Practical tips, insights and articles to help you build the business, wealth, and lifestyle you want

Effects of 'Netflix Tax' seen as leading software vendor is the first to increase their prices

Article By Brendan Cole | | Accounting & Tax

Adobe customers are among the first to see the effects of the new GST laws being imposed by the Australian government on digital goods and services being sold in Australia by foreign entities. Users of Adobe services, such as Creative Cloud & Photoshop, have been informed that starting 1 December 2016, the price of all subscriptions will increase by 10% to comply with the new legislation. This comes 8 months earlier than is required by the new laws – which will require international providers of digital goods and services to apply GST of 10% when sold to Australian customers. This includes streaming services, software, and music, as well as online professional services such as those of lawyers and architects.

It should be noted that for users in businesses who are registered for GST, the GST component can be recorded separately so as to become like any other GST Input Credit, however it may prove difficult to accurately track this for all providers depending upon the timeliness and detail of the Invoices they provide by default. Not to mention, for larger quantities of licenses, GST Input Credits do not necessarily immediately offset the ongoing monthly cashflow increase from the date these price rises take effect. We are also likely see vendors increasing their prices over and above the addition of the GST – as further administrative processes will need to be implemented on their end to pass this collected GST back to the ATO.

The 'Netflix Tax' was intended to level the playing field, with many Australian businesses feeling they couldn’t compete when overseas companies can provide the same service or product for a lower perceived price. The reception from consumers has not been as positive, with many expressing anger over the price increases, and in the case of Creative Cloud, some stating they intend to cancel their subscriptions due to this now being the second price increase this year.

International businesses have until 1 July 2017 to comply with the changes to the GST Legislation, though if Adobe is in any way a sign of what is to come – we could be seeing more vendors jump the gun well ahead of time.

If you feel you aren't getting the best value for money from your software provider, get in touch with the Altitude Innovations Team to discuss some possible alternatives.