The 2018 LVIG reform changed dropshipping tax forever. Most guides still get this wrong. Here is what actually applies to your business in 2026, including GST on imported goods, EDP rules, ad spend deductions, and when to restructure into a company.
Talk to a Dropshipping AccountantLast updated: April 2026
Key Takeaways
- Dropshipping income is fully assessable in Australia and must be declared regardless of where your supplier is based
- Since 1 July 2018, GST applies to low value imported goods (under $1,000) sold to Australian consumers, this is the LVIG rule
- Some marketplaces (eBay, Amazon, Etsy) collect GST as an EDP; most Shopify stores remain the liable supplier
- Facebook, TikTok and Google ad spend is the largest deduction category for most dropshippers and is fully claimable
- Once profits exceed $80,000 to $100,000, a company structure typically saves more than it costs in compliance
How Dropshipping Works (and Why Tax Gets Complicated)
Dropshipping is an ecommerce model where you sell products through your own storefront (Shopify, WooCommerce, eBay, Amazon, Etsy) without holding inventory. When a customer orders, you place a matching order with your supplier, who ships the product directly to your customer.
The model has low overheads but creates a tax complication that traditional retailers do not face: you are selling goods you never physically possess, often sourced from overseas, to customers in Australia. The ATO treats you as the supplier for GST purposes in most cases, even though the product never enters Australia through your hands.
This is why dropshipping tax is more complex than it appears. Most online guides skip the LVIG and EDP rules entirely or treat them as if nothing changed since 2018. Both treatments are wrong.
Income Tax for Dropshippers
Dropshipping income is assessable income in Australia. It is added to all your other income and taxed at your marginal rate (sole trader) or at the company tax rate if you trade through a company. For 2025-26, individual marginal rates are:
| Taxable Income | Rate |
|---|---|
| $0 to $18,200 | 0% |
| $18,201 to $45,000 | 16% |
| $45,001 to $135,000 | 30% |
| $135,001 to $190,000 | 37% |
| $190,001 and above | 45% |
Plus 2% Medicare levy on total taxable income. Companies pay 25% (base rate entities) on profits regardless of amount.
What you declare: Your gross sales revenue (before supplier costs and platform fees), then claim every legitimate expense as a deduction. Your taxable income is the net profit, not the gross sales.
GST: The Part Most Guides Get Wrong
This is the section where most dropshipping articles oversimplify or get it wrong. There are three separate GST scenarios you need to understand.
Scenario 1: You sell to Australian customers (under $75,000 turnover)
You are not required to register for GST. You do not charge GST on sales. You cannot claim GST credits on business purchases. This is the simplest scenario but it ends quickly because Facebook ads and a few sales push most dropshippers past $75,000 turnover within months.
Scenario 2: You sell to Australian customers (over $75,000 turnover)
You must register for GST and charge 10% GST on sales to Australian customers. This applies regardless of where your supplier is located. The ATO treats you as the supplier of the goods because you control the customer relationship and the sale.
This is where the LVIG rule bites. Pre-2018, dropshippers selling overseas-sourced goods to Australian customers under $1,000 per item were generally not liable for GST because the goods were considered low-value imports exempt from GST. The 1 July 2018 LVIG reform changed this. GST now applies to imported goods at any value when sold to Australian consumers by a registered supplier. As a GST-registered dropshipper, you are liable for the GST on these sales even though the goods never enter your physical possession.
Scenario 3: The platform is treated as the supplier (EDP rules)
If you sell through certain marketplaces, the platform itself may be treated as the supplier for GST purposes under the Electronic Distribution Platform (EDP) rules. When this applies, the platform collects and remits GST on imported low-value goods, not you.
| Platform | Typical GST Treatment |
|---|---|
| Shopify (your own store) | You are the supplier. You collect and remit GST once registered. |
| eBay | EDP for cross-border sales; eBay collects GST at checkout on imported low-value goods. |
| Amazon Australia | EDP; Amazon collects GST on third-party seller imports under FBA and similar programs. |
| Etsy | EDP for cross-border sales; Etsy collects GST on low-value imports to Australia. |
| WooCommerce / your own site | You are the supplier. You collect and remit GST once registered. |
Important: EDP treatment can change and varies by sale type, customer location, and the specific arrangement. Always confirm the GST treatment with the platform’s tax documentation and your accountant before assuming you are not liable. We have seen dropshippers receive ATO assessments for GST they assumed Shopify was collecting (it was not).
Customs duty (separate from GST)
Customs duty is a separate issue from GST. Most goods imported into Australia at a value of $1,000 or more (per consignment) attract customs duty in addition to GST. The duty rate varies by product category. For dropshippers shipping single items directly from overseas suppliers to Australian customers, most consignments are under the $1,000 threshold and avoid customs duty, but GST under the LVIG rule still applies once you are registered.
BAS Lodgement for Dropshippers
Once registered for GST, you must lodge a Business Activity Statement (BAS) quarterly. The BAS reports:
- GST collected on sales to Australian customers (10% of GST-applicable sales)
- GST credits claimable on business purchases from Australian GST-registered suppliers
- PAYG instalments (if the ATO has placed you on the system)
- PAYG withholding (if you have employees)
BAS due dates are 28 October, 28 February, 28 April, and 28 July. Many dropshippers underestimate their GST liability because they treat all sales as GST-free; this creates a significant catch-up payment when the BAS falls due.
Tax Deductions for Dropshippers
The most-missed deductions in dropshipping are also the largest. Here is the complete list, ordered by typical impact on a dropshipping P&L.
Cost of goods sold (the supplier invoice)
The amount you pay to AliExpress, CJ Dropshipping, Spocket, Zendrop, or any other supplier for each fulfilled order is fully deductible as cost of goods sold. This is your largest direct cost. Keep evidence of every supplier transaction, ideally automated through Xero or your ecommerce accounting integration.
Advertising and marketing
For most dropshippers, this is the largest expense category by a wide margin. Fully deductible:
- Facebook and Instagram (Meta) ad spend
- TikTok ads
- Google Ads (Search, Shopping, YouTube)
- Pinterest ads
- Influencer marketing payments
- Affiliate marketing commissions
- Email marketing platforms (Klaviyo, Mailchimp, ActiveCampaign)
- SEO tools and content marketing
GST on overseas ad spend: Meta, Google, and TikTok bill from overseas entities. Australian GST on these services is typically handled through the reverse charge mechanism if you are registered for GST. This is a common BAS error: dropshippers either fail to apply reverse charge GST or claim GST credits they are not entitled to. Get this right with proper accounting software setup.
Platform and payment processing fees
Shopify monthly fees, transaction fees, app subscriptions, payment processing (Stripe, PayPal, Afterpay, Klarna), and marketplace fees (eBay listing fees, Amazon referral fees, Etsy transaction fees) are all fully deductible.
Software and tools
Product research tools (Sell The Trend, Niche Scraper, Minea), supplier integration apps (DSers, AutoDS, Spocket), email marketing, customer support tools (Gorgias, Zendesk), accounting software (Xero), inventory management, and any SaaS tool you use to operate the business.
Returns, refunds and chargebacks
Refunds reduce your assessable income (you do not pay tax on refunded sales). Chargebacks are deductible business losses. Track these carefully because they can swing a profit into a loss in months with high return rates.
Home office costs
If you operate from home, claim using the ATO’s fixed rate method (67 cents per hour) or actual cost method. Includes proportionate electricity, internet, phone, and home office furniture depreciation.
Internet and phone
The business-use portion of your internet and mobile phone bills is deductible.
Professional services
Accounting and tax agent fees, legal advice, contract templates, and business advisory fees.
Education and training
Dropshipping courses, ecommerce workshops, marketing training, and any education directly related to growing your business. General personal development is not deductible.
Should You Be a Sole Trader or a Company?
This is the single biggest tax planning decision for a growing dropshipping business. The wrong answer can cost you thousands per year.
Sole Trader
- Cheapest setup (free ABN, basic business registration)
- Profits taxed at your marginal rate (up to 47% including Medicare)
- No asset protection: personal liability for product issues, advertising compliance breaches, and supplier disputes
- Best for testing the waters or under $80,000 net profit
Company (Pty Ltd)
- 25% flat tax rate on profits (base rate entities)
- Asset protection: separates business liability from personal assets
- Ability to retain profits in the company at the lower rate
- Setup costs: $500 to $1,500 plus annual ASIC fee ($310)
- Higher compliance costs (annual financial statements, company tax return)
- Best for $80,000+ net profit, or when liability exposure is significant
Liability matters for dropshippers. Even at lower profit levels, dropshipping carries unique risks: product safety claims (faulty goods you never inspected), advertising compliance (ACCC fines for misleading claims), intellectual property issues (selling goods that infringe trademarks), and supplier disputes. A company structure protects your personal assets from these risks even before the tax savings kick in.
PAYG Instalments
Once your dropshipping business generates a tax liability above $1,000 in a financial year, the ATO will likely place you on quarterly PAYG instalments. These are advance payments toward your annual income tax bill, calculated based on your prior year’s earnings.
Ignoring PAYG instalment notices triggers penalties and General Interest Charge (currently around 11% per annum). If your dropshipping income drops significantly from prior years, you can vary the instalment downward, but you must do this through the BAS portal before the due date.
Common Dropshipping Tax Mistakes
- Treating all sales as GST-free because the goods came from overseas. The LVIG rule means GST applies once you are registered.
- Not registering for GST when turnover crosses $75,000. Many dropshippers cross this in 2-3 months of viral product success and do not realise.
- Claiming GST credits on overseas ad spend without applying the reverse charge correctly.
- Reporting net profit as income instead of gross sales. You must report gross sales and claim costs as deductions.
- Mixing personal and business bank accounts. Get a dedicated business account from day one.
- Ignoring chargebacks in the books and overstating profits as a result.
- Operating as a sole trader at scale when a company structure would save tax and protect assets.
- Not keeping records of supplier transactions. AliExpress and similar suppliers do not issue tax invoices, so you need bank statements and platform export data.
Records You Need to Keep
The ATO can request substantiation of any deduction or income figure for at least five years. For dropshippers, that means keeping:
- All sales reports from your storefront (Shopify, eBay, Amazon, Etsy exports)
- Supplier invoices or bank statements showing payments to AliExpress, CJ, Spocket, etc.
- All advertising platform invoices and statements (Meta Ads Manager, Google Ads, TikTok Ads)
- Payment processor statements (Stripe, PayPal, Shopify Payments)
- Refund and chargeback records
- Software and SaaS subscription receipts
- Bank statements for all business accounts
The most reliable way to handle this is connecting your storefront and payment processors directly to Xero or another accounting system. This automates record-keeping and ensures nothing falls through the cracks.
Frequently Asked Questions
Do I need to charge GST as a dropshipper in Australia?
What are the LVIG rules for dropshipping?
Is Shopify or eBay liable for GST on my dropshipping sales?
Can I deduct Facebook and TikTok ad spend as a dropshipper?
Should I set up a company for my dropshipping business?
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