Google announced last week that as of 1 November 2016, the company will be charging Australian customers 10% GST as they “will be bound by the terms of the contract and will be providing the service to you and invoicing you for the service.”
So what’s the change?
Google has been using companies in Ireland and Singapore for years. The Singapore based company was trading in Australia. From selling its advertising services to Australia, Google earned $2 billion. However, this is not booked to Google Australia, but rather booked through Singapore to Google Asia-Pacific. Singapore has a lower tax rate, with Google having an arrangement with the Government in Singapore to only pay 10% tax on the earnings it reports. Through funnelling a small fraction of its Australian earnings to Singapore, Google only pays less than 0.2% tax from the $2 billion.
Google also uses the “double Irish arrangement”, which relies on the fact that Irish tax law does not include transfer pricing rules. The strategy sees companies move income from a high-tax country to a low or no tax jurisdiction.
Essentially, the Australian Tax Office is missing out on a huge sum of money from online multinational organisations such as Google.
This prompted the then Communications Minister Malcolm Turnbull to call for multinational tech companies to be charged a 10% goods and service tax (GST) on advertising booked by Australian companies. This will raise $240 million for the state governments.
Starting on 1 November 2016, Australia’s Google AdWords customers with a business account will have a new set of terms and conditions, which includes the 10% GST.
Who is affected?
As Google is “assigning” their customers from the Singapore entity to the Australian one, Google Australia Pty Ltd, this means anything you buy from Google will have GST applied. We’ve specifically seen “alert emails” about the following Google products:
- Google’s G-Suite (recently renamed from Google Apps)
- Google AdWords
Anyone who uses those will be affected, that is mostly going to be businesses, small and large, but we figure the biggest impact will be on AdWords Customers, and those affected fit into three groups:-
1. Very small and micro businesses who aren’t GST registered will get less clicks for their dollars or will just need to find an additional 10% to pay on top of what they spend now.
Many small businesses/ solo operators are already spending on a knife edge. If they were to suddenly find themselves paying 10% more than they have budgeted for the return, they might not be able to cope.
2. People who just pay more so they get the same number of clicks.
3. Those who won’t increase spend and will just get less for their money and might notice when their first proper GST invoice comes at the end of November.
Give us a call on (07) 3510 1500 or request a call back through our website to have one of our accountants give you a call and we can discuss how this change specifically affect you and your business.