Australia's GST rules for digital products have expanded significantly since the "Netflix tax" was introduced in 2017 and extended to low value imported goods (LVIG) in 2018. For Australian bookkeepers and BAS agents, understanding these rules matters in two directions: what your clients pay to overseas platforms, and what your clients must do if they're selling digital products or services offshore.
The "Netflix Tax" — What It Is
From 1 July 2017, non-resident suppliers of digital products and services to Australian consumers have been required to register for GST and charge it on their supplies. "Consumers" here means individuals and entities that are not registered for GST — the rule specifically targets B2C supply chains.
The types of supplies caught include:
- Streaming services (video, music, games)
- Software and app subscriptions
- Cloud computing and storage
- Online courses and digital content
- Digital advertising (where the recipient is a non-GST-registered entity)
The obligation rests with the supplier — they must register with the ATO, collect 10% GST on sales to Australian consumers, and remit it. Many major platforms (Netflix, Spotify, Adobe, Microsoft, AWS, Google Cloud) comply with this and show GST on their invoices to Australian customers.
What This Means for Australian GST-Registered Businesses
Here's where it gets important for your clients: if an Australian GST-registered business buys digital services from a non-resident supplier, the supplier's obligation to charge GST technically shifts. Under the reverse charge rules (Division 84 GST Act), a GST-registered Australian business is generally treated as the entity responsible for the GST — which means the foreign supplier need not charge Australian GST to them.
In practice, many foreign platforms don't apply the B2B exemption correctly and still charge GST on invoices to Australian businesses. When they do, the Australian business:
- Has paid GST (shown on the invoice)
- Can claim an ITC for that GST, provided the acquisition is creditable
- Should include the ITC claim on their BAS at label 1B
If the foreign supplier does not charge GST (correctly applying the B2B exemption), no GST flows and there's no ITC to claim. The net position is the same economically.
Practical Issue: Invoices Without Australian GST Registration Numbers
Many overseas digital platforms issue invoices that show "GST" without an Australian ABN or GST registration number. Strictly, an ITC can only be claimed against a tax invoice that meets ATO requirements — including the supplier's ABN. The ATO has provided some administrative concessions for low-value digital service purchases, but for material amounts (above $82.50 GST-inclusive, where a tax invoice is required), businesses should ensure they receive compliant documentation.
Low Value Imported Goods (LVIG)
From 1 July 2018, the LVIG rules extended GST to physical goods imported into Australia with a customs value of $1,000 or less. Previously, these imports were GST-free. Now, offshore retailers selling to Australian consumers must register for GST if their Australian sales exceed $75,000 annually.
The LVIG rules operate alongside the digital goods rules but cover different products. For bookkeepers, the key issue is: if your client imports physical goods from overseas platforms (e.g., small component orders, stationery, electronics via Amazon or AliExpress), they may now be paying 10% GST at checkout which they can claim as an ITC if registered.
When Australian Businesses Sell Digital Products Overseas
If an Australian business sells digital products or services to non-resident consumers, those supplies are GST-free under section 38-190 of the GST Act (exported supplies). The supply is made to a non-resident who is not in Australia when the supply is made.
The BAS treatment: show the sale at G2 (export sales) and do not charge GST. The business can still claim ITCs on inputs used to make those supplies — the GST-free status doesn't negate the ITC entitlement.
If the Australian business sells to non-resident businesses that ARE GST-registered (which is uncommon for most small businesses selling offshore), the rules are more nuanced — seek specific advice.
Reverse Charge: When Does It Actually Matter?
The reverse charge in Division 84 applies when:
- A GST-registered Australian entity acquires an imported service (a service that would be taxable if made in Australia)
- The supply would be connected with Australia
- The supplier is a non-resident who didn't charge GST
In this case, the Australian business is treated as if it made a taxable supply to itself — and is liable for 1/11th of the supply price as output tax. However, if the acquisition is fully creditable (used 100% for taxable supplies), the output tax and ITC cancel out and the net position is zero. The reverse charge only results in a real cash cost when the acquisition is partly private, input-taxed, or the entity has a partial ITC entitlement.
Most Australian businesses buying SaaS tools or cloud services for fully creditable business use have a nil net position under the reverse charge. The complication arises for:
- Financial services providers (partly input-taxed)
- Businesses with mixed private/business use
- Not-for-profits with reduced ITC entitlements
BAS Reporting for Digital Imports
When coding digital service imports from overseas in ReconLink or any accounting platform:
- If the platform charged Australian GST and you have a valid tax invoice: claim the ITC at 1B
- If no GST was charged (B2B exemption applied correctly): no ITC, no output tax
- If the reverse charge applies and your use is 100% creditable: no net tax liability, but technically reportable — the ATO's simplified approach allows these to be omitted for fully creditable acquisitions
For clients who regularly purchase overseas digital services and have mixed-use scenarios (e.g., a partly input-taxed financial business), calculate the reverse charge obligation each quarter and include it at 1A on the BAS.
Practical Reconciliation Tips
When reviewing a client's digital subscriptions in their imported bank statement, check:
- Does the invoice show Australian GST? If yes, confirm the supplier's ABN and claim the ITC
- Is this a B2C platform incorrectly charging GST to a registered business? Still claimable as an ITC if a valid tax invoice exists
- Is the charge in AUD or foreign currency? Convert at the exchange rate on the date of supply for BAS purposes (ATO accepts daily RBA rate or average monthly rate)
- Is the subscription for mixed private/business use? Apportion the ITC accordingly
ReconLink's GST coding rules (INP, FRE, GST) can be pre-configured for common overseas digital platforms so imported bank transactions are coded correctly on import rather than requiring manual review each quarter.