8 August 2022
Updated 30 November 2022
There is an update to this Tax Alert as of 4 April 2024, which you can find here.
In Brief
The new Government has reintroduced legislation that will require operators of online marketplaces to report seller identification and payment details to the Australian Taxation Office (ATO). Although the amendments which have now completed their passage through Parliament are identical to what was introduced into the previous Parliament before they lapsed with the calling of the 2022 Federal election, in a welcome move, the applicable start dates have been extended by a further year.
Under the proposed amendments which are to be made to the existing Taxable Payments Reporting System (TPRS) provisions, operators of electronic distribution platforms will be required to report information regarding their participating sellers when they make applicable transactions during the reporting period to the ATO for data matching purposes. Broadly, the purpose is stated to be to help the ATO identify entities that may not be meeting their tax obligations.
The reporting regime will broadly apply to transactions that relate to a supply connected to Australia of:
- Taxi travel (including ride-sourcing/ridesharing) - from 1 July 2023
- Short-term accommodation - from 1 July 2023, and
- Asset sharing, food delivery, tasking-based services and all other supplies - from 1 July 2024.
Transactions where only the legal title or ownership of goods or real property are exchanged, and those relating to financial supplies, are to be excluded from the reporting requirements.
There is a significant interplay between the definitions, rules and reporting requirements in the amendments and existing goods and services tax (GST) concepts, particularly in relation to operators of electronic distribution platforms (EDPs or “online marketplaces”).Further, the measures are similar to that introduced around the world (United Kingdom and the European Union (EU)) through the DAC7 (under DAC7, an obligation will be assigned to digital platforms to report the income earned by sellers of goods and services who make use of their platforms). The rules impact both EU resident digital platform operators and non-EU, foreign, digital platform operators.
Importantly,
- The broad scope of the reporting regime is intended to capture both Australian and non-resident EDPs and sellers. This means that Australian EDPs with Australian customers will be required to report on supplies made by Australian sellers and foreign sellers that may have no Australian tax obligations. Similarly, non-Australian EDPs will be required to report on supplies made to “Australian consumers” by Australian sellers and foreign sellers.
- There is no turnover threshold test for the EDP (unlike GST registration) or seller. Therefore, those non-resident EDPs with $1 of relevant transactions - i.e. supplies to Australian consumers, are required to report under the provisions.
- Administrative penalties apply if a report includes any false/misleading statements, unless it can be shown the operator took reasonable care. Higher penalties for significant global entities may also apply for non-compliance.
- The Bill broadens the scope of transactions required to be reported under TPRS, capturing supplies connected with Australia and also supplies to its external territories.
In Detail
Who will be required to report?
The Bill has adopted broad definitions under existing Australian tax laws (and other accompanying sources of legislation) to require an entity that is the "operator of an electronic distribution platform" to report information to the ATO about certain transactions that are made through the platform. The concept of an "operator of an electronic distribution platform" is as defined in the GST Act but then extended for the purposes of these new reporting provisions to specifically include supplies not made (that is, performed) by electronic communication (which are often a hallmark of the “gig or sharing economy” sector).
To meet the definition of an EDP, a platform must allow entities to make supplies available to an end-user consumer through the platform.
The Explanatory Memorandum (EM) to the Bill notes that the EDP can play a variety of roles, from the most basic of facilitating a transaction between unrelated parties, to the more complex involving the assumption of risk in the transaction. It also notes that a marketplace or platform does not need to facilitate any payment to meet the definition of an EDP, although a service that facilitates payments only would not be an EDP.
The EM to the Bill states that by requiring the supply be made “through the platform” to be captured within scope of the regime, ensures that the reporting obligation only applies to a transaction when the platform has a “greater level of involvement in the transaction than merely advertising the opportunity, referring the buyer to the seller, or processing a payment”.
The EM also requires that an EDP be a service that is delivered by means of electronic communication, and includes “platforms operating over the internet; including through applications, websites, or other software.”
What transactions are required to be reported?
The measures capture transactions involving the "provision of consideration" by a buyer for a seller’s "supply" made through the platform.
The reporting regime covers supplies "connected with the indirect tax zone" (which includes Australia and its external territories). Relevantly this will be where the supply is “done” in Australia, made by an Australian seller or made by a non-resident seller to an Australian consumer, including when the seller is offshore. The inclusion of non-resident sellers (that are unlikely to have a tax liability in Australia) appears to go beyond the stated context of the measures to ensure that sellers are meeting their tax obligations in Australia.
Transactions involving only the sale of goods or real property, and those relating to financial supplies are not required to be reported, however, the rental of the same goods/real property is caught (such as short-term accommodation and asset sharing services, such as a car-sharing service).
The EM indicates that “composite supplies” involving goods and services (where the dominant part of the supply is goods but the supply includes some other incidental or ancillary elements) are not captured under this reporting regime. However, the EM goes on to set out that if the service is a separate supply from the goods, it will be required to be reported. These characterisations are largely GST characterisations and in many cases are complex and fact specific. There is guidance from the ATO in relation to the delivery of goods that takes the position that from a GST perspective the relevant supply is “delivered goods” and therefore the delivery is not seen as a separate supply. However, a further assessment of the nature of supplies is needed to validate whether this characterisation is appropriate. For platforms that facilitate the supply of delivered meals for example, it will be necessary to consider this characterisation question. The meals may involve the supply of delivered goods but it will need to be considered whether there are any separate supplies that should be reported.
Transactions covered by other reporting requirements such as under the existing TPRS or withholding tax regimes (for example, payments made as a result of an employer-employee relationship) are also not required to be reported.
In summary, while the measures have been called “sharing economy reporting regime” it is clear that the transactions that are required to be reported are beyond what most would consider traditionally fall within the concept of the sharing economy. For example, the broad scope will mean that a platform is required to report on sellers of digital products like software to Australian consumers.
What information is required to be reported?
The Commissioner of Taxation will set out the information that will be required to be reported under this regime in order to provide the ATO with a reasonable level of assurance of the seller’s identity and possible tax obligations.
A previously issued Treasury Fact Sheet indicates the proposed minimum information requirements to be reported which is extensive and detailed. For example, identify information such as legal name, date of birth, primary address, bank account details, ABN or foreign tax identification number (if held), and payments information such as total payments (net and gross), GST on payments, etc. However, the Treasury Fact Sheet states that "Only the aggregate (total) of transactions relating to the seller over the reporting period will need to be provided; platform operators will not be expected to provide information on a per transaction basis".
How frequently will platforms be required to report?
The existing TPRS regime requires that third party reporting providers are to report either annually, or at such other times as the Commissioner determines by legislative instrument. It would seem that operators of electronic platforms will be required to report more than once a year, i.e. the Treasury Fact Sheet states the ATO would initially require reporting on a 'bi-annual basis' (i.e. covering the period from 1 July - 31 December and also from 1 January - 30 June, with information to be reported by 31 January and 31 July respectively).
It is also worth noting that the previous Government had a 2022-23 Budget proposal where it was announced that businesses would have the option to report TPRS data (via accounting software) on the same lodgment cycle as their activity statements with a likely commencement time from 1 January 2024 for application to periods starting on or after that date. It is currently not known whether the new Government will progress with this measure.
The Takeaway
Notably, there is a significant interplay between the definitions, rules and reporting requirements in the measure and existing GST concepts. We have already been assisting many businesses with these issues and also in consultation with the ATO regarding the limits and scope of these GST concepts, particularly in relation to operators of electronic distribution platforms.
While the EM sets out certain exceptions where operators may not be required to report, the provisions could apply very broadly and potentially well beyond the intended purpose of the measures. Ideally, the ATO will issue a Law Companion Ruling in due course once the new rules are effective which will provide practical clarity on the key concepts and examples of arrangements where reporting is required (in the same manner in which it has done for other relatively recent extensions of the TPRS regime).
Existing TPRS provisions give the ATO the power to exempt an entity, or a class of transactions or entities, from otherwise having a reporting obligation under TPRS, either by way of written notification or legislative instrument. The ATO has previously exercised this power in clarifying and limiting the scope of other TPRS reporting obligations, and it is hoped the ATO will do the same again once the Bill becomes law. This provides a possible solution for operators of EDPs who are not the intended target of the measure, but are inadvertently caught under the broad application of the provisions.
Importantly, the reporting regime will capture both Australian and non-resident EDPs and sales by both non-resident and Australian sellers. The inclusion of non-resident sellers appears to go beyond the stated context of the measures to ensure that sellers are meeting their tax obligations in Australia.
Of further note, distinguished from Australian GST registration and reporting requirements, there is no "turnover threshold" test for eligible reporting entities. Therefore, those non-resident EDPs with $1 of relevant B2C supplies are required to report under the new provisions.
Under the new law, the supply need only be a supply "connected with the indirect tax zone" (Australia and its external territories) to be captured. Regard may therefore need to be given to non-resident operators of EDPs who may be considered outside the Australian GST net, though may still be required to report under the new regime. This may arise for example where a supply for designing a logo is made on a freelancing marketplace, where both the seller and operator are non-residents, and either the operator is not required to be registered for GST as it is below the threshold or it does not realise the buyer/consumer of the supply is based in an external territory of Australia.
However, and to add to the complexity, the Bill requires platforms to report on transactions that are broader than what would ordinarily be reportable under the GST definition of “connected with the indirect tax zone”, to also include supplies connected with Australia and its external territories. Practically this presents an additional burden on platforms to collect and report information on transactions that are not subject to reporting for GST purposes.
We have previously worked closely with the Treasury and the ATO during the early consultation stage of the proposed law change as an opportunity to discuss the practical implications of new compliance obligations for impacted stakeholders. PwC will continue to do so in the lead up to the start time for the measures.
Although the measures no longer apply from as early as 1 July 2022 as was the original proposal, there is still less than 12 months before the first reportable transactions relating to a supply of taxi travel or short-term accommodation occur, affected businesses should be looking at how their existing systems might need to be adapted and to plan for the implementation of these new reporting obligations.
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Contact us
Brady Dever
Partner, Tax Reporting and innovation - Financial Advisory Alliances, PwC Australia
Tel: +61 431 759 399