The Budget introduced some positive changes in respect of GST and cross border transactions which should improve the GST compliance costs for non-residents transporting goods in Australia. Unfortunately, the Budget also introduced an additional compliance burden with respect to the taxation of foreign employment income which will no longer be exempt in Australia except in limited circumstances.

Below is a brief summary of these changes.

GST

Proposed relief for non-residents shipping companies

The Government has responded to the Board of Taxation’s previous review of the legal framework for the administration of GST which outlined a number of issues concerning non-residents and cross border transactions. The Board made the following recommendations:

• Reviewing the application of the GST to cross border transactions with a view to simplifying GST law and reducing the number of non-residents in the system;
• Streamlining the proof of identity and proof of enterprise requirements for non-residents;
• Broadening the GST law to allow a resident entity that is not an agent of a non-resident to agree to account for and be liable for the GST consequences of a non-resident; and
• Non-residents that don’t account for their GST because of the resident agency provisions should not have to register for GST.
  

The Assistant Treasurer has announced that the Board of Taxation will undertake a more detailed review of these issues, and provide a report to the Government after consultation with relevant stakeholders.  This gives shipping companies the opportunity to address and rectify various difficulties in the current application of GST to cross border transactions. Should you wish to comment and have your voice heard through our submission, please contact Moore Stephens as soon as possible.

Reduced compliance costs for domestic transport of goods

The Budget also introduced measures that reduce compliance costs for business involved in domestic transport of exported and imported goods. These changes will be introduced from 1 July 2010 and are as follows:

• The liability to pay GST on the domestic transport of imported goods will fall on the importer of the goods rather than the transport service supplier, easing compliance costs. One would imagine that this means that the customs value of goods will be increased by the value of the domestic inward transport and paid by the importer. The shipper will no longer be making taxable supplies and will not be required to register.
• Amending the definition of “place of export” for containerised non-postal goods. This will be changed to the place from which the goods are being sent as opposed to the place of containerisation. The aim of amending the definition was to obtain consistency in the treatment of postal and non-postal containerised goods;
• Sub-contracted domestic transport services that are part of the domestic leg of an export transport service will be made subject to GST, even though goods may be for export ultimately. This contrasts with the current position of the ATO explained in GSTR 2007/2

For more information on the Treasurers release please click here

Foreign employment income to be taxed in Australia

Currently Australians working overseas for more than 90 consecutive days are eligible for a general exemption from Australian income tax on their foreign employment income.

Under the new measures announced, the Government will amend the general exemption to restrict its availability to income earned under certain types of job specifications (such as charitable workers, government aid workers and government employees in defence etc.). Hence the exemption will no longer be available to those working in shipping companies who are required to work overseas.
This is a major disadvantage to outbound employees as they may have to pay tax in the overseas jurisdiction and also in Australia, removing the tax concession that the old system provided. Although a tax offset will be available for any foreign tax paid on their foreign employment income, this is a compliance burden.

This could also provide employers with a headache as the income earned while working overseas may be included in the employee’s payment summary and therefore subject to PAYG withholding.
The Government is accepting submissions in relation to this change up until Monday 18 May 2009!
This timeframe is unrealistic as the draft legislation was only released last night. Moore Stephens is preparing a submission to argue against these changes. Should you wish to participate or comment through our submission, please contact Moore Stephens no later than Thursday 14 May 2009.

For more information on the Treasurers release please click here

Should you wish to discuss any of these matters do not hesitate to contact our shipping team.

Send an email to Stephen by clicking on Stephen Adrian  or call + 61 (3) 8635 1915