The Goods and Services Tax affects digital products and services supplied to Australia — but how does the “Netflix Tax” affect Australian Businesses?
On the 1st of July 2017 the GST was applied to digital products and services supplied to Australians, and was officially announced via the Parliament of Australia website. Designed to include the growing portion of digital consumption not covered by the GST, the “Netflix Tax” is imposed on intangible supplies such as games, content, and software, but also includes professional services and consultancy services.
The Netflix tax doesn’t affect Australian businesses registered for GST if they register their ABN.
What is the Netflix Tax?
The Netflix Tax refers to a 2017 tax amendment that saw GST applied to digital products and services imported into Australia. The amendment was introduced in order to maintain the integrity of the Australian tax system and provide a level playing field for domestic suppliers of digital services and products.
How Does the Netflix Tax Work?
- The Netflix Tax involves the following features:
- Intangible products and services are now subject to GST
- The tax is imposed on imported digital content, games, and software, as well as consultancy and professional services performed outside of Australia for Australian customers
- Suppliers or operators of electronic distribution services are liable for the GST
- The tax is imposed at the GST rate — 10% of the value of the supply
- Business to business transactions are exempt from the Netflix Tax. Only supply to consumers is subject to the tax
What Does the Netflix Tax Actually Tax?
The Netflix Tax explicitly defines “intangible products and services”. These products and services can take the form of any kind of purchasable, downloadable content that can be delivered to smartphones, gaming consoles, PCs, laptops, tablets, or e-book readers.
The tax applies to all purchasable downloadable media content that is delivered to consumers in Australia, such as music, games, movies, magazines, e-books, and streaming services. It’s important to note that the sub-$1000 exemption does not apply to the Netflix Tax, so all online purchases of downloadable content or digital services are subject to taxation.
Does the Netflix Tax Apply to Everybody?
Not every platform is required to charge GST to businesses — the Netflix Tax applies only to consumers, but many platforms have chosen to apply GST to products sold to both consumers and businesses. Business to business services and product purchases are exempt from GST, but not all international service and product providers take this caveat into account.
The tax also applies to fees from international platforms such as eBay and other online marketplaces.
How Much is the Netflix Tax?
Netflix Tax is a simple update that applies GST to new services and products supplied to consumers. The tax is therefore calculated at 10% of the total price of goods and services. If you choose to purchase a subscription to a streaming service for $100/year, for example, the price will increase to $110. It’s highly likely that international platforms will pass this cost on to consumers.
Why is the Netflix Tax Happening?
The Netflix Tax is designed to level the playing field for Australian businesses that are obligated to pay GST on the digital services and products they provide.
How is the Netflix Tax Collected?
In most cases, the Netflix Tax is likely to be collected by international service and product providers, and must be paid to the Australian government.
Ensuring that your business is tax-compliant and, if necessary, registered for GST, is essential. If you’re not sure about your business tax obligations, get in touch with Fullstack for advice today.