As a topic of discussion over the past few years, it’s finally happening. As of November 1, Google will be charging GST on all AdWords spend. For small to medium sized businesses, this means that advertisers will need to fork out an additional 10% of their media budget to go towards tax.
So why hasn’t this happened before, and why does it need to occur now?
Previously, Google’s AdWords billing for Australia came from its office in Singapore where they were under no obligation to pay tax to the Australian Government. By the start of the November this will change as AdWords billing will now be charged from their Australian-based branch. This is largely due to pressure from Malcom Turnbull who in March last year started pushing for a proposal which would see large multi-national companies charged with the Australian Goods and Services Tax so that they can deliver “a fair return to the countries where they make most of their money”.
You may recall that on October 1, 2016, the Australian Tax Office made changes to the GST Law where cross-border supplies of digital products and services would now be subject to the Goods and Services Tax if those businesses had been based in Australia for more than 183 days over a 12 month period, and had a GST turnover of $75,000 or higher.
What does this mean for online advertisers in Australia?
From the 1st of November, all invoices from Google AdWords (which previously only charged for the direct ad spend) will now feature a GST charge. While this may not have too much of a financial impact on those companies allocating only a small amount of their marketing budget to AdWords, for those Australian businesses which spend hundreds of thousands of dollars (and more!) advertising on this platform each month, it could have a significant impact on their finances and budgetary commitments. Of course, the actual impact on companies will largely depend on whether they currently pay GST or get a GST refund as part of the quarterly BAS return.
This further highlights the importance of having an AdWords account optimised to attract the most relevant prospects, ensuring that every dollar of your ad spend (and the GST that is now attached to it), returns the greatest value to the business.