Must you register for GST when what you sell is GST-free as exported to overseas customers?
The answer is YES. The total turnover of an enterprise – including domestic and overseas sales – is included in the GST registration threshold of $75,000, so a requirement to register for GST arises.
- Even if sales to Australian customers are nil or minimal and below the threshold,
- Even if all goods are exported within 60 days and GST-free,
- Even if the taxpayer would always be receiving GST refunds,
- Even if the ATO sends cryptic robo-emails that imply otherwise,
- Even if someone on the ATO phone helpline is unsure,
… the GST Act says YES. Your business is required to be registered for GST under Division 23 of the GST Act.
Some of our clients tell us they’ve received conflicting advice from the ATO on this subject. Some have not registered for GST when they should have and have needed our help to promptly register and upgrade their accounting systems with cloud software, and lodge some BAS’s.
Question: What is the benefit of being GST registered?
Most businesses are actually better off by being GST registered because they “get back” all the GST paid on their business inputs.
This quite often results in quarterly GST REFUNDS for business selling GST-free goods and services to overseas customers.
How better off you are can also be measured by how effectively you minimise your risks and manage your business by using appropriate accounting software with time-saving automations. Being GST-registered also encourages businesses to keep their records up to date and track their cash flows on a regular basis. Such businesses are more likely to be profitable, stress-free and receive more timely financial advice than those that use outdated manual systems. Win win!
Question: I didn’t register for GST so why didn’t the ATO chase me?
Perhaps the ATO just haven’t caught up with you yet. Or perhaps they’re not that interested in paying refunds! The ATO hold their cards close their chest. But ask yourself – how long do you want to risk attracting an audit of your business systems by failing to register for GST?
As tax agents, we have to minimise our clients’ risks and our own – so all we can do is interpret how the law applies to your situation and warn you of the consequences of failing to comply with legislative requirements (e.g. deemed assessments and penalties, see this ATO practice statement). Whether or when the ATO pursue non-compliant taxpayers is not something that tax agents can predict.
Having said that, the ATO has not shown an appetite for pursuing these kinds of overseas-sales taxpayers who have failed to register for GST in the past. After all, the ATO’s resources are directed at preventing revenue-leakage, so we expect they would prioritise chasing taxpayers who avoid paying tax rather than those who avoid claiming refunds.
Question: So I registered for GST and got a refund… why did the ATO question it?
When taxpayers first claim a GST refund, a flag is raised to the ATO and their reaction is automated. Unfortunately, some people rort the system which has resulted in massive revenue leakage. So the ATO have a program of verifying GST refunds to prevent fraud. This may involve sending a letter or email querying whether the entity is entitled to an ABN or GST registration, or withholding a GST refund until an investigation is concluded.
In our experience of clients’ GST refunds and registrations being queried, a quick phone call to the ATO explaining our clients’ circumstances has always led to a speedy resolution.
Question: How does it work if I sell good online to overseas customers?
Sales to overseas customers when sold online through an online agent platform may be GST-free export when exported within 60 days but these sales are included when calculating the annual turnover for GST registration purposes.
Further, if you account for sales made through an online agent platform the electronic distribution platform (EDP) rules under the law for low value imported goods do not apply since there is no importation of low value goods into Australia when the goods are located in Australia and the sales are made to the overseas clients and Australian clients. For information on the EDP rules under the law for low value imported goods refer to the following:
- Law Companion Ruling LCR 2018/2: GST on supplies made through electronic distribution platforms at https://www.ato.gov.au/law/view/document?DocID=COG/LCR20182/NAT/ATO/00001
- Fact sheet ‘GST on low value imported goods – information for operators of electronic distribution platforms (EDPs) at https://www.ato.gov.au/Business/International-tax-for-business/In-detail/GST-on-low-value-imported-goods/Information-for-operators-of-electronic-distribution-platforms/
- Who charges GST at https://www.ato.gov.au/Business/International-tax-for-business/GST-on-low-value-imported-goods/Who-charges-GST/
You are required to register for GST where you are carrying on a business and your annual turnover reaches the GST registration threshold of A$75,000 (A$150,000 for non-profit organisation) or more.
If you are not required to be registered for GST you can choose to register for GST.
You must register for GST:
- when your business or enterprise has a GST turnover (gross income minus GST) of $75,000 or more
- when you start a new business and expect your turnover to reach the GST threshold (or more) in the first year of operation
- if you are already in business and have reached the GST threshold
- if your non-profit organisation has a GST turnover of $150,000 per year or more
If you do not register
You need to register within 21 days of your GST turnover reaching or exceeding the GST registration threshold of A$75,000.
If you do not register for GST and are required to, you may have to pay GST on sales made since the date you were required to register. This could happen even if you did not include GST in the price of those sales.
You may also have to pay penalties and interest.
Backdating your GST registration
You can apply to backdate your GST registration, but this is limited to four years for tax periods commencing on or after 1 July 2012.
This means, in the absence of fraud or evasion, the ATO cannot backdate your GST registration by more than four years and you are taken to be not required to be registered before that date
Working out your GST turnover
Your GST turnover is your gross business income of sales that are connected with Australia (not your profit), excluding any:
- GST included in sales to your customers
- sales that are not for payment and are not taxable
- sales not connected with an enterprise you run
- input-taxed sales you make
- sales not connected with Australia.
GST turnover threshold
You reach the GST turnover threshold if either:
- your ‘current GST turnover’ (your turnover for the current month and the previous 11 months) totals $75,000 or more ($150,000 or more for non-profit organisations)
- your ‘projected GST turnover’ (your total turnover for the current month and the next 11 months) is likely to be $75,000 or more ($150,000 or more for non-profit organisations).
Sales connected with Australia
GST applies to sales that are connected with Australia, whether they are goods, property or other things and the sales are subject to GST to the extent that these sales are not GST-free or input taxed under the GST law.
Sale of goods
A sale of goods is connected with Australia if the goods are any of the following:
- delivered or made available in Australia to the purchaser
- removed from Australia
- brought to Australia – provided the seller either imports the goods or installs or assembles the goods in Australia.
- from 1 July 2018, supplies of low value imported goods to a consumer in Australia
Exports of goods
Goods that are exported from Australia are connected with Australia and included when calculating your GST annual turnover for GST registration purposes. Where the annual turnover for sales that are connected with Australia you are required to register for GST.
Exported goods are GST-free and therefor GST is not collected on the sale if they are exported from Australia within 60 days of one of the following, whichever occurs first:
- the supplier receives any payment for the goods
- the supplier issues an invoice for the goods.
In the case of goods paid for by instalments, the payment or invoice must be for the final instalment.
To summarise, where an Australian resident taxpayer is selling goods that are located in Australia to Australian and overseas customers the sale of these goods are connected with Australia. The taxpayer is required to be registered for GST within 21 days where the turnover for the sales that are connected with Australia (including sales that are GST-free export) is A$75,000 or more.
The best tip is to ask a qualified tax professional instead of googling or calling the ATO..!
The ATO website is helpful, and even the unqualified public servants on the ATO phone lines try to be helpful (note: none of their advice is binding, so you cannot rely on informal ATO advice to defend yourself later). But unless you can locate and understand all the relevant Legislation, Cases and Tax Rulings by searching the Legal Database you will probably miss something critical.
This information is only general in nature. For personalised advice regarding all of the GST and accounting implications of your business activities, please do not hesitate to contact us.