Being an island, Australia imports many of the goods that it needs, whether this is a consumer buying the latest bestselling paperback novel from an overseas retailer, or a mine operator importing heavy machinery worth millions of dollars. This means taxes on the importation of goods can be an important issue. It can also often be a complex area, and taxpayers who are not aware of the rules can find themselves subject to unexpected costs.
In this article:
- What taxes apply to imported goods?
- Is there a customs duty threshold?
- How is the value of imported goods calculated in Australia?
- How is customs duty and GST calculated in Australia?
- What exemptions apply to import taxes in Australia?
- How do the GST rules apply to the sale of imported goods?
- How can I work out what import tax is payable?
- What refunds and concession schemes are available?
What taxes apply to imported goods?
The main import taxes in Australia are Goods and Services Tax (GST) and customs duty. There are other taxes that can apply to imports in particular circumstances, such as Wine Equalisation Tax (WET) for wine imports, and Luxury Car Tax (LCT) for certain car imports, but for the purposes of this article, we’ll discuss GST and customs duty.
When goods are imported into Australia with a customs value exceeding $1,000, in most cases the party importing the goods (normally the buyer or seller of the goods) lodges an import declaration through their customs broker. Any applicable GST and customs duty generally needs to be paid to Customs (now run by the Department of Home Affairs) before the goods are cleared.
Goods can be brought into Australia by a freight forwarder or courier, via mail or as accompanied baggage when a person arrives in Australia, and the rules and import procedures may differ depending on which of these methods is used.
Is there a customs duty threshold?
There is a $1,000 customs threshold and generally speaking, Customs does not collect GST or duty on imported goods valued at or below this amount. However, GST can still apply to the sale of these goods by an overseas seller to an Australian consumer.
The $1,000 customs threshold does not apply to tobacco or alcohol products. Given the threshold, it is important to understand how the value of imported goods is calculated to determine the GST and customs implications that may apply.
How is the value of imported goods calculated in Australia?
In most cases, where an arm’s-length price is paid for imported goods, their customs value is based on their sale price, although certain costs may be excluded from or included in the customs value. For example, overseas transport and insurance costs are generally excluded from the customs value. The customs value must be in Australian currency and converted to Australian dollars if the invoice for the goods is in a foreign currency (using the exchange rate published by Customs on the date the goods were exported from overseas).
Where there is no arm’s-length transaction, other customs valuation methods need to be used, such as the price of similar or identical goods sold into Australia.
How is customs duty and GST calculated in Australia?
Where applicable, customs duty is calculated as the relevant duty rate multiplied by the customs value of the goods. The difficult part is often working out whether customs duty applies and what the relevant rate is. For most goods, a customs duty rate of between 0% and 5% is generally applicable. The applicable rate depends on various factors, including the type of goods (i.e., the customs classification of the goods), their country of origin, and whether there are any concessions available.
What exemptions apply to import taxes in Australia?
For goods with a customs value of more than $1,000, there are two main customs concession schemes that may apply: Tariff Concession Orders (TCOs) and the Tradex scheme.
TCOs are exemptions that allow applicable goods to be imported duty-free where there are no known Australian manufacturers of the same goods.
The Tradex Scheme provides an exemption from customs duty and GST where the importer intends to re-export the goods from Australia.
GST is also generally payable on imported goods with a value of more than $1,000. While customs duty is calculated on the goods’ customs value, the GST payable on imported goods is calculated differently. More specifically, the value of the goods for the purposes of calculating how much GST applies, if any, also factors in any customs duty payable, as well as international transport and insurance costs.
The main GST exemptions that apply to imported goods valued at more than $1,000 are the Tradex scheme (discussed above) and GST-free goods. The most common GST-free goods are basic food and certain medical goods, and no GST is payable on their importation.
For goods valued over $1,000, Customs will generally collect GST and duty (where applicable) on these goods when they are imported. GST-registered businesses are generally entitled to claim back the GST paid on import when they lodge their Business Activity Statements (BAS), so the GST these businesses pay on imports is not a ‘real’ cost. This means that when it comes to imported goods, GST is generally only a real cost to consumers who import them into Australia. In contrast, businesses are not normally entitled to claim back any customs duty paid, so this duty is a real cost to both businesses and consumers.
How do the GST rules apply to the sale of imported goods?
When considering imported goods, it is also necessary to consider any related sale transactions, since these may have GST consequences. Note that goods imported into Australia won’t always be sold (e.g. consider a multinational company that brings IT equipment it already owns to Australia for use in its business).
There are two particular scenarios that need to be considered.
First, sales of goods with a customs value of $1,000 or less that are delivered from overseas to an Australian consumer may be subject to GST under the GST low value imported goods rules (such as if the goods are tobacco or alcohol products). As a result, the sellers of these goods may need to register for GST and pay GST on such sales. Accordingly, rather than GST being paid on import, it would be collected on these sales by the seller and remitted to the Australian Taxation Office (ATO).
Second, in business-to-business cross-border sales of goods, the parties need to consider whether the sale of the goods is subject to GST. This generally depends on which party imports the goods into Australia.
While the parties should generally be entitled to claim back any GST incurred, it is important to consider seeking professional legal or tax advice so that such transactions can be structured properly and contracts worded appropriately.
How can I work out what import tax is payable?
Importers need to pay any applicable GST and customs duty to Customs. The amount of GST and customs duty payable should be listed on the relevant import documents, including import declarations, which are generally prepared by customs brokers. GST-registered business importers will be able to use these import documents to calculate how much import GST to claim in their business activity statements.
Where consumers purchase goods valued at $1,000 or less from overseas sellers, the price for the goods is often stated on a GST-inclusive basis and the GST not separately disclosed. Sellers are required to issue receipts to customers setting out the GST.
Not all overseas sellers necessarily comply with their obligations to register and pay GST on their sales, and even those that do may not comply with the requirement to issue a receipt disclosing the GST. Nevertheless, since consumers are generally not GST-registered and thus not able to claim GST credits, it is the total GST-inclusive price they pay that is normally relevant to them.
What refunds and concession schemes are available?
In addition to the TCO and Tradex schemes, other refund and concession schemes include:
- Importers that pay customs duty and GST on import may be entitled to a refund of this duty and GST where they subsequently export the goods from Australia (under the duty drawback rules).
- The Deferred GST Scheme allows GST-registered businesses that import goods to defer the GST payable on import until they lodge their business activity statement. This means the importer does not pay GST at the time it imports the goods; rather, it accounts for the import GST and the corresponding offsetting GST credit in its next Business Activity Statement. Importers that are registered under the Australian Trusted Trader program are similarly entitled to defer their payment of customs duty by a month (in order to apply for this program, importers must have been active in the international supply chain for at least 2 years, be financially solvent, have an Australian Business Number and must meet relevant supply chain security and trade compliance practices).
→ Related: Visit Canstar’s Tax Hub
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