits your business.
The simplified version of tax registration, Simplified GST, is designed specifically for foreign businesses who want to sell in Australia. “The system allows you to register, lodge and pay your Australian GST online, manage your account details, and authorise others to securely access your account” — which sounds like everything you need. But actually the Simplified GST doesn’t allow you to claim input tax credits. Here are the qualities, listed from ATO’s website:
- You don’t have to prove your identity
- You use an ATO Reference Number (ARN) instead of an ABN (Australian Business Number)
- You cannot claim GST credits
- You cannot issue tax invoices or adjustment notes
- You must lodge your GST returns and pay GST quarterly
- You can pay electronically via SWIFT bank transfer or credit card.
Standard GST system
The Standard GST system is the same tax registration that Australian-based businesses use.
- You must supply various evidence of your identity
- You get an Australian business number (ABN) — and this allows you to issue legal tax invoices
- You can claim input tax credits
- You aren’t limited to quarterly accounting periods
- You use activity statements to report GST
If this more official route suits your business better, read more about the details of Standard GST registration here.
Note: You can always change your registration in Australia, from Simplified GST to standard or vice versa. Just contact the ATO and they will guide you through the switch. They’re helpful like that!
How can I monitor B2C vs. B2B, my annual sales threshold, and collected GST all at once?
Quaderno stays up-to-date on all of your sales in Australia, recording the location of customers, whether they are B2C or B2B, and tracking your total sales in the country (so you don’t need to constantly monitor whether you’ve passed the tax threshold). Not only that, Quaderno handles all of the GST related stuff: charging 10% at the point of sale, delivering an accurate invoice, and logging the tax information for your records.
Since Australian digital tax policy is complicated and ever evolving, Quaderno stays up-to-date on the legal maze, too. Our software will automatically respond to any changes in GST policy; you don’t need to lift a finger.
As you venture down under to take over the Australian market, give Quaderno a try for free!
Note: At Quaderno we love providing helpful information and best practices about taxes, but we are not certified tax advisors. For further help, or if you are ever in doubt, please consult a professional tax advisor or the Tax Agency.