Level 9, 440 Collins Street, Melbourne VIC 3000 (03) 9132 5088
(Update: April 2021)  

9 Minute Read

Managing your tax affairs is an important task for any new or existing business owner and especially as an E-Commerce operator, small mistakes can snowball and create problems in the future.   

We have prepared an Australian taxes guide for E-Commerce operators that serves to discuss the tax basics for those looking to start an E-Commerce Business.

This guide will also serve as a refresher for those who have started but may have gaps in their knowledge.  
 

Index

1. Choosing your Business Structure

A. Which Structure?

B. Can I change my Structure later?

2. Income Tax Registration (TFN)

A. Sole Trader

B. Trust, Company or Partnership 

3. Business Registration (ABN) 

A. Entitlement to ABN 

B. Hobby or Business? 

C. Applying for an ABN 

4. Goods and Services Tax (GST) Registration 

A. Requirements for Registration 

B. Compulsory or Voluntary? 

C. Applying for GST Registration 

5. Preparing for Income Tax 

A. How much Income Tax do I have to Pay? 

B. Which Method to Account for Income Tax? 

C. Example: E-Commerce Company, Shopify Store

6. Preparing for Goods and Services Tax (GST) 

A. GST and Types 

B. The Business Activity Statement 

C. Which Method to Account for GST? 

D. How much GST do I have to pay? 


1. Choosing your Business Structure

Which Business Structure should I use for my E-Commerce Business? 

The best structure depends on your needs by considering the Cost, Risk, Tax and Ownership of your business, your product or service offering and the stage of your business.

However the best structure typically to commence business in E-Commerce will be Sole Trader

Sole Trader offers the lowest cost which is a strong factor as many new businesses often fail. Should you have concerns over asset protection, you should consider incorporation or trading from a company. 

Tax is rarely a consideration for startups as the trading performance is often a loss however you should consider prior to transfer of the business if you can still utilise these losses.

Where startups have multiple business partners, you may consider using either a partnership as a low cost structure or proceed directly to a trust or company structure.

Despite the above considerations, you should consider all these elements together: 

• Costs – These include legal and consultation fees specific to your needs and costs for continuous compliance of your business such as accounting and tax lodgements. 

• Risk – How risky is your product or service offering? Do you have insurance? Are you concern for your personal assets I.e asset protection?  

• Tax – Are you paying more or less tax than is necessary? Am I entitled to all Tax Concessions and Government Grants?

• Ownership – Would the business be owned by one or multiple people? How can you manage your ownership and control? 

We have summarised an overview of these elements with the most popular business structures. 



Can I change my structure later when my business improves? 

The simple answer is yes and we do often suggest this as a strategy to new E-Commerce Operators that are looking to ‘test the waters’ with the demand for their product or service.

Moving to an appropriate structure should be completed with caution, promptly and correctly in order to avoid adverse tax and risk consequences. 

Once you have chosen your Business Structure, the next step would be to complete your tax registrations. 

We recommend speaking to your Tax Accountant or Lawyer prior to setting up or re-structuring your business.
 


2. Income Tax Registrations (TFN)

Sole Trader

You may already be registered for income tax purposes as your personal Tax File Number (TFN) will also serve as your Sole Trader Tax File Number.

If you don’t have a personal Tax File Number, registering is completed by an online application form and visiting a local Australia Post branch to verify your identify.

For more information on registering an Individual Tax File Number refer to the Australian Taxation Office’s Website at https://www.ato.gov.au/Forms/TFN—application-for-individuals/ 

Trust, Company or Partnership

What if you operate or plan to operate your E-Commerce business through another entity such as a Trust, Company or Partnership?

Assuming you already have a personal Tax File Number, the process is simple by completing one online application through the Australian Business Register website.

For more information and to register for a business Tax File Number refer to the Australian Business Register website below.

https://www.abr.gov.au/business-super-funds-charities/applying-other-registrations/apply-tfn-business 


3. Business Registration (ABN)

Entitlement to ABN

Not everyone is entitled to an Australian Business Number or ABN. 

The three entitlements for an ABN are those starting a business or who are already carrying on a business in Australia, and if you are a registered company.

Some examples of E-Commerce businesses entitled to an ABN Include:

1. Planning to start Business in Australia

   A. Advertising, setting up a social media account or a website for the business.

   B. Consulting with financial, business or tax advisers.

2. Already carrying on a Business in Australia

   A. The business has intention to make a profit i.e use of business plan or determining profitable market to sell.
   B. You carry on as if it were a business i.e record keeping, recurring activities.
   C. Size of operations are consistent and reasonable of a commercial activity i.e purchasing bulk goods from wholesalers.

3. Registered a Company with ASIC

Hobby or Business?

Care should be taken when applying for an ABN as your activity needs to meet the requirements for an ABN.

Often when your activities do not meet the criteria of a business, they are considered a Hobby.

Hobbies are not entitled to an ABN and do not meet many other requirements of running a business such as report their income or expenses to the Australian Taxation Office.

Caution should be noted as there are many risks with trading as a ‘hobby’ when in fact, you are a business.

Unregistered business can be liable for taxes and often lack protection such as insurance or appropriate business structure.

Applying for an ABN

The application process is simply completed by an online application at the Australian Business Register website.

https://www.abr.gov.au/business-super-funds-charities/applying-abn

Prior to completing the application, you will require the following information:

A. Registration Numbers for the registering entity such as Tax File Number (TFN) and Australian Company Number (ACN), if a Company.

B. Business Contact Details including address, email (must not start with info@ or support@ etc) and telephone number.

C. Associates’ Details including full name, date of birth and tax file number or residential address. Note if the resident associate details do not match ATO records, the application will be refused.

D. Business Details including description of main activities I.e for Herb Retailing (41290 Other Specialised Food Retailing).

If you are unsure which category your business fits, use the Australian Taxation Office’s Business Industry code search:

https://www.ato.gov.au/Calculators-and-tools/Business-industry-code-tool/AnzsicCoder.aspx


4. Goods and Services Tax (GST) Registration

Requirements for Registration

An entity can be registered if it is carrying on a business (has ABN).

Entities are required to be registered if carrying on a business and its’ GST turnover is $75,000 or more.

Failure to register when required will not prevent GST payable by the business and can result in additional penalties and even prosecution.

GST Turnover is the total taxable supplies which is typically the total sales (less export sales) in the current financial year and your projected sales for the remainder of the financial year.

Compulsory or Voluntary?

Clients often ask why you would register for GST on a voluntarily basis for GST?

The decision would depend on many factors but the answer is clear for E-Commerce operators that retail through or use aggregator platforms such as Amazon.

Aggregator platforms effectively add GST to your sales price therefore you are effectively registered for GST purpose regardless of turnover.

If you are effectively charging your customers GST on your sales, you should then register to claim the GST on your purchases.

The above exception does not apply to retailers under the GST threshold and not using an aggregator platform.

E-Commerce retailers selling directly to customers I.e through their website have a competitive advantage by not registering for GST as they can be offering the same product 10% cheaper than GST registered competitors.

Applying for GST Registration

The easiest method to register for GST would be immediately following completion of the business registration (ABN) – see above. 

As discussed above, care should be taken to ensure you firstly meet the requirement of a business as you will not be entitled to be registered for GST.


5. Preparing for Income Tax

How much Income Tax do I have to pay? 

The amount of Income Tax Payable is simply the entity’s Taxable Income multiplied by the entity’s Tax Rate for that financial year. 

Taxable Income is the profit earned during the financial year for Income Tax purpose.

This can likened to the accounting or actual profit of the business i.e Sales less Expenses = Profit. 

Caution should be taken when calculating the Tax Income as not all Sales are Assessable and not all expenses are allowable. 

 

Tax Rate is determined by the business structure summarised below: 

   

Which Method to Account for Income Tax?

The two most common methods to account for Income Tax are as follows: 

1. Receipts or Cash method where income is assessable when received.

2. Earnings or Accrual method where income is assessable when derived or in other words when it has been earned. 

The basis for determining the correct method is one that appropriate reflects the true profit of the business.

The correct method is on a case by case basis and should use professional judgement.

Factors that weigh heavily for E-Commerce operators are income from Trading (sale of inventory) which typically results in the Earnings Method.

Size of business should also be considered when determining the correct method. 


Example: First Year Trading, E-Commerce Company

John setup a company and started his first-year trading from his Shopify store.  John’s business resulted in the following transactions during the financial year:   

• Sales on Shopify $36,560  

• Purchases of inventory $18,960   

• Website costs $180   

• Fines $96   

• Marketing costs $3,684 

 

John had less than $5,000 of inventory on hand as at the end of the financial year. 

 

Given the above transactions, the company would have an income tax payable upon lodgement of the Income Tax Return totalling  $3,777 (see below).




6. Preparing for Goods and Services Tax (GST)

GST and Types 

Goods and Services Tax (GST) is a sales tax (10%) on consumption of goods within Australia. 

GST Registered Businesses will collect GST by adding 10% onto their sale’s price.

These same businesses will then claim back the 10%  GST charged by other businesses on their purchases.
 

Care should be taken as not all Sales have GST to be collected and not all Purchases have claimable GST. 
 

The most common GST-Free sale for E-Commerce providers are exports as they are supplies outside the GST system.

Note however that special rules apply if the good are not exported from Australia within 90 days. 

The Business Activity Statement 

It would be uneconomical for the Australian Taxation Office to wait until the end of financial year to collect your GST.

As a result, the GST is collected and paid usually on a quarterly tax return called the Business Activity Statement (BAS).
    

Businesses voluntarily registered for GST can elect for an Annual Business Activity Statement which helps to reduce compliance costs.

These businesses should consider if a quarterly lodgement is better for cashflow, especially if trading through Aggregator platforms.

Which Method to Account for GST? 

There are only two methods to account for GST which are similar to Income Tax: 

 

1. Cash Method where GST is claimable when paid and payable when received. 

 

2. Accrual Method where GST is claimable and payable when the tax invoices have been received.  

 

Businesses can choose the method that is favourable to them which is typically the Cash Method.

This is due to cash flow advantages as the business will only have to pay once the cash has been received. Note that businesses with turnover above $10m (not a small business entity) must be on Accrual Method.

How much Goods and Services Tax do I have to pay? 

The amount of GST payable depends on the GST Collected on Sales, less the GST Paid on your Purchases, during the period – see example below.  

Transaction 1 – Sale of $5,500   
During the previous financial quarter, the client made sales of $5,500 through their Shopify which means they would have collected $500 of GST ($5,500 / 11).
This amount would be reported on the Business Activity Statement for the quarter ended and paid to the ATO.   

Transaction 2 – Purchase of $1,100 Inventory   
Client had purchased $1,100 worth of inventory from a GST registered wholesaler during the period, they would have paid $100 of GST ($1,100 / 11).
This amount would be reported on the same Business Activity Statement for the quarter ended and refunded by the ATO.   

Lodgement of Quarterly Business Activity Statement  The client would pay $400 to the ATO on the Business Activity Statement being $500 GST collected, less $100 GST paid.



Disclaimer: This page contains general information only and has been prepared without taking into account your circumstances, objectives, or financial situation. We recommend that you consider whether this information is appropriate and always seek professional advice in relation to your circumstances.

About Us

Moschners, Chartered Accountants is a modern accounting firm located within the city fringe servicing a range of industries and sizes. We are experienced E-Commerce Accountants providing a full range of business, accounting and taxation solutions for E-Commerce operators. We have strong values on Professionalism, Education and Technology with a young and dynamic team culture.

Have An E-Commerce Tax Question?

 

 
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(Last Update: April 2021)


8 Minute Read

We often receive enquiries from personal tax clients wishing to maximise their tax position, but the biggest problem is not maintaining a record of their expenses
however you can claim eligible tax deductions without receipts.  


In order to claim a tax deduction, an expense must be related to your source of income and substantiated by a record such as a tax invoice
however there are special rules relating to record keeping for work-related deductions which do not require substantiation.  


These work-related deductions are costs, paid or incurred in relation to earning your salary and wages. We will discuss the Income Tax Deductions Claimed Without Receipts.  

1. Small Total of Expenses

Had you paid for any expenses relating to your salary and wages? If so, you may have work-related deductions to claim. 

There is no requirement to substantiate your work-related deductions if the amount is less than $300 including your claim for Laundry Expenses (see below).


Small Tools, Equipment and other assets used exclusively or proportionately in your capacity as an employee would be allowable deductions.

Home Office Expenses in relation to maintaining a home office for self-study or remote work.

Books and Periodicals related to your field of work. 

Mobile Phone, internet and home phone expenses incurred in relation to your employment capacity. 

Overtime Meals paid while working overtime. 

Seminars, conferences and education workshops in relation to your field of work. 

Union Fees and Subscriptions to Associations in relation to your employment. 

Note if the total work-related deductions exceed $300, you need to substantiate all the expenses I.e not just the amount over $300. 

2. Laundry Expenses

Costs paid for Laundry in relation to ‘work related clothing’ can be claimable. This includes payments or costs incurred washing, drying or ironing clothes, dry cleaning.  

The ATO deems the following three categories of clothing as Work-related clothing: 


1. Occupation-specific Clothing
(Chef’s Hat, Medical Scrubs). 

2. Protective Clothing (Fire/Sun resistant, non-slip, safety-coloured and heavy-duty clothing). 

3. Work Uniforms (clothing that is unique to your organisation including your employer’s logo permanently). 

Ordinary or conventional clothing such as jeans and shorts used for exclusively for work are specifically non-deductible. 

The ATO deems the following rates a reasonable basis for calculating laundry in relation to your work-related clothing however only up to $150 threshold: 


• Tax Deduction of $1 per load of work-related clothing only, and 

• Tax Deduction of $0.50 per load of private and work-related clothing

Taxpayer should still keep details of the number of washes and type of clothes in each wash. 

3. Travel and Overtime Meal Allowance Expenses

Does your Employer pay you a Travel or Overtime Meal Allowance?

You can deduct an amount against a travel and overtime meal allowance paid by your employer if the amounts is reasonable without keeping receipts or a diary record.

Overtime Meal Expenses


Deductible Overtime Meals include the cost of Food and Drink consumed when working overtime.


If you consume meals on overtime, you could be eligible for a tax deduction however if you don’t keep receipts, the ATO deems an allowable deduction of $30.00 per meal for the 2019 Financial Year. 

Travel Expenses


Which Travel Expenses are eligible for claims without receipts? Costs of Accommodation, food and drink, incidentals when travelling away from home overnight. 


When Travelling Overseas, Accommodation expenses still need the normal substantiation such as retaining receipts and a travel diary when away from home for 6 or more nights in a row.

Eligible work-related travel could mean you can claim a tax deduction even if you don’t keep receipts or a diary record, the ATO allows a reasonable amount but this will vary depending on the destination and your annual salary.

 Example: A Taxpayer living in Melbourne was required to travel to Sydney for work and had a salary for less than $122,040.
 This would allow up to $319.05 per day (breakdown below) to be claimed without receipts.

• $188 for Accommodation, 

• $111.35 for Meals (Breakfast, Lunch and Dinner),

• $19.70 for Incidentals. 

But what if you had only spent $110 for Accommodation? You would be in higher refundable position if you chose to claim your accommodation under the ATO’s rate of $188 than you would be to claim under the actual method.  

4. Car Expenses

There are currently two methods of claiming your car expenses against your salary and wages with the first being the Logbook Method and the second being the Cents Per Kilometre method.

1: Logbook Method:
 This method allows you to claim a portion of your car expenses such as Fuel, Registration, Repairs and Depreciation based on a pattern of use established by your Logbook record. 

2: Cents Per Kilometre: 
Calculated using a reasonable estimate of your work kilometres travelled, multiplied by the ATO’s current rate (2019: 68 cents) per kilometre.
This rate includes an estimate of the running cost such as fuel, registration, servicing and depreciation. 


There is no requirement to substantiate but the business/work kilometres travelled need to be reasonable.  

Question: Would it seem reasonable for a Fast-Food worker to claim 5,000 work kilometers travelled? Most would agree this is unlikely however if for example the worker was also required by his employer to collect inventory from other stores and were located in rural locality which may suggest a more reasonable scenario.


How long should you keep your records? 

This depends on the type of record such as PAYG Payment Summaries must be retained for two years.

Work-related deductions supported under the above reasonable basis must be kept for 5 years from the date of lodgement. 


Care should be taken to ensure that the correct period is identified, for example, a record relating to a purchase of shares will generally be required to be kept from the date of purchase until 5 years after the sale has occurred. 


What happens if I don’t keep adequate records and I am audited? 

The ATO may disagree with your original claim, your assessment may be amended to disallow the tax deduction. 

Should the reason for disallowed claim be due to lack of records, the penalty could be as much as 20 units which is currently $170 per unit ($3,400 total) and would be due to be paid in full within 14 days following receipt of the notice. 

The above penalty would also not include any amounts payable in relation to the disallowed tax deduction resulting from the ATO audit. 


Example:
 John, a Fast Food worker, receives a tip from his co-workers to maximise his tax refund by claiming car expenses under the Cents per Kilometre method as they “won’t check anything”.  

• John claims 5,000 kilometres in his 2019 Income Tax Return resulting in a tax deduction of $3,400. 

• Based on his marginal tax rate of 19% + Medicare Levy, he receives $1,173 as a cash refund. 

• Subsequently the ATO identifies John’s income tax return as “higher” compared to other Fast Food workers and audits his work-related car expense. 

• The ATO finds his basis for claiming the Cents per Kilometre is unreasonable. He does not have any records or information to reasonable support his claim. 

• As a result of their findings, the ATO issues an amended assessment reversing the claim for Cents per Kilometre. 


Despite the above hypothetical scenario, John could find himself having to urgently find $1,173 to repay the ATO, not including any penalties for making no effort to keep records or failure to take care with his return.

As the Australian Tax system is a self-assessed it is prudent that your Income Tax Return is prepared correctly and highly recommend consulting with a registered tax agent to assist with filing your 2019 Income Tax Return.


Disclaimer: This page contains general information only and has been prepared without taking into account your circumstances, objectives, or financial situation.

We recommend that you consider whether this information is appropriate and always seek professional advice in relation to your circumstances.
   

About Us

Moschners, Chartered Accountants is a modern accounting firm located within the city fringe servicing a range of industries and sizes.
We have strong values on Professionalism, Education and Technology with a young and dynamic
 team culture.


Have A Tax Deduction Question?

 

 

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Written by Craig Moschner, CA

5 minute read

 

It’s the start of a new financial year and the ideal time review your finances and think about:

 –  How much money will I be making this year?

 –  Will I be able to pay all my bills when due?

 –  Can I continue to live my amazing lifestyle? If not, they perhaps you should consider using a budget!

The federal government is no different when it comes to their budget and who is entitled to their tax cuts.


We have read the federal government’s budget for you and highlighted the tax cuts that will impact you from 1 July 2018.

keep reading

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