Ebay and tax

[bmwe46parts]

I am selling auto parts, importing from china and reselling here in australia on ebay, really i would still consider what i do as a hobby as i am still only able to make small orders and making very small profit at the moment but am ramping up and fully intent to continue dumping money into larger and larger orders getting those import cost's down per unit and maximising profit, we currently only have 4 products we import but selling pretty well at the moment last 60 days we have had $2000 aud go through our bank account with sales, so not a bad start but i am getting worried about tax and to go from here. 

Can i just continue to sell as i am and declare it at tax time as "other income", at some point i will register an abn and fully legitimise it but what over heads will this bring?, can someone tell me the pros and cons the 2 options, i currently have an order for 500 kilos of stock coming from china, once that comes i feel pretty comfortable to no longer consider it a "hobby", but is an abn and filing bas statements a bit overkill for now, can i not deduct all expenses and just pay tax on profit with out an abn just as i could with one?

[clarry100]

You are deriving a profit intentionally by buying and selling with the intent of making a profit.

This activity will be clearly viewed as declarable income by the ATO, from dollar #1.

If you have some other form of job where you are already above the tax free threshold then you will be liable to pay tax from that dollar #1 at the marginal rate you will be already on.

If you are under the tax free threshold then you may not have to pay any tax at all. But it still has to be declared.

Ebay report to the ATO any total sales in a tax year by an individual that is over $A10K (at the moment - that can change too).

They are also getting better at data matching across the board so its getting easier for them to detect your undeclared income these days, even if ebay don't report it. 

There are also other ramifications if you are receiving any form of CentreLink payment. They also need any income declared as it may cross their thresholds and hence reduce payments you get from them.

People have gone to jail for defrauding CentreLink (and ATO) by not declaring income.

You don't need to (but can if you wish) register for GST until your sales volume crosses over $A75K in a 12-month period. Then you have to start doing BAS each quarter.

I am no accountant but the above is knowledge I have gained from speaking with my own tax accountant.

So I would recommend you set up your ABN ASAP and speak with a tax accountant for proper tax advice.

[lyndal1838]

They would be declared as income but not taxable income.  They were looked on as a personal collection, not bought with the intention of selling to make a profit....and I sure as h*ll have not got millions of coins.  I could give them away for $1 each and be a millionaire....I wish!!

If I had bought multiples of each coin then it would be a different matter....that would be termed a business.

It was not my intention to sell some coins to buy others either so I was not trading, just disposing of items that I no longer wanted or needed.

It is really no different to sellers who buy say clothes and later sell them on ebay.....their own personal items.  But in my case they were items bought or saved as part of a collection by several members of my family.   The fact that they have increased in value is immaterial....most of the predecimal coins are worth more in metal value now than their face value, which is why we no longer have silver coins.

[lyndal1838]

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@clarry100 wrote:

You don't need to (but can if you wish) register for GST until your sales volume crosses over $A75K in a 12-month period. Then you have to start doing BAS each quarter.

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While I agree with most of what Clarry has said I definitely do not agree with this statement.

Register an ABN but DO NOT register for GST until your turnover reaches $75000.  If you are registered for GST you have to pay/account for it on every sale.  If you have a turnover of say $5000 only you will have to remit $455 (less credits) to the ATO.  IMO that is a complete waste of money that should be in your pocket.

[clarry100]

Which is why I said "if you wish".
However, if/when you do register for GST then so you don't lose out you will need to raise your prices.
But it does not have to be the full 10% of the GST.
That's because you have credits on the purchase of goods and services related to your business which are claimable as a deduction.
I've done the sums on our items and the increase would need to be about 4.5% to break even.
But not all items work out the same. A good ballpark figure is 5% tho.

As was explained to me by my tax accountant you can choose to register for GST before 75K but it would rarely make sense as you would have increased workload and you would need to increase your prices to covet it.

[lane-ends]

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@lyndal1838 wrote:

They would be declared as income but not taxable income.  They were looked on as a personal collection, not bought with the intention of selling to make a profit....and I sure as h*ll have not got millions of coins.  I could give them away for $1 each and be a millionaire....I wish!!

If I had bought multiples of each coin then it would be a different matter....that would be termed a business.

It was not my intention to sell some coins to buy others either so I was not trading, just disposing of items that I no longer wanted or needed.

It is really no different to sellers who buy say clothes and later sell them on ebay.....their own personal items.  But in my case they were items bought or saved as part of a collection by several members of my family.   The fact that they have increased in value is immaterial....most of the predecimal coins are worth more in metal value now than their face value, which is why we no longer have silver coins.

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What you are doing there is liquidating your assetts, the fact that it is a large quantity of coins vs a property is immaterial. It is just that you need to demonstrate that is the case so that ATO dont assume otherwise. Ongoing period of ownership should do that.

[lane-ends]

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@clarry100 wrote:
Which is why I said "if you wish".
However, if/when you do register for GST then so you don't lose out you will need to raise your prices.
But it does not have to be the full 10% of the GST.

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I am sure you are getting the best price you can, you can't just add gst and maintain sales, if you could get more you would anyway without GST. This theory only works in larger business models where ALL your competitors are applying GST, so buyers have no choice and have to pay the increase. As long as you are competing with non GST sellers you have to price match.

The actual amount you are adding at the end of the day is 10% of your value added (mark up due to passing through your hands) rather than the total price. This is done via deducting gst credits.

In real terms if you can't force buyers to pay more to cover GST (as they have no alternative) you simply end up sending ATO 10% of your margin every quarter with no means to collect it. So thats main reason for not registering for GST unless you have to.

[lyndal1838]

But the OP is buying his products from overseas so will not have many credits to offset the GST he would be liable for.

That is the problem we here....our income is from providing a Service so we have very few GST credits to claim against the amount to be remitted.   On a remittance amount of $1000 we might only have $30 to $50 in credits.

[lane-ends]

Correct, Same with a lot of second hand stuff. You get stuck with it as it can be hard to establish input credits. Theory is one thing but what you can wring out of it is another.

 I was registered when i had a B&M outlet too, kept it up for a while when i became just ebay and was below required turnover. Accountant told me to drop it. Total sale $$ was the same but I no longer had to send quaterly $$ to ATO. So it was a no brainer to do without, regardless of what offsets, it is far better to have no liability if you can.

[lyndal1838]

If you are not registered for GST to claim your credits you can still claim it as a business expense on your tax.

Maybe it is not as good a refund but I would much rather that than having to remit GST on every sale even when the gross turnover is not $75000.

My OH had 3 months off work last year and our turnover was under $75000 gross for the year but we still had to pay GST on all the rest of the income.  Only advantage we had during the 3 months was that we were still able to claim input credits on the monthly insurance payments etc.  It was a great feeling that the ATO owed us money even if it was only in theory.  lol

[chameleon54]

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@bmwe46parts wrote:

I am selling auto parts, importing from china and reselling here in australia on ebay, really i would still consider what i do as a hobby

We all started somewhere but with $2000 in sales in 60 days you are probably at the point now where you can no longer really claim it is a hobby. You are definately doing the right thing, thinking about your tax obligations and building the business. I doubt that the tax office would consider importing car parts and selling them on ebay as a hobby. I also doubt that they would give you too much trouble about your initial sales, but the time has probably come to legitamise the business.

as i am still only able to make small orders and making very small profit at the moment but am ramping up and fully intent to continue dumping money into larger and larger orders getting those import cost's down per unit and maximising profit, we currently only have 4 products we import but selling pretty well at the moment last 60 days we have had $2000 aud go through our bank account with sales,

so not a bad start but i am getting worried about tax and to go from here. As others have mentioned ebay are required to supply the ATO with sales information and account details of all ebay ip addresses which turn over more than $10,000 PA. . This figure has gradualy reduced over time and when the figure has been lowered it has been applied retrospectivly, so while it is $10,000 at the moment it could be $5000 next year and the ATO could look at past years if it chooses. Government departments are working towards recording all income and sharing information between departments. Its just a question of time. 

Can i just continue to sell as i am and declare it at tax time as "other income",  

Yes you can. That is how I declare my ebay income, but I have an accountant prepare my returns.

at some point i will register an abn and fully legitimise it but what over heads will this bring?,  I have seperate ABN,s for my two stores, but I am not registered for GST purposes as each store turns over less than the required $75,000 per annum. ( that figure is from memory, I,m sure some-one will point out my error if incorrect....    )The stores are in different names for tax purposes. Basically the ABN just sits there. I rarely need it and it does not affect my business in any way. It was simply used by my accountant in setting up the tax structures for my stores.

can someone tell me the pros and cons the 2 options, i currently have an order for 500 kilos of stock coming from china, once that comes i feel pretty comfortable to no longer consider it a "hobby",

but is an abn and filing bas statements a bit overkill for now, You would need a very good reason to register for GST if your turnover is less than $75,000 as it is difficult to raise prices to cover the GST on ebay, so the money usually comes out of profits. The higher your profit margins, the more it hurts.. The only reason I can think of is if a lot of your clients are GST registered businesses that prefer to deal with other GST businesses to keep their accounting simple.Even then most businesses can work around the accounting issue.

can i not deduct all expenses and just pay tax on profit with out an abn just as i could with one? 

I cant really see why not, but being registered as a business with an ABN may be the best long term strategy if your business is taking off.

DISCLAIMER - Although I have studied business, I am not a trained accountant and like everyone else here, the information I have provided may be incorrect. It is handy to find out what other sellers are doing, but you really need to speak to a trained accountant before you go much further. They can advise on the best way to set your business up to carry it through the years to come. Mistakes now could be very difficult to rectify once the business is established. ie. Do you have a partner ? Do you want to income split ? If so you need to get the ownership structure and bank accounts right, before you commit to anything.  Good luck.