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How does the ‘Netflix tax’ affect my business?

Bottom line: 

Businesses registered for GST will not be affected by this change if you register your ABN.

 

From July 1 2017, the Goods and Services Tax (GST) applies to all digital products and services supplied into Australia (see the Parliament Of Australia website, if you want the official version).

Here’s everything you need to know about this so called “Netflix Tax” and how it will affect your wallet.

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.

What does the tax involve?

The key features of the Netflix Tax are as follows:

  • It will be imposed on intangibles
  • It will be imposed on intangible supplies such as supplies of digital content, games, and software, but also applies 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 services.
  • GST will be imposed at a rate of 10% on the value of the supply.
  • Only supplies made to consumers will be caught. Business to business transactions will be exempt.

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.

Supplier by Supplier
  • Adobe, only needs to charge GST to consumers but appears to have chosen to charge GST on all subscriptions.
  • Mailchimp, correctly, states they do not charge GST for users with an ABN.
 (let us know if you have any other specific examples or queries)

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. Businesses registered for GST will not be affected by this change if you register your ABN.

How much will I pay?

As with othergoods 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 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.

What’s Next?

Note that there’s a further part of the changes that is (currently) due to come in on 01 July 2018 whereby 10 er cent GST tax will also be applied to imported goods worth less than $1000.  A year’s a long time in digital and parliamentary life though, so watch this space.