Online retail shopping – customs duty and import GST exemptions under attack

Australian retailers have recently campaigned for the government to remove the exemptions that allow certain imported goods to be exempt from customs duty and import GST.

Importing goods free of customs duty and import GST

Under the current rules, most consignments valued at less than $1,000 can be imported into Australia free of customs duty and import GST. The thresholds are different for tobacco and alcohol, unaccompanied personal effects, and goods brought into Australia as part of passengers’ luggage.

Australian retailers are complaining that the exemptions allow online retail sellers to benefit from an unfair (untaxed) playing field where goods are shipped directly from overseas suppliers to Australian customers.

The campaign has been resisted by Australian consumer groups. In addition, the government and the opposition have reiterated the original policy behind the low value threshold, which was to ensure that tax is collected in a cost-effective manner. The cost of collecting customs duty and import GST on each low value parcel is seen to be more than the value of the tax collected.

Increased compliance activity

The government is not likely to remove the exemptions. However, the Minister for Home Affairs has announced that compliance activity will be increased to ensure the current exemptions are not misused.

For example, the practice of splitting transactions into multiple consignments, so that each consignment is under the $1,000 threshold, will be examined. Splitting transactions is not effective where the goods are sent on the same ship or aircraft. Customs will aggregate the transactions in these circumstances.

While there are no general anti-avoidance provisions under Australia’s Customs Act, there are anti-avoidance provisions under the GST Act, which may be used to levy import GST on the imported goods in cases of transaction splitting.

Overseas suppliers staying overseas

Overseas suppliers also need to be careful not to create a taxable presence in Australia by “carrying on an enterprise” here. The goods may still be imported free of import GST, but there will be no cost advantage if the overseas supplier is required to register and pay GST in Australia because it has an enterprise in Australia.

The rules for whether a business has a presence in Australia for GST purposes are much wider than the income tax permanent establishment rules.

For suppliers sending tangible goods into Australia, care needs to be taken to ensure that an overseas supplier does not fall within the GST net as a result of carrying on business:

• at a place in Australia, including by maintaining a distribution point in Australia; and
• through a local agent (even if the local agent does not have the power to contract on behalf of the overseas supplier).

An Australian subsidiary may provide support services to an overseas supplier without the overseas supplier becoming subject to GST and income tax in Australia provided the services are clearly defined and the agreements carefully structured.

For suppliers selling intangibles, such as downloads of music, applications, games and content, it is important to consider whether there is “substantial equipment”, such as a server, creating a taxable presence in Australia.