Tax & Accounting Blog

Australia and New Zealand expand GST

Blog, Indirect Tax, VAT Tax Rates, VAT-GST Management May 11, 2016

More and more jurisdictions are considering requiring non-resident suppliers to charge local indirect tax on supplies to consumers. Israel and Russia are considering these measures and within days of each other Australia and New Zealand approved legislation to expand the scope of their respective GST systems. The passage of the legislation was one of the last things done by Australia’s Parliament before being dissolved in preparation for a General Election July 2 2016.

New Zealand’s changes will come into effect October 1 2016 and Australia’s changes will come into effect July 1 2017. Both systems will require non-resident suppliers to register for the GST. These taxes are locally known as ‘Netflix‘ taxes but are much broader than just streaming video services like Netflix. New Zealand adopts the term “remote services” and Australia uses the term “inbound tangible supplies” and both terms are broader than software and streaming video.

New Zealand’s Remote Services:

remote services means a service that, at the time of the performance of the service, has no necessary connection between—

(a) the place where the service is physically performed; and

(b) the location of the recipient of the services

Australia’s Inbound Intangible Supplies:

            (1)  A supply of anything other than goods or * real property is an inbound intangible consumer supply if the * recipient is an * Australian consumer, unless:

                     (a)  the thing is done wholly in the indirect tax zone; or

                     (b)  the supplier makes the supply wholly through an * enterprise that the supplier * carries on in the indirect tax zone.

             (2)  Disregard section 84-55 in determining whether paragraph (1)(b) applies.

Both do not constrain the services unlike the VAT Directive’s Article 58 which explicitly calls out telecommunications, broadcasting and electronic services.

Both countries require operators of marketplaces to be responsible for charging and remitting the GST as well as removing the obligation for the supplier’s to issue tax invoices. At the same time, non-resident supplier’s will have to make sure not to charge businesses GST erroneously as the GST will be non-recoverable and so business processes for Australia and New Zealand will need to be revisited in order to collect for either the local tax identification number. In Australia this is the Australian Business Number (ABN) and in New Zealand it is the GST Number. These tax identification numbers can be considered as a sign the recipient is not a consumer and is a business. 

In Australia, there had been long-running debate about drastically expanding the scope of the GST and increasing the rate to 15% in order to fill a revenue gap. However, the decision was made not to change the rate or base; this discussion could be revisited after the general election.