Are you thinking about setting up a dropshipping store in Australia? Maybe you’re already selling products online, and you’re wondering how taxes work. If so, you’re not alone!
As more Australians look for ways to supplement their income, online side hustles such as dropshipping are becoming increasingly popular. But there is a lot of confusion about how to set up your taxes for your dropshipping store.
So we’ve created this article to help you understand what you need to know. Because make no mistake – dropshipping is a business, and the ATO is watching. So keep reading!
How does dropshipping work?
Dropshipping is an ecommerce business model where you sell goods online, and then buy them at reduced cost on a single-unit basis directly from the manufacturer. The manufacturer (or third party supplier) then packages and ships the order directly to the customer on your behalf.
This business model can be a favourable way to develop a retail brand without the expensive overheads that come with a traditional store. Selling goods this way means you don’t have to keep a large inventory or spend time posting orders yourself. All you need is a website and a payment gateway, and you’re in business!
Do I have to pay taxes on dropshipping?
The simple answer is yes. Dropshipping is a business, therefore you need to pay taxes on what you earn. That being said, there are actually two types of tax you need to pay as a dropshipper: income tax and sales tax (GST).
Here’s what that means for you:
This is the type of tax that every Australian has to pay. Whether you run a business or work as an employee, a contractor, or even a social media influencer, you must pay the ATO a portion of the income that you earn.
The exact amount of tax you pay depends on which income bracket you are in. A small business accountant can advise on which bracket you fall into based on your individual circumstances.
Sales tax (GST)
Goods and services tax (GST) is a 10% tax that’s added to the sale of goods sold in Australia. If your business is registered for the GST, you need to collect it on every order you sell on behalf of the government.
It’s important to note that if your manufacturer is located overseas, then the orders they send to your Australian customers will be classified as imported goods. If those goods are valued at over $1,000, then you may also be required to pay customs duties. You can get more information at the Border Force website.
Do I have to register for the GST in my dropshipping store?
If your business has an annual turnover of $75,000 or more, you’re required to register for the GST and collect sales tax on every item you sell, which is then paid to the government periodically.
If you’re not earning $75,000 or more, you don’t have to register for the GST. But you may still decide to register if you wish to claim GST credits for your business-related purchases throughout the year.
Should I get an ABN?
An Australian Business Number (ABN) is an identifier that allows your business activities to be tracked and recorded for tax purposes. It allows you to claim back GST credits, register for an Australian domain name, and identify your business on invoices and orders.
Most wholesalers will require you to provide your ABN when setting up your business account too, so it’s a good idea to organise one before you start trading.
Getting an ABN is a simple process that you can do online at this link.
How to file your Australian taxes as a dropshipper
Firstly, you need to ensure that you’re keeping accurate records of your income and expenses. There are many cloud-based accounting programs that can help you keep on track so you don’t get caught out at tax time.
While dropshipping is a relatively simple business model, the tax obligations involved may not be. Hiring an accountant can help you ensure that you’re compliant with your tax-related responsibilities as a business owner in Australia.
An accountant that understands dropshipping can also help you make sure that your business is set up in the most beneficial way for reducing your tax liabilities at the end of each financial year.
At National Accounts, our tax agents are experts in tax planning for dropshipping business owners, and understand how to maximise tax benefits as you grow your business.
Simply get in touch using the link below to see how we can help take the stress out of tax time.