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When do the Australian reverse charge rules apply to cross-border transactions?
The Australian rules for a ‘reverse charge’ goods and services tax (GST) do not operate in quite the same manner as their EU counterparts. This can cause confusion for international businesses, such as those entering into M&A transactions, or those required to recharge a portion of their head office costs to Australian subsidiaries.
The basic principle behind the ‘reverse charge’ GST is the same across jurisdictions. That is, the rules shift the obligation to pay GST from the overseas supplier to the Australian recipient.
However, Australia has two sets of reverse charge provisions:
- a ‘voluntary’ regime for overseas entities making one-off or infrequent supplies to Australia
- an ‘automatic’ regime for Australian recipients with a GST recovery rate of less than 100%
Reverse charge by agreement: Understanding Division 83
The ‘voluntary’ provisions are contained in Division 83 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) and, broadly, apply with the mutual consent of the parties, e.g., where an overseas supplier sells and installs equipment in Australia as part of a one-off transaction, it may be able to avoid a requirement to register for GST by entering into an agreement with the Australian recipient whereby that recipient, rather than the overseas supplier, accounts for GST on the supply.
The high-level requirements to apply Division 83 include the following:
- the supplier must be a non-resident of Australia
- the supplier must not make the supply through an ‘enterprise’ it carries on in Australia
- the Australian recipient is GST-registered
- there is a written agreement between supplier and recipient (that the recipient will account for GST on the specified supply or supplies).
Reverse charge for acquisitions that are not fully creditable: Division 84
The second set of reverse charge provisions, or the ‘automatic’ provisions are contained in Division 84 of the GST Act. An Australian recipient is automatically required to recognise reverse charge GST on a transaction where, broadly, it does not acquire the thing supplied solely for a ‘creditable purpose.’ This may be the case because the purchase or acquisition is made partly for private or domestic purposes or because the acquisition relates (at least partly) to input taxed supplies.
Importantly, this means that an Australian recipient that makes input taxed supplies (e.g., loans, share trading, M&A activity) is typically required to recognise reverse charge GST on the full cost of both transaction-specific costs and general overheads incurred from overseas suppliers, e.g., online subscription fees, head office support services, advisor fees. The circumstances triggering a Division 84 reverse charge GST liability are, broadly:
- The supply is not GST-free or input taxed; and
- The supply is for consideration (payment); and
- The Australian recipient is GST-registered; and
- The Australian recipient would have less than 100% entitlement to GST credits if it had incurred the cost from a domestic (Australian) supplier.
Accounting for reverse charge GST
Where reverse charge GST applies to a transaction, this should be accounted for in the business activity statement in the following way:
- G1: Include amount paid or payable for the purchase(s) plus reverse charge GST (unless G1 is reported exclusive of GST)
- 1A: Include reverse charge GST
- G10 or G11 (as applicable): Include amount paid or payable for the purchase(s) plus reverse charge GST
- 1B: Include GST credit (if any) claimable in respect of the purchase(s) subject to reverse charge GST.
Should you wish to learn more about how RSM may be able to assist your organisation with reverse charge GST, or if you have any other questions, please contact your local RSM indirect tax specialist.
Frequently asked questions about reverse charge GST
Reverse charge GST shifts the obligation to account for GST from an overseas supplier to the Australian recipient. It is most commonly relevant where an Australian business acquires services, support, software subscriptions, advisory services or other supplies from overseas providers.
Australia has two reverse charge regimes: a voluntary arrangement under Division 83 and an automatic regime under Division 84. Businesses involved in international transactions, cross-border service arrangements or overseas procurement should consider whether either set of rules may apply. For broader guidance on managing GST obligations, see RSM’s information on GST consulting and compliance.
In some circumstances, yes. Under Division 83 of the GST Act, a non-resident supplier and an Australian GST-registered customer can enter into a written agreement under which the Australian recipient accounts for the GST instead.
This arrangement is often relevant for one-off transactions, such as the supply and installation of equipment in Australia by a foreign vendor. However, strict eligibility requirements apply, including that the supplier is a non-resident and does not make the supply through an enterprise carried on in Australia.
Businesses involved in cross-border transactions may also benefit from reviewing RSM’s tax planning and transaction support services, particularly where GST outcomes need to be considered as part of a broader transaction structure.
Businesses that make input taxed supplies—such as lenders, financial services groups, investment entities and organisations undertaking merger and acquisition activity—often have less than a 100% GST recovery rate. As a result, they may be required to apply the Division 84 reverse charge rules to overseas costs.
This can include transaction-specific expenditure such as legal, accounting and due diligence fees, as well as recurring costs like overseas head office charges, management services and software subscriptions.
If your business is involved in acquisitions, divestments or corporate restructures, you may find our article on key tax considerations in planning M&A transactions useful reading.
Not necessarily. Where reverse charge GST applies, the recipient typically reports GST on the acquisition and may also be entitled to claim a GST credit.
The net cost depends on your GST recovery rate. Businesses that can claim closer to 100% of GST credits generally experience little or no economic impact, whereas businesses with partial GST credit entitlements may incur substantial GST leakage.
Understanding your GST recovery position is an important part of managing GST risk and compliance. Related reading: Tax Advisory Services.
Common indicators include:
- Receiving invoices from overseas suppliers without Australian GST.
- Recharging overseas head office or group costs to Australian entities.
- Making input taxed supplies, including lending, investment or share trading activities.
- Regularly purchasing software, subscriptions or professional services from offshore providers.
- Participating in mergers, acquisitions or cross-border transactions.
If any of these scenarios apply, a GST review may help identify whether reverse charge obligations have been correctly reported and whether GST credits have been properly claimed. RSM’s GST consulting and compliance specialists can assist with GST reviews, transaction advice and ongoing compliance support.
