Google announced that as of 1 November 2016, the company will be charging Australian customers 10% GST as they “will be bound by the terms of the contract and will be providing the service to you and invoicing you for the service.”
EDIT (17/10/16): To clarify, Google will be charging 10% on top of the money spent on Clicks, rather than reducing the spend to accommodate the GST.
Google has been using companies in Ireland and Singapore for years. The Singapore based company was trading in Australia. From selling its advertising services to Australia, Google earned $2 billion. However, this is not booked to Google Australia, but rather booked through Singapore to Google Asia-Pacific. Singapore has a lower tax rate, with Google having an arrangement with the Government in Singapore to only pay 10% tax on the earnings it reports. Through funnelling a small fraction of its Australian earnings to Singapore, Google only pays less than 0.2% tax from the $2 billion.
Google also uses the “double Irish arrangement”, which relies on the fact that Irish tax law does not include transfer pricing rules. The strategy sees companies move income from a high-tax country to a low or no tax jurisdiction.
Essentially, the Australian Tax Office is missing out on a huge sum of money from online multinational organisations such as Google.
This prompted the then Communications Minister Malcolm Turnbull to call for multinational tech companies to be charged a 10% goods and service tax (GST) on advertising booked by Australian companies. This will raise $240 million for the state governments.
Starting on 1 November 2016, Australia’s Google AdWords customers with a business account will have a new set of terms and conditions, which includes the 10% GST.
Who is affected?
As Google is “assigning” their customers from the Singapore entity to the Australian one, Google Australia Pty Ltd, this means anything you buy from Google will have GST applied. We’ve specifically seen “alert emails” about the following Google products:
- Google’s G-Suite (recently renamed from Google Apps)
- Google AdWords
Anyone who uses those will be affected, that is mostly going to be businesses, small and large, but we figure the biggest impact will be on AdWords Customers, and those affected fit into three groups:-
1. Very small and micro businesses who aren’t GST registered will get less clicks for their dollars or will just need to find an additional 10% to pay on top of what they spend now.
Many small businesses/ solo operators are already spending on a knife edge. If they were to suddenly find themselves paying 10% more than they have budgeted for the return, they might not be able to cope.
2. People who just pay more so they get the same number of clicks. This is the path we’re recommending to our clients at Matter Solutions through our AdWords services. This will mean they get the same number of clicks which we’ll explain more below.
3. Those who won’t increase spend and will just get less for their money and might notice when their first proper GST invoice comes at the end of November.
Are you asleep?
The third group of people mentioned above includes those who are asleep at the wheel of their AdWords account. In our experience, this is a huge proportion. It is likely that this notification from Google will be overlooked as “just another email from Google” and archived/ deleted/ never seen.
Why is this good for me?
Firstly, you’re reading this article, you’re about to see the opportunities.
Think. If a large proportion of your competition all suddenly spent 10% less*, we are likely to see the budgets finishing faster and the available clicks increases, i.e. competition should decrease.
*Yes I know maths, that isn’t really 10% less its 1/11th but close enough.
The Ads in Australia are all about to go into a state of Flux.
One of the things we see in established markets is a barrier to entry. The existing players are often in an equilibrium and vying to get an edge over one another. When we come in we can usually help a 3rd or 4th player get to position 1 or 2 with better ads, better budget allocation and a very active management. When the whole market drops spend and CPC’s move around, there are likely to be some great opportunities for those with their eyes open.
Micro Business. If you’re a small or micro business and this will cost you real money then consider registering for GST. You don’t have to have a turnover at or above the $75k threshold, $150k for non-profit organisations (source ATO). You will then be able to claim back to 10% you pay in GST, your accountant can help.
Larger Businesses. Get your AdWords Manager to tell you what they’re looking for in the “time of flux” that will begin next month, in Australia.
And… if you meet a competitor at a conference or networking event, shhh, don’t say anything. They might be in the “asleep at the wheel” group and you could eat their lunch.