A Startup's Full Guide about E-Commerce Tax in Australia
Attending to your online business’ financial matters underscores your commitment to stay operational. If you're a startup owner, here are the must-knows about the e-commerce tax in Australia.
Overview of the Australian e-commerce landscape
Being the 11th largest e-commerce market in the world, Australia is home to a market with a projected value of AU$58,498 million in 2022. On top of it, Statista reports that e-commerce users are to rapidly rise to 20.7 million in three years, translating to a strong growth over the next five years. This is brought about by the challenging market conditions that brick-and-mortar companies underwent at the advent of 2020, with the large-scale diminishing of consumers. The pandemic catalysed the migration of brands into the online platform to continue their operations, emphasizing the compelling growth of the e-commerce arena.
With the surge in e-commerce revenue between $100,00 to $700,000, their tax obligations are gaining focus as well. When not managed properly, small mistakes in taxes can snowball and cause bigger problems in the long run.
In this e-commerce tax guide, we break down the obligations, reporting, and practices surrounding the landscape and crucial points to make sure your business is fully compliant with the tax laws in Australia.
Determining your business structureBusiness structure isn't just all about ownership and management.
All your responsibilities, both legal and financial, will depend on the type of structure you will do business under. Before proceeding to the different types of taxes for e-commerce, you must have a thorough understanding of how your structure impacts your tax affairs and overall financial strategy.
Having a hard time deciding? Here are four factors to assess first: tax, risk, ownership, and costs.
- Tax — Is your entity prepared to settle tax dues? Are there tax concessions or government grants you're qualified for?
- Risk — Gauge the risks your enterprise can take on. If it's risky, will you be getting insurance?
- Ownership — What ownership approach will your business take? Is it a sole proprietorship? Will it be owned by multiple people? What will the management style be like?
- Costs — These include legal and consultation fees you may need in your incubation phase. You must also take into account the costs you may incur for compliance in accounting and tax lodgments.
- Sole Trader
Now you can proceed to the tax basics.
Income Tax Registration and TFN
For sole proprietorsIf you're operating as a sole trader, you can use your personal tax file number (TFN) as your business TFN. However, if you don't have one yet, the Australian Taxation Office (ATO) has a pretty straightforward process so you can register and submit an application online. You can see more about it here.
For partnerships, companies, and trustsProvided that you already have a personal TFN, you can complete your registration for business TFN through an online application on the Australian Business Registration (ABR) website.
How to account for income taxE-commerce income tax is based on the taxable income of an entity, multiplied by the company's tax rate for the financial year. This can be accounted for either through receipt/cash method or earnings/accrual method, depending on different factors that accurately reflect the entity's profit. If you're on the fence on how you should account for your income tax, it's time to consult an e-commerce tax accountant.
Registering for ABN
Should I get an ABN?Australian Business Number (ABN) is an ABR-issued 11-digit number that identifies your company to the government and the community. But not all entities require one. Here are the ABR provided criteria about ABN entitlement:
- If you are carrying on or starting a business in Australia;
- Making supplies connected with Australia's indirect tax zone; or
- A registered company with the Australian Securities & Investments Commission (ASIC)
ATO has also released detailed information in identifying if your online selling falls under a hobby or a business. In a nutshell, if you're planning to generate income or meet the guidelines of what constitutes a business, it's time to get an ABN.
Applying for an ABN
If you are entitled to get an ABN, the next step is to complete the following requirements:
- Your registration details, including TFN, your Australian company number (ACN) or Australian registered body number (ARBN), if registered with ASIC;
- Your business activities, which are usually your main streams of revenue;
- The business’ contact platforms (your business address, postal address, email address, and phone number); and
- Your associates’ details, but requirements vary depending on your entity.
Once you get that done, you can now file your application in the ABR.
Goods and Services Tax (GST) RegistrationGST pertains to the imposed 10% tax on goods and services consumed by the Australian customers, including those sold through aggregate platforms (e.g. Amazon, Shopify).
You need to carefully assess if your e-commerce entity is anticipating an annual revenue of $75,000 because if you are, then you need to factor in GST as you launch. You will also need to lodge your returns and settle the GST to ATO.
Immediately after your completion of ABN, you can already register for GST. Here is a step-by-step guide to help you register for this.
Preparing for E-commerce GST
It's possible that businesses can claim back the GST they incurred from their purchases. But here's the catch: not all sales are subject to GST.
Most GST-free sales for e-commerce owners are exports (products sold on a global scale) since they are not consumed within Australia, although the exemption expires when the products remain within the country for over 90 days.
On filing GST
To manage the tax obligation, the ATO collects GST through quarterly Business Activity Statements (BAS), or if you are a voluntarily-registered business for GST, you can opt for an annual submission of BAS.
A word of advice: keenly evaluate your cash flow situation before deciding whether to lodge BAS on an annual or quarterly basis, especially if you're operating on aggregator platforms
Once you have a full grasp of the e-commerce taxes in Australia, you have a guarantee that your operations can sail smoothly from the get-go. There may be lesser requirements to operate in an online channel, but you still need to make sure your taxes and finances are in line to minimise any possible frictions you may encounter.