The quick answer
If your dropshipping activity is being carried on as a business, its taxable income needs to be reported in the relevant tax return.
GST registration is generally required when your GST turnover reaches, or is expected to reach, $75,000. GST turnover is based on business income rather than profit, but not every sale is necessarily included.
When the goods come from overseas, the GST treatment depends on the customs value of the goods and on the selling arrangement.
The harder part: working out which GST rule applies to each sale, and whether you are entitled to any GST credits.
The business is simple. The GST isn’t.
In a dropshipping store, the customer pays you, you pay a supplier, and the supplier ships. Where that activity is being carried on as a business, the income tax side is fairly ordinary: income in, costs out, tax on the taxable income.
GST is where it gets harder, because the goods often cross the border on the way to your customer, and the treatment turns on their customs value.
Customs value is worked out under customs valuation rules and is not necessarily the same as the price your customer pays. Freight and insurance costs to Australia are generally not included in the customs value.
For goods with a customs value above A$1,000, import GST is generally dealt with at the border. Customs duty and clearance charges may also apply, depending on the goods and the import arrangement.
For low-value imported goods with a customs value of A$1,000 or less, GST may instead be collected at the point of sale. Who is responsible for the GST can depend on the selling arrangement, including whether a merchant, electronic distribution platform or redeliverer is treated as the supplier.
Two stores, same products, different GST
Two dropshipping stores sell the same products at the same prices. One registered on time, priced for GST and knows which of its sales carry it.
The other treats each payout as profit and finds out later. The difference comes down to GST turnover, where the suppliers are, the customs value of the goods, the selling arrangement and when each store registered.
Six questions that decide what you pay
QUESTION 1
What is your GST turnover?
It is based on business income rather than profit, and not every sale is necessarily included.
QUESTION 2
Where do your suppliers ship from?
Overseas and Australian suppliers lead to different GST results.
QUESTION 3
What is the customs value of the goods?
Above or below A$1,000 changes where and how the GST is dealt with.
QUESTION 4
Who is the importer, and who is the supplier?
It can be you, your customer, a platform or a redeliverer. The arrangement decides.
QUESTION 5
Can you claim GST back on imports?
A GST-registered business may be entitled to a credit where it has made a creditable importation and holds the required evidence. Not every amount of import GST can be claimed.
QUESTION 6
Do you sell to customers overseas?
Those sales follow their own rules too.
There is no single answer to any of these. Each one depends on your own situation. Working them out is what we do every day.
What getting it wrong can cost
Registering late. The ATO says you may have to pay GST on sales made since the date you were required to register. Penalties and interest may also apply.
GST paid out of a thin margin, because your prices never included it.
GST credits claimed without the entitlement, for example where the importation wasn’t a creditable importation or the required evidence wasn’t held.
Income tax on the wrong figure, because payouts, refunds, fees and supplier costs were mixed together.
Does this sound like you?
My store’s turnover is getting close to $75,000.
My suppliers are overseas.
I don’t know whether my prices should include GST.
I’ve been treating payouts as my income.
I pay for ads and apps and don’t know what I can claim.
The store started as a side project and grew.
I’d rather be growing the store than doing paperwork.
If even one of these is you, it’s worth a quick conversation. Sorting it out early is almost always easier than fixing it after the ATO gets in touch.
Common questions
I only keep a small margin. Is the $75,000 based on my profit?
No. GST turnover is based on business income rather than profit, although not every sale is necessarily included. A store with a small profit can still reach the threshold.
My supplier is overseas and doesn’t charge GST. Do I still have GST to deal with?
You may. It depends on your GST turnover, the customs value of the goods and the selling arrangement. That is what we work out.
Do I need an ABN for a dropshipping store?
If your store is being carried on as a business, you can register for an ABN and will usually need one. Whether it is a business depends on how you run it. We can check that and set it up for you.
How much does it cost?
It depends on your situation, so we give you the fee before any work starts. Asking for a quote costs nothing.
