Australia: Advanced planning for customs duties with regard to major projects

Preplanning for customs duty prior to a final investment decision of a project can deliver significant benefits

Advanced planning for customs duties with regard to major projects

Businesses embarking on major projects in Australia will know that it takes a lot of collaboration and planning. In almost all cases, multiple business functions are required to work in tandem if the project is going to run to budget and schedule.

One of the earlier planning activities to be undertaken—but is often forgotten—is an understanding of the finance, tax, and procurement functions as they relate to customs duty.

The typical rate of customs duty in Australia for imported capital equipment is 5%. However in situations when goods are not produced in Australia (or fit within requirements under free trade agreements), the general duty can often be reduced to zero (0%). While 5% may not seem like a significant amount, this can equate to many millions of dollars of additional costs for major projects.

Experience shows that without active preplanning, overall duties liabilities for projects generally range between 2% – 3% percent for every imported dollar (equating to $2 million to $3 million for every $100 million* in imports).

Benefits of planning for customs

Preplanning for duty minimisation prior to the final investment decision of a project can deliver significant benefits, especially in terms of developing contracts. It not only assists with project finance and sourcing decisions, but:  

  • Keeps customs duty costs and concessional benefits visible to the project
  • Holds contractors accountable for passing through duty benefits and providing assistance to gain concessions
  • Helps to ensure contractors comply with the project’s Australian industry participation plan (AIPP). Broadly, AIPPs are a requirement under the Jobs Act 2013, when Capex on a project will be $500 million or more or government financing will be provided to the project. The plans provide details on:
    • Expected opportunities to supply key goods and services to the project
    • How proponents will communicate project opportunities and pre-qualification requirements to potential Australian suppliers
    • How proponents will assist suppliers to develop capability and integrate into global supply chain
  • Provides the project with the opportunity to minimise custom duty, fuel tax, goods and services tax (GST) and overseas value added tax (VAT) leakage

KPMG observation

Experience reveals most major projects contain at least one of a number of complexities, including multi-site development, numerous legal entities, and multiple project and concession applications running in parallel, which is why early planning is essential and applications for customs duty concessions must be lodged prior to goods arriving in Australia.

Businesses that take the following first steps as early as possible typically have the best outcomes:

  • Undertake a cost benefit analysis of concessions and free trade agreements
  • Prepare a duty mitigation strategy
  • Review the project’s customs and indirect tax contract clauses with contractors
  • Implement the plans and monitor throughout the project to ensure the duty mitigation strategy is appropriately followed


For more information, contact a KPMG professional in Australia:

Leonie Ferretter | +61 2 9455 9330 | lferretter@kpmg.com.au

Graeme Hartnett | +61 8 9263 7322 | ghartnett@kpmg.com.au

 

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