Indirect taxes
Customs duty
Customs duty is a tax on imported goods, collected at the border on the customs value, with rates depending on the type of goods and where they come from.
Customs duty is a tax charged on many goods brought into Australia from overseas. It is administered by the Australian Border Force, which is part of the Department of Home Affairs, not by the ATO. The aim is to raise revenue and, in some cases, to give local producers a degree of protection against imports.
The amount of duty is determined by the customs tariff. Each type of goods is classified under a tariff code, and the code determines the duty rate. Many goods attract a general rate, some are duty free, and others have higher rates. The rate can also depend on the country of origin, since free trade agreements can reduce or remove duty on goods from partner countries.
Duty is calculated as a percentage of the customs value of the goods. The customs value is generally the price paid or payable for the goods, excluding international freight and insurance costs. Duty also feeds into the value used to calculate GST on the importation, because GST is charged on the value of the taxable importation, which includes the customs value, the international transport and insurance costs, and the customs duty.
Businesses that import regularly often deal with customs brokers, who lodge declarations on their behalf. Importers must keep records of the import documents, such as invoices, bills of lading and customs declarations, generally for five years. Low value shipments and goods sent by post to consumers can follow simplified processes, and some are below the thresholds at which duty is collected.
For GST, customs duty is not recoverable as a credit, because it is a tax, not a GST-inclusive purchase. However, a GST-registered importer can claim a credit for the GST paid on the importation, often through the deferred GST scheme, where GST is reported on the BAS instead of being paid at the border. Duty paid becomes part of the cost of the goods, which affects pricing and deductions.
Common mistakes include using the wrong tariff classification, leaving out freight when calculating GST, and forgetting duty when pricing imported stock. This is general information only, so confirm your situation with the Australian Border Force, the ATO or a registered tax professional.
Worked example
A registered retailer imports goods with a customs value of $10,000, plus $1,000 international freight and insurance. Assume a 5% duty rate for illustration. Duty = 5% x $10,000 = $500. Value of the taxable importation = $10,000 + $1,000 + $500 = $11,500. GST = 10% x $11,500 = $1,150, which the retailer can claim as a credit. The $500 duty is not creditable.
Practical tips
- Check the correct tariff classification for your goods, because it determines the duty rate.
- Include freight, insurance and duty when working out the GST on importation.
- Keep import documents such as invoices and declarations for five years.