Are you an Australian business owner curious about how the Goods and Services Tax (GST) applies to your international sales?
As you plan to expand your businesses globally, it’s crucial to understand the tax importance of international sales.
Two common consumption taxes that affect international trade are Value Added Tax (VAT) and Goods and Services Tax (GST).
This blog will focus on GST in Australia and how it applies to international sales.
How GST Applies To Exports?
GST (Goods and Services Tax) in Australia is a 10% tax on most goods, services, and other items sold or consumed within the country. However, exports are generally GST-free.
Here’s what that means:
- No GST on Exported Goods and Services: If you’re registered for GST, you don’t include GST in the price of your exported goods or services.
- Claim GST Credits: You can still claim credits for the GST included in the price of purchases used to make your exported goods and services.
GST-Free Export Of Goods
For goods to be GST-free, they must be exported from Australia by the supplier within 60 days of:
- Receiving any payment for the goods, or
- Issuing an invoice for the goods.
If payment is made in instalments, the 60-day period starts after the final instalment. Suppliers can request an extension for this period through the Online services for the business portal.
Special Case For Boats
New boats sold for private recreational use must be exported within 12 months to be GST-free.
Example: Exporting Electronics
A company in Sydney exports electronic components to a buyer in the US. They issue an invoice on July 1st and receive full payment on July 10th. The goods must be shipped by September 1st to qualify as GST-free. If the shipment is delayed, the company can apply for an extension to ensure compliance.
External Territories
Sales to residents of Australia’s external territories (e.g., Norfolk Island, Christmas Island) can also be treated as GST-free export sales.
Export Of Services And Other Exports
Exports aren’t limited to just physical goods. You can also export services and other things like:
- Consulting services
- Intellectual property rights
- Digital products
For services and other exports to be GST-free, two conditions must be met:
- Recipient Location: The recipient of the service or item must be located outside Australia.
- Service Consumption: The service or item must be used or consumed outside Australia.
Example: Providing IT Services
An Australian IT firm provides remote support to a company in Canada. Since the Canadian company is outside Australia and uses the service there, the support service is GST-free.
When Services Are Used Outside Australia
A service is GST-free if it is used or enjoyed outside Australia or if it is made to a non-resident who is not in Australia when the service is provided.
When Services Are Used In Australia (Not GST-Free)
If a service is provided in Australia, it is not GST-free, even if the recipient is not in Australia.
Example: Service Used in Australia
An Australian school provides tuition to overseas students studying in Australia. Even though the student’s parents are overseas, the service is used in Australia and is not GST-free.
Tourist Refund Scheme
Australia has a Tourist Refund Scheme that allows both foreign and Australian tourists to claim a refund on GST paid on goods they’re taking out of Australia as accompanied luggage. This effectively treats these goods as exports.
To be eligible for the scheme:
- The goods must be declared to Australian Border Force
- The goods must be taken as accompanied luggage (carried, worn, or checked into hold luggage)
It’s important to note that if a traveller brings goods back into Australia for which they’ve claimed a GST refund, and the value of those goods (combined with any other overseas purchases) exceeds AUD 900, they will have to repay the GST refund. GST will be payable on the entire value of the items, not just the amount over the AUD 900 limit.
Registering For GST
You must register for GST in Australia if:
- You are carrying on a business or enterprise.
- Your GST turnover from sales connected with Australia is equal to or greater than A$75,000 (or A$150,000 for non-profit organisations).
For non-resident businesses, registering for GST ensures compliance with Australian GST obligations. When calculating GST turnover, include export sales even though they are GST-free.
VAT vs. GST
While GST in Australia is similar to VAT (Value Added Tax) used in many other countries, there are some differences:
- Rate: GST in Australia is a flat 10%, while VAT rates vary by country.
- Application: Both GST and VAT are consumption taxes, but the rules for exemptions and zero-rated supplies (like exports) can differ.
Don't Let GST Become A Headache For Your Business
Keeping up with business taxes can be confusing, especially when it comes to GST. Understanding these terms and filing your GST on time is crucial to avoid penalties from the ATO.
Here at KPG Taxation, we can help you with every step of the process. Our qualified tax accountants can:
- Explain GST in simple terms.
- Help you decide if registering for GST is right for your business.
- Take care of recording and lodging your GST reports with the ATO.
- Ensure you meet all your tax obligations and avoid any penalties.
Don’t waste time trying to figure it out yourself. Let our experts handle your GST and BAS so you can focus on running your business.
Contact KPG Taxation today for a consultation! We have offices across Australia or you can contact us online. We offer affordable packages to suit businesses of all sizes.