GST deferral scheme for importers – an opportunity to relieve cashflow constraints05 May 2020 Authored by: Caitlin McKenna, Fletch Heinemann | Topics: Customs law, Tax and revenue
GST-registered importers can apply to defer payment of GST on their taxable importations from the time of importation until the 21st day of the following month. The GST liability can then be offset with any available input tax credits for the month.
GST on taxable importations
Ordinarily, GST is payable on taxable importations at the same time as customs duty. An importer’s liability for GST generally arises when the goods are entered for home consumption. In most cases, the Australian Border Force (ABF) will not release the goods until the GST, duty and other charges are paid.
The importer is liable for GST regardless of whether it is registered or carrying on an enterprise.
However, a GST-registered importer who imports the goods in carrying on its enterprise will generally be entitled to input tax credits (ITCs) for the GST payable. Although the ITCs will ultimately offset the importer’s GST liability on the importation, they will only be available when the importer lodges its BAS for the relevant period. The timing difference means the importer may be out of pocket for almost two months (if a monthly lodger) or almost four months (if a quarterly lodger).
In some cases, a GST-registered importer will not be entitled to input tax credits for the imported goods. This occurs when the imports are made in relation to input taxed or private or domestic supplies.
How does the GST deferral scheme work?
The GST deferral scheme allows approved entities who are monthly lodgers to defer payment of GST on their taxable importations until the 21st day of the following month. This allows them to account for the GST when they lodge their BAS. In turn, this allows the GST liability to be offset against any ITC entitlements for the relevant month.
If the importer is approved to access the deferral scheme, it must pay customs duty and other charges, but not GST, before the ABF will release the imported goods. The ABF will advise the ATO of the importer’s total deferred GST liability for the month and the ATO will include this amount in the importer’s BAS.
Here is an example. Haibo Pty Ltd (Haibo) imports dog food to sell in its pet shop, entering it for home consumption on 1 April 2020. Haibo is registered for GST.
- In the ordinary case, Haibo must pay GST on the taxable importation on 1 April 2020 and the ABF will not release the goods until it does. Haibo cannot offset that GST liability with the corresponding ITC until it lodges its BAS for April 2020 after the end of that month.
- Under the deferral scheme, Haibo is not required to pay GST on the taxable importation before the ABF will release its goods. The deferred GST liability will be included in its BAS for the month of April 2020 and can be offset by any ITC entitlements for that month. If the net amount for April is positive, Haibo must pay the GST by 21 May 2020. If it is negative, Haibo will be entitled to a GST refund.
How to access the GST deferral scheme
An importer must first change its GST reporting period to monthly (if necessary) and then apply to the ATO for approval to access the deferral scheme. Ordinarily, the change to monthly reporting will take effect from the first month of a quarter. So, if the importer makes the election in May 2020, the change will take effect from 1 July 2020.
However, the ATO has announced that, as a special COVID-19 related measure, it will backdate any elections to change to monthly reporting made in May or June 2020 to take effect from 1 April 2020. The importer will then need to lodge BASs for each month in the June 2020 quarter. The ATO has not confirmed whether it will waive any interest or penalties for late lodgment and payment of a BAS where the election has been backdated. We expect this will be their approach.
The ATO provides guidance on the application process here.
The ATO must approve a GST deferral application if satisfied that the applicant:
- is registered for GST
- has an ABN
- is a monthly lodger for GST
- will lodge and pay its BASs, and enter its goods for home consumption, electronically
- if an individual, is not an undischarged bankrupt
- if a member of a GST group, the group’s representative member is approved for the scheme.
The ATO may refuse the application if:
- the applicant is in liquidation, administration or receivership
- in the past three years, the applicant (or an individual relevant to its application, such as a director) has been convicted of a tax, customs or other offence
- the applicant (or, if applicable, any member of its GST group, any GST branch it or its parent entity has, or the parent entity) has an outstanding tax-related liability or return.
The ATO may revoke approval if the importer ceases to meet any of the above criteria – for example, if the importer fails to lodge or pay a tax-related liability on time.
For quarterly lodgers, the benefits of accessing the GST deferral scheme should be weighed against the costs of changing to monthly reporting.
Once you elect to report and pay GST monthly, you cannot revert to quarterly reporting within 12 months after the date you became a monthly lodger. For example, if you elect to become a monthly lodger in May 2020, the election will take effect from 1 July 2020 and you will be required to report and pay GST monthly until the start of July 2021. Businesses that are typically in a net GST payable position should consider the cost of bringing forward the business’s liability to pay GST to the 21st of each month. There will also be greater administrative costs of preparing 12 BASs each year.
On the other hand, businesses that are typically in a net GST refundable position may benefit from changing to monthly reporting as this will provide faster access to GST refunds.
Please contact a team member if you would like to discuss.