ANSWER ID:9282

This support note explains how to record overseas purchases and account for the GST and costs associated with importing products. The following methods are provided for completing this process:

Recording an overseas purchase and treating import costs as expense items

Recording an overseas purchase and treating import costs as part of the inventory value

Typically when importing, GST is levied at 10% of the landed cost of the goods and is payable to the Australian Tax Office (ATO), not your overseas supplier. You will need to create one purchase order to record the overseas purchase and another purchase order to record the costs associated with the import.

When the goods are landed in Australia, the customs office will determine your GST liability and provide you with a detailed account of the amount payable.

Notes:

• The landed cost as determined by customs may differ from the amount paid to your supplier due to exchange rate variations.
• The way GST is handled may vary according to your business circumstances. You should always check with the ATO or your accounting advisor regarding which tax codes to use based on your GST reporting requirements. The examples and images used in this support note are generic and may not apply in your circumstances.

A customs agent is usually employed to handle the costs associated with the import. Generally, the customs agent will arrange payment and collection of the goods on arrival into Australia and might pay your customs duty, freight, insurance and GST liability, so you will need to reimburse the customs agent for those costs.

For information on deferring GST on imports, refer to our support note Deferring GST on International Purchases.

Recording an overseas purchase and treating import costs as expense items

Using the following method, individual expense items are used to record the freight, insurance, and customs duty along with the GST component of an overseas purchase.

Task 1 - Record the overseas purchases

Create an item purchase and enter the details of your overseas purchase. In this example the N-T (No Tax/Not Reportable) tax code is used to ensure that GST is not payable to the supplier. This transaction can be entered in foreign-currency if available in your software version.

This records the inventory but not the GST on landed cost. Refer to the example below:

Task 2 - Record the import costs and GST payable

In the following example, we are using an item invoice type, but you are also able to perform this same transaction using the service invoice type.

Create a Tax Exclusive item purchase and enter the following:

• Enter the value '1' in the Received column. Enter the amount (Price) to be reimbursed for the freight and use the GST tax code.
• On a new line, enter the value '1' in the Received column. Enter the amount (Price) to be reimbursed for customs duty and use the GST tax code.
• On a new line, enter the value '1' in the Received column. Enter the amount (Price) to be reimbursed for insurance and use the GST tax code.
• On a new line, enter the value '1' in the Received column. Enter the landed cost amount (Price) of the purchased goods and use the GST tax code. Note that you need to include only the total value of all purchased goods that GST is calculated on rather than the value of each individual item.
• On a new line, enter the value '-1' (negative 1) in the Received column. Enter the landed cost amount (Price) of the purchased goods and use the N-T (No Tax/Not Reportable) tax code. This removes the expense double entry, as this has already been recorded in task 1, whilst still maintaining the GST liability.

Refer to the example below:

Note: In the example shown above, the freight, customs duty, and insurance is immediately expensed, but these can be included into inventory value. Please refer to the information in the next section.

Recording an overseas purchase and treating import costs as part of the inventory value

Using this method, the freight, insurance, and customs duty are included in the inventory value for the imported items.

1. Record the overseas purchase by entering the details of the purchase. The N-T (No Tax/Not Reportable) tax code is used to ensure that GST is not payable to the supplier. Refer to the example shown below:
2. Record the import costs and GST payable. In the following example, we are using an item invoice type, but you are also able to perform this same transaction using the service invoice type. Create a Tax Exclusive item purchase and enter the following:
   • For the combined amounts of freight, customs duty, and insurance, enter zero (0) in the Received column, select the item number and enter the Price. Use the GST tax code. By entering the item amount without a Received quantity, the value of inventory increases without increasing the quantity on hand. This is similar to an inventory adjustment.
   • On a new line, enter the value '1' in the Received column. Enter the landed cost amount (Price) of the purchased goods and use the GST tax code. Note that you need to include only the total value of all purchased goods that GST is calculated on rather than the value of each individual item.
   • On a new line, enter the value '-1' (negative 1) in the Received column. Enter the landed cost amount (Price) of the purchased goods and use the N-T (No Tax/Not Reportable) tax code. This removes the expense double entry, as this has already been recorded in step 1, whilst still maintaining the GST liability.

Refer to the example below:

Related support notes

Cash and accrual GST reporting

Accounting for GST Instalments Paid: Option 3

Using Tax Codes in General Journals

GST Purchases with Private use & Non-Deductible Business Expenses

No tax and GST-free tax codes

Input-Taxed purchases and sales

Using the Tax Information Reconciliation report

Saving, editing, and importing BAS Templates

Reconciling your BAS and checking for errors