The ATO has issued a warning to taxpayers that input tax credits for importation GST will be denied if the importation arrangements are not managed in accordance with the statutory requirements.
It is likely that the ATO will now focus on this area and taxpayers will have no excuse if they fail to comply with the criteria necessary to claim credits.
Who can claim GST credits on importations?
GST credits can only be claimed by the 'importer' of the goods. To be regarded as the 'importer' for GST purposes, an entity must:
- have caused the goods to be brought to Australia for its own purposes; and
- be named as the 'owner' of the goods on the import declaration or, alternatively, have its agent named as the 'owner'.
An entity 'causes the goods to be brought to Australia for its own purposes' where it sells, leases or hires the goods, or uses the goods as trading stock or in the manner consistent with their design or nature.
The ATO accepts that where goods are sold and brought into Australia more than one party may 'cause the goods to be brought to Australia for their own purpose'. However, only the entity that is named on the import declaration is entitled to a credit for the importation GST. This highlights the importance of ensuring that the party intending to claim a GST credit is named on the import documentation.
Import facilitators and third party installers
The ATO has indicated that import facilitators (such as customs brokers or freight forwarders) or third party installers of goods cannot claim credits for importation GST because they do not 'cause goods to be brought to Australia for their own purpose'. Its view is that these parties are engaged to handle, store, transport, monitor or process the importation on another entity's behalf. Accordingly, even if these parties are named as the 'owner' on the import documentation, they cannot claim the GST credits.
Where GST credits are forfeited altogether
Where a third party is named as the 'owner' on an import declaration but is not acting as an agent, the third party will be liable to pay the importation GST but will not be entitled to a corresponding GST credit because they are not the importer. Furthermore, if the third party is reimbursed for the GST paid on importation, the party paying the reimbursement is not entitled to a GST credit either because that party is not named as the 'owner'.
In these circumstances, no GST credit can be claimed by either party – triggering an unnecessary, and often unanticipated, GST cost.
To avoid a forfeiture of GST credits, it is therefore critical to ensure that appropriate agency arrangements are entered into whenever a third party is authorised to act on behalf of another entity in respect of any importation of goods.
Cross-border goods contracts should be reviewed to ensure that GST provisions clearly identify which party will be the importer for GST purposes and that agreed incoterms are consistent with this.
- Care should be taken to ensure that the party intending to claim a GST credit on imported goods is appropriately named as the 'owner' on the import declaration.
- Import facilitators (such as customs brokers or freight forwarders) and goods installers should ensure that, if they undertake to pay importation GST on behalf of a client, they receive full reimbursement of the importation GST from the client as no GST credit can be claimed from the ATO.
- Where a third party is engaged to undertake importation on behalf of another, clear agency arrangements should be documented prior to the importation to avoid forfeiture of GST credits.
Minter Ellison's GST team has extensive experience advising on cross-border goods transactions and will be pleased to assist in managing the issues raised in this alert.