For some time now, larger IT companies have been charging GST to their Australian consumers. Examples of these are Google, Adobe and Linkedin. They are doing this because of a new law that began formally on 1 July 2017. This new law is known colloquially as the “Netflix Tax”, requires all international companies with an annual GST turnover of $75K or more and selling services and digital products to Australian consumers, to enter the Australian GST system. While most of us aren’t too impressed with the 10% price hike on these products, GST registered business owners understand that they can claim the GST back in their BAS which alleviates the sting a little……or so they thought! Sadly, this is not the case with this new law. The “Netflix Tax” tells us something different and if you’re not paying attention, you or your BAS Agent are likely to get things wrong when processing your next BAS. Read on.
Over the last couple of years, our bookkeeping practice has seen many clients spending a large part of their budget on monthly subscriptions for cloud-based apps. It’s not surprising at all as more and more businesses see and experience the efficiencies that this software brings to the table. It is not unusual for some clients to hold up to 10 or more monthly or annual subscriptions for which they are paying by direct debit. In the past, we and our clients understood that as the majority of these subscriptions are based internationally, no GST applied to them and this is how they have been treated from a bookkeeping perspective. This new law does not change this treatment. All purchases from international suppliers should still be entered using the GST free tax code so nothing really needs to change. However, the reason I am writing this blog is that as of 1 July 2017, many business owners will start to receive invoices from suppliers showing GST has been charged due to the new “Netflix Tax”. The ATO tells us (see below) that GST-registered business owners should not be charged GST for these types of purchases. The new law says that only those not registered for GST or purchasing items for personal use will be charged GST. GST-registered businesses need to act now to ensure that they are no longer charged GST. Notes from the ATO below explain how to do this:
To stop international companies from charging your business GST, you have to:
Provide them with your ABN
State that you are registered for GST
Many of these companies will be sending business owners emails requesting that they do the above via their respective websites so if this affects you, make sure you look for these emails and/or visit the websites and search for the relevant page and then lodge your details.
So what else do you need to know about the “Netflix Tax”? Here’s what the ATO is telling us:
- The law begins July 1 2017 (even though several companies have been charging GST since late 2016 e.g. Google and Adobe).
- It applies to imported services and digital products sold to Australian consumers – so most of the international subscriptions you now hold plus downloaded movies, music apps, e-books etc.
- If you have a GST registered business, you are not deemed a consumer in this scenario. As such, you should not be charged GST on these purchases.
- If your GST-registered business has been charged GST incorrectly, you should seek a refund by providing the relevant company with your ABN and GST registration data.
- If your business is not GST registered or you are purchasing items for personal use, then you are deemed a consumer and you have to pay GST on your purchases.
BOOKKEEPING FOR THE NETFLIX TAX
In our practice, we are going to treat our clients’ international digital purchases in the following manner. We feel that as this is still a relatively new law, we need to be a bit flexible in terms of the time it will take some businesses to lodge their details with companies and also obtain the correct invoices. That being the case, this is how we will proceed, at least for the next few months until the dust settles. Feel free to follow our lead if you think we’re on the right track.
- Write to all GST-registered clients and advise re how to stop companies from charging them GST as above.
- If a client provides an invoice showing GST has been charged, we will allow the GST claim but only if the invoice is in the business name.
- If a client provides an invoice including GST but in their personal name, then we will not allow the GST claim and will code as GST free.
- If the client cannot provide an invoice, we will process the purchase as GST free i.e. no GST claim (as we have always done).
We are also considering if perhaps we will not allow any GST claim from 1 July 2018, regardless if GST has been charged or not, as we believe businesses would have had ample time to lodge their details with companies by that date. We are still thinking about that one!
The “Netflix Tax” is here to stay and now we have to adopt a new set of rules as a result. Sadly, I don’t think the ATO has been very proactive in educating small businesses about the tax and how it may affect their purchases from international companies. I guess it’s up to bookkeepers and accountants to do the educating, hence this blog! So in summary, whether you’re a bookkeeper or a business owner reading this, I’ll leave you with a quick synopsis of what you need to remember:
- Only GST registered businesses are exempt from being charged GST by international companies.
- To opt out of being charged, these businesses need to advise international companies of their ABN and GST status.
- All other consumers do not have a choice and will pay the GST on digital purchases.
- As a GST registered business, you should still be able to claim GST on invoices you receive from international companies up until you advise them of your GST status.
- At some point, we believe that the ATO will disallow GST claims on these types of purchases despite business owners holding invoices showing GST was charged. This is because the ATO will expect all GST registered businesses to have advised international companies of their GST status at least by 1 July 2018, if not sooner. This is not something the ATO has said – it’s just what we think will happen. Watch this space.
If you need some help sorting out the bookkeeping for your “Netflix Tax” purchases or anything else related to this blog, please get in touch – we’d be happy to help.