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GST on postage on online purchases

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Started October by
Modified March by

Question

I've ordered a number of products from online businesses and I'm not sure that retailers are adding GST to the delivery properly.

Isn't GST for goods and services supplied by the company only, if they are not personally delivering the product then it shouldn't be applied on freight?  

Answer

If you purchase a product online and arrange to have it delivered, costs associated with the delivery are a necessary part of the sale of the product. Retailers treat delivered goods as an ‘integrated supply’ – the supply includes the product you’ve purchased as well as costs associated with selecting, packing and delivery your product.

 

How the retailer calculates the GST on the delivered product depends on whether the product is taxable, non-taxable or a mixture of the two. The following table from Goods and Services Tax Determination GSTD 2002/3 Goods and services tax: how do I account for G...? explains the formula retailers use to calculate GST on the delivery of goods:

Type of goods supplied

GST payable

All goods supplied are taxable

1/11th of the total cost including the delivery fee. No apportionment is required.

All of the goods supplied are non-taxable

Nil

Goods supplied include both taxable and non-taxable goods

1/11th of the price of the taxable items, plus 1/11th of the portion of the delivery fee that relates to the taxable goods.

 

Example 1 – Domestic supply - Goods sourced from Australian warehouse

Let’s say you bought a single chair online that’s worth $80 from a retailer who warehouses the goods in Australia. The chair is considered to be a taxable item – that is, GST will be applied to this sale.

Because the retailer doesn’t have a store front, the only way to get your chair to you (a condition of the sale) is to post it in a large box. Due to the product’s size, the retailer has to purchase $22 postage (GST inclusive) to have it shipped to your address.

 

As this is an ‘integrated supply’, the retailer adds the cost of the postage to the cost of your chair on the invoice.

 

They should calculate the total cost to you as follows:

Chair

      $80

Postage/delivery cost

      $20

Total without GST

    $100

                                                                   GST 10%

      $10

Total inc GST

     $110

 

The retailer only charges $20 for postage because they’re entitled to claim a GST credit from the ATO. On their next activity statement, the retailer completes the following calculation and pays us the difference in GST paid and collected:

GST paid to business

     $10

GST to be claimed by business

       $2

Total to be paid to ATO on activity statement

       $8

 

Example 2 – International delivery - goods sourced from overseas warehouse

This is the same scenario, but this time the company you bought your $80 chair from stores the goods outside Australia. For this example you have purchased your chair using an electronic distribution platform (think etsy) and the retailer has agreed to deliver the goods to your nominated delivery address in Australia.

 

The retailer you bought it from purchases $20 for international postage. The retailer is not charged GST by the foreign postal organisation because international post to Australian delivery addresses is GST-free.

 

Chair

      $80

International Postage/delivery cost

      $20

Total without GST

    $100

                                                                    GST 10%

      $10

Total inc GST

    $110

 

Changes to Australian tax law means that the electronic distribution platform (EDP) we mentioned above is required to be registered to collect GST on the retailer’s behalf. Most EDPs will add GST in at checkout therefore increasing the list price by 10% prior to purchase. The EDP is responsible for sending the GST to the ATO and not the retailer.

 

Because GST doesn’t apply to international delivery, no entity is entitled to claim a GST-credit on for international post on their activity statement:

GST payable by EDP

     $10

No GST credit for retailer on international post

       $0

Total to be paid to ATO on activity statement

     $10

 

Under Universal Postal Union agreements between international postal agency and Australia Post, the foreign postal organisation will pay Australia Post a portion of the amount received for international delivery. The postal services by Australia Post to the foreign postal organisation are also GST-free.

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