The 'Netflix Tax' Explained

What is the Netflix Tax?

From July 1 2017, the Federal Government wants to apply the Goods and Services Tax (GST) to all digital products and services supplied into Australia. In practice, this means the amount of money you spend on software downloads and streaming services is set to increase across the board.

Here's everything you need to know about the so called "Netflix Tax" and how it will affect your wallet.

Update: The Netflix Tax just passed and will take affect from July 1 2017. The Online Goods Tax has been postponed until 2018, however. More information here.

What Is The Netflix Tax?

The "Netflix Tax" is the nickname given to a tax amendment that will see the GST applied to digital products and services imported by consumers. Currently, only goods or real property imported by consumers are subject to the GST. (A 10 er cent GST tax will also be applied to imported goods worth less than $1000 via a separate amendment.)

Has The Netflix Tax Been Approved?

The proposed GST changes are still with the Senate waiting to pass legislation. The bill was initiated in the House on 9 May 2017, where the Economics Legislation Committee regarded the legislation as "a step in the right direction." Labor Senators also voiced their support on the collection of GST on low value imports "in principle". There's a chance that the amendment will not be implemented until 2018 - fingers crossed!

What does the tax involve?

As the government explains on the Parliament Of Australia website, the key features of the Netflix Tax are as follows:

  • it will be imposed on intangible supplies such as supplies of digital content, games and software — but will also extend to consultancy and professional services performed offshore for customers in Australia
  • the liability for the GST will rest either with the supplier or with the operator of an electronic distribution service
  • GST will be imposed at a rate of 10 per cent on the value of the supply
  • at this stage it would appear that all intangible supplies will be caught, regardless of the value of the supply (currently goods valued of less than $1,000 from overseas suppliers over the internet imported by Australian consumers are not covered under the GST Act, hence it is likely there might be scope for this value of intangible supplies to be changed by regulation) and
  • only supplies made to consumers will be caught: business-to-business transactions will be exempt.[4]

What Is Being Taxed?

As mentioned above the tax will be imposed on all "intangible supplies". This includes pretty much anything you can download to a tablet, smartphone, console, computer or e-book reader. Music, movies, games, e-books, digital magazines and streaming services will all be taxed. The removal of the sub-$1000 exemption also means that the tax will apply to everything you purchase online from international retailers.

Does The Netflix Tax Apply To eBay?

Yep. In addition to digital products and services, the Netflix Tax will also apply to fees on online stores including eBay.com.au. Here's the official statement from eBay:

From 1 July 2017, Goods and Services Tax (GST) will apply to fees on eBay.com.au, due to new legislation in Australia (the "Netflix Tax").

Businesses registered for GST will not be affected by this change if you register your Australian Business Number (ABN) with eBay here.

How Much More Will I Pay?

As with other goods and services that fall under the GST, digital products will receive a 10 per cent price hike. To take the tax's namesake as an example, a year's subscription to Netflix at $8.99 a month would go from $107.99 to $118.60 - a difference of around $10.70. It's not yet clear whether all companies will pass the tax on to customers, but it seems incredibly likely.

Why Is The Netflix Tax Happening?

The absence of GST on services and digital products imported by consumers results in lost GST revenue for the government that would otherwise be distributed to Australian states and territories. In essence, the government is seeking to correct an oversight of an existing tax. From July 2017 to 2019, the tax is predicted to net $350 million, which will be reinvested into the local economy.

In addition, the tax will remove the disadvantage faced by local, GST-paying businesses that need to compete with overseas companies who do not pay the tax. In the words of the government, the Netflix Tax will "maintain the integrity of the tax system and offer a level playing field for domestic suppliers."

How Will The Tax Be Collected?

For the most part, the Netflix Tax will be collected via the international seller. However, the government has outlined scenarios where the tax will be the responsibility of the operator:

Responsibility for GST liability may be shifted from the supplier to the operator. This would happen in certain circumstances where the operator controls any of the key elements of the supply such as delivery, charging or terms and conditions.

Shifting responsibility for GST liability to operators is aimed at minimising compliance costs. It is expected that operators are generally better placed to comply and ensure that digital goods and services sourced in a similar manner are taxed in a similar way.

When Will The Netflix Tax Begin?

Provided the legislation gets through, digital products and services will be taxed from 1 July 2017. If you're planning any big digital purchases we suggest you do it before the end of the month!



Comments

    Provided the legislation gets through

    Only 8 sitting days left of this term, and the bill is still in committee. It's could be the case it may be delayed until 1 October.

    There is an exemption now too. Digital currency is not subject to the tax, weirdly this includes game currency. You are not taxed on the game currency, but you should be charged 10% if you spend any of it.

    Buy one health pot, is what I suggest.

    Some international companies said they won't ship to Australia to avoid the burden of collecting the GST.

    The true beauty of this tax will shine through on services like Steam where we pay in $US but still get shafted withe the "Australia" tax. Now they'll use this as an excuse to up the prices even further...

    And we'll continue to pretend to reside in the US to ensure we get a fair go.

      VPN can be configured to say you are in another country. Point to Europe, download / buy your app, pay no GST...

    this. this is going to F S up big time and cause mayhem with international retailers....

    like daryl says ... they wont send... or customs will hold the item because no GST

    or even worse situations that noone has thought of yet such as private items reaching the threshold of taxable sales and then being passed on to the buyer.... prices are going to inflate much more than 10% for australians importing from international..

    Not all companies can set up a distribution on australia and be legit... its going to be interesting what the gov will do and where the loopholes will be..

    customs gonna have to buy a couple huge friggin warehouses to store all the goods that are hold on suspicion

    What a mess. As a small Australian business that is selling physical goods on eBay I'm going to have to pay GST on them even though I'm under the GST threshhold? Nuts.

      Basically, yes. This and the associated law for physical goods removes the GST threshold. Even worse for you, as a local company, they can enforce GST collection on you, but they cannot enforce it on overseas companies without a physical local presence, meaning you will probably get bent over both in having to raise your prices and overseas competitors refusing to. Not only that, but collection of the GST will likely cost vastly more than they actually make from the various companies that eventually comply with the change, meaning this change will almost certainly result in a net loss for the government, rather than an increase in revenue. Sucks the big hairy meatballs for every Australian involved. The only ones who benefit are foreign companies who get less competition.

    They neglect to consider the fact that without a physical presence in Australia, compliance with GST is entirely voluntary, and there are no enforcement options. The onus is on the seller, not the customer, so customs cannot hold the goods if GST is not paid, nor penalise customers if GST is not charged, as the assumption can be reasonably made that companies comply with tax laws in the provision of legal goods even if the GST is not specifically stated on the site, meaning consumers are effectively immune to penalties, even if the physical version of this is passed. All they can do is report non-compliance to the local tax authority, who won't do anything to enforce overseas tax laws, or attempt to block sites in response to non-compliance, and we've all seen how well that works for Village Roadshow/Foxtel... I wouldn't bet that the ATO will fare much better.

    GST on imported goods is a constitutionally illegal tax. A few years ago I was studying to become a Customs Broker. One of our lecturers was a customs officer who told us that He had been heavily involved in framing the GST for Imports element of the legislation. He said He was waiting for someone to have the courage to challenge the legislation through the courts. It has not yet happened.
    This is why, In Australia it is constitutionally illegal to be taxed twice for any good or service. Duty is technically a tax, so when you are charged Duty plus GST you are effectively being taxed twice for one item. This from a high ranking Sydney Customs Official.

    Terrible policy that will shaft the Australian consumers purchasing power and the little local private sellers.

    It remains a mystery to me why any foreign company will collect and remit GST, or how they could possibly be charged, let alone penalised, if they did not.

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