The growth in online retailing in the last decade has been explosive and for many retail businesses, sales through their website now exceed those through more traditional “bricks and mortar” shopfronts. Indeed, with the growth of online marketplaces like eBay and Amazon, a whole new generation of retailers has been born that trades only online. So, the question is, what are the tax implications that online retailers need to be aware of?
Sales online are included in taxable turnover in exactly the same way as sales made through a store. Such sales are included in total assessable income and are subject to income tax. This applies regardless of whether the sale is made to a domestic or overseas customer.
Goods and Services Tax
In relation to sales to Australian customers, GST must be accounted for on all sales, in exactly the same way as sales to customers who walk into your retail premises.
Where GST can get complex is in relation to sales to overseas customers. Given that the internet enables you to target customers all across the globe, the growth prospects for domestic retailers in international markets are huge for those with the right products to sell at the right prices. But there are added tax complications!
Generally speaking, sales of goods and services to overseas customers when sold online will be GST-free exports if they are exported from Australia within 60 days of one of the following events, whichever occurs first:
- you receive payment for the goods
- you issue an invoice for the goods
So, GST is not generally chargeable when selling to an overseas customer since retailers generally take payment as soon as an order is received and ship the goods immediately on payment.
However, such sales are included when calculating your annual turnover for GST registration purposes. Remember, where your turnover exceeds $75,000, you are required to register for GST. So, even though the sales themselves potentially do not attract GST, they are still included in that $75,000 figure. What that could mean is if you are not currently registered for GST because your Australian domestic sales do not reach $75,000, you may be obliged to register because your overseas sales may tip you over the $75,000 threshold. Once registered, you will then need to account for GST on your Australian sales (but probably not your overseas sales).
GST turnover is defined as your gross business income, excluding any:
- GST included in sales to your customers
- sales that are not for payment and are not taxable
- sales not connected with an enterprise you run
- input-taxed sales you make
- sales not connected with Australia.
Whilst it might appear that sales to overseas customers are knocked out by that last bullet point (sales not connected with Australia are excluded from GST turnover), that is not in fact the case.
Relevantly, a sale of goods is connected with Australia if the goods are delivered or made available in Australia to the purchaser or removed from Australia.
So, goods that are exported from Australia to customers overseas are connected with Australia and included when calculating your GST annual turnover for GST registration purposes.
Remember to claim the costs of your website
Costs dedicated to maintaining your website, and expenses associated with uploading content, for example price lists, stock lists, text or pictures, are generally treated as operating costs incurred in the ordinary course of business. These types of costs are usually deductible in the same year that they are incurred. The hosting of a website would also typically be treated this way as this is part of the regular ongoing cost of operating the business.
Any fees or commissions paid to online platforms are also tax deductible.
The software that allows the website to operate is typically deemed by the Tax Office to be “in-house software” and would be classified for tax purposes as a depreciating asset which would be written off over time. This could include:
- Dedicated hardware (server, CPU and other physical assets)
- “In-house software”, which is depreciated at 20% of cost. This software typically includes:
- interactive functions
- e-commerce tools
- membership or “sign-in” functions
- Wages or contractor fees to the extent that they are in respect of the items above.
Note that capital costs like these may be written off immediately by qualifying businesses where the cost is less than $30,000 and the cost is incurred before 30 June 2020. A qualifying business is one with an aggregated turnover of less than $50 million, which will include many independent retailers.