Reverse charge GST on offshore goods and services purchases

What is reverse charge GST

There are some circumstances where GST is paid by the purchaser. This is called a 'reverse charge'.

Reverse charge is required on some offshore purchases, even though you are the purchaser and even if the sale would not normally be subject to GST. You may also choose to pay GST for purchases, even though you are the purchaser.

The amount of the reverse-charged GST is 10% of the price of the purchase.

For more information, see:

• Reverse charge in the precious metals industry
• GST Act Chapter 4: 84-10 Reverse charge' on offshore intangible supplies.

Requirement to reverse charge GST

You are responsible for making a reverse charge GST payment if an offshore purchase falls under the reverse charge rules.

Reverse charge rules

Things (other than goods and real property) may be subject to GST when your Australian business purchases them and they are:

• done outside Australia or
• made through a business carried on by a seller outside Australia.

In these circumstances you are liable to pay the GST, even though you are the purchaser and even if the seller would not be required to pay GST on the sale.

Applying the reverse charge rules

The reverse charge rules apply if the purchase meets both the conditions and circumstances outlined below.

Conditions of the purchase

The reverse charge rules apply if all of the following circumstances are present:

• you purchase a thing solely or partly for the purpose of a business that you carry on in Australia
• your purchase is partly of a private or domestic nature or relates partly or solely to making input taxed supplies
• the sale to you is for payment
• you are registered or required to be registered for GST.

From 1 July 2017, if you are registered, or required to be registered, for GST and misrepresent your status as an Australian consumer in respect of your purchase of services and intangibles, you may be liable for GST on the sale to you under the application of the reverse charge rules.

Circumstances of the purchase

You are liable for GST under the reverse charge rules if one or more of the following circumstances occurs:

• the thing you purchase is done or performed outside Australia and the sale to you is not made through a business that the seller carries on in Australia
• the sale is 'connected with Australia' because the thing you purchase is a right or option to acquire another thing, and the sale of that other thing would be 'connected with Australia'
• the sale to you is not made through a business that a non-resident seller carries on in Australia and    
  • the thing you purchase is done or performed in Australia
  • you are an Australian-based business recipient.
   

You are not required to pay GST on any portion of the purchase that would have been GST-free or input taxed if the thing you purchased had been done or performed in Australia.

There are some cases where a non-resident seller makes sales through a resident agent with an agreement in place that the sales will continue to be connected with Australia. This results in the agent being liable for GST. In this instance, the agent or the seller will notify you.

Offshore supplies of low value goods

From 1 July 2018, you may be liable for GST under a reverse charge rule if you purchase low value goods, which are brought into Australia with the assistance of the seller or another party treated as being the seller. The sale of these goods to you under the relevant circumstances is referred to as an offshore supply of low value goods.

Goods imported are low value goods if they have a value of $1,000 or less and they are not tobacco, tobacco products or alcoholic beverages.

You are liable for GST under this reverse charge rule in the following circumstances and where the following requirements are satisfied:

• you purchase goods and the sale of the goods to you is an offshore supply of low value goods
• the sale of the goods to you is not connected with Australia
• you purchase the goods solely or partly for the purpose of a business that you carry on in Australia
• your purchase is partly of a private or domestic nature or relates partly or solely to making input taxed supplies
• you are not liable to pay GST on the importation of the goods
• you are registered or required to be registered for GST

You are not required to pay GST on any portion of the purchase that is GST-free or input taxed.

From 1 July 2018, if you are registered or required to be registered for GST and misrepresent your status as a consumer in respect of your purchase of low value goods, you may be liable for GST on the sale to you. You are a consumer if you are not registered for GST or you do not acquire the goods solely or partly for the purposes of a business that you carry on in Australia.

Transfers between your branches

If you carry on a business in Australia and you also carry on either that or another business outside Australia, you are making a sale to your Australian business that is not connected with Australia if:

• you transfer anything from the business outside Australia to the business in Australia
• your business outside Australia does anything for the business in Australia.

Even though this transfer is taken to be a sale that is not connected with Australia, you are liable to pay GST on the transfer if you meet the conditions of the purchase. The price of the transfer must be the same as the price used for income tax transfer pricing purposes.

This does not apply to transfers of the services of an employee when any payments made by the business in Australia to the business outside Australia for the employee's services would be withholding payments (for income tax purposes) if they were made directly from the business in Australia to the employee.

For example, an offshore business sends one of its employees to work in the Australian business for a period of time and the Australian business pays an amount reimbursing the offshore business for the employee's salary for the period. This payment would not be subject to the GST reverse charge under the rules about transfers between branches.

GST Act Chapter 4: 84-15 Transfers etc between branches of the same entity provides more detailed information.

Linkage to tax governance

For best practice recommendations on the application of reverse charge rules and linkage to tax governance, see Application of the reverse charge provisions.

Sales for no consideration or insufficient consideration between associates

A sale without consideration that is made between associates can also be a taxable sale if the requirements of the reverse charge rule are satisfied.

Where a sale for no consideration is a taxable sale that is reverse charged to you, the value of the sale is the GST exclusive market value of the sale. Similarly, if the consideration for a sale is less than its GST inclusive market value, the value of the sale is its GST exclusive market value.

Employee share schemes

Certain supplies relating to employee share schemes are exempt from the reverse charge rules. GST Act Chapter 4: 84-14 Supplies relating to employee share ownership schemes provides more information.

GST credits

You may be able to claim a partial GST credit for the purchase on which you had a GST reverse charge liability.

You cannot claim a GST credit if:

• the purchase relates to making sales that would be input taxed
• the purchase is of a private or domestic nature
• you do not provide or are not liable to provide payment for the purchase. However, special rules apply to a sale for no consideration between associates that is a taxable sale because of the reverse charge rules.

You do not need to hold a tax invoice to claim the amount of the GST credit claimed on a reverse charge or acquisition from an associate.

Choosing to reverse charge GST

You may agree with a non-resident seller to pay the GST on a sale to you, rather than the seller pay the GST. This applies if:

• the non-resident seller does not make the sale to you through a business they carry on in Australia
• you are registered or required to be registered for GST
• you agree with the non-resident seller that the GST is payable by you
• you are not required under the reverse charge rules to pay GST on the sale
• the sale to you is not made through a resident agent of the non-resident seller.

GST credits

You may be able to claim a GST credit for the purchase.

However, you cannot claim a GST credit if:

• the purchase relates to making sales that would be input taxed
• the purchase is of a private or domestic nature
• you do not provide or are not liable to provide payment for the purchase.

You do not need to hold a tax invoice to claim this GST credit.

Completing your business activity statement (BAS)

To report and correctly complete your BAS:

• Report at G1 (total sales) the amount you paid or are liable to pay for the purchase to which the GST reverse charge applies, multiplied by 1.1.
• For sales without consideration or insufficient consideration that are made between associates to which the GST reverse charge applies, report at G1 (total sales) the GST exclusive market value for the purchase, multiplied by 1.1.
• If you are using the accounts method, report at 1A (GST on sales) the GST you are liable to pay for the purchase to which the reverse charge applies.
• If using the calculation worksheet method, use the worksheet to work out how much GST to report at 1A.
• Report at G10 (capital purchases) or G11 (non-capital purchases) the amount you paid or are liable to pay for the purchase, multiplied by 1.1.
• For sales without consideration or insufficient consideration that are made between associates to which the GST reverse charge applies, report at G10 (capital purchases) or G11 (non-capital purchases) the GST inclusive market value for the purchase, multiplied by 1.1.
• If you are using the accounts method, report any GST credit you are entitled to claim for the purchase at 1B (GST on purchases).
• If using the calculation worksheet method, use the worksheet to work out how much GST credit to report at 1B. For this method, you may need to report amounts at either G13 (purchases for making input taxed supplies) or G15 (estimated purchases for private use or not income tax deductible), in order to calculate the correct amount of GST credits to report at 1B.

How to account for goods and services tax (GST) and apply reverse charge GST on purchases from offshore.