topic Re: Tax & postage in Selling

Tax & postage

decoretrocollectables — Thu, 12 Jun 2014 08:10:29 GMT

I'm confused..

The postage I charge buyers - which is exactly what Aus Post charges me... Is this considered a profit to me? This doesn't make sense.. Is this just for this financial year or the previous one as well..

Re: Tax & postage

asporty — Thu, 12 Jun 2014 08:37:34 GMT

Basics have not changed as ATO considers all your earnings as income, whether derived from sales or postage.

From what I undertsand, the change is that ebay used to report to ATO only your sales and not the postage income. Starting May 6 this year, they are now adding postage to your sales and report the total to ATO.

Re: Tax & postage

chameleon54 — Thu, 12 Jun 2014 08:41:36 GMT

Postage is considered as part of your income for tax purposes, but it is also a tax deduction. ( assuming you are running an ebay business and declare your ebay sales to the ATO.) If you charge the exact postage cost, it will all balance itself out and so you wont have to actually pay any tax on postage income recieved. Packaging costs such as bubble wrap, envelopes etc. are also tax deductable. If you only sell personal things from around the home and dont buy things to sell at a profit, you should not need to declare your sales to the ATO. ( assuming your personel possesions are not valuable items originaly purchased as investments, such as art works, rare coins etc. )

Re: Tax & postage

chameleon54 — Thu, 12 Jun 2014 08:45:51 GMT

I just checked your listings and it looks like a business to me. VERY NICE items you have too. I love the retro stuff and have a shed full of it. You've got some superb pieces there.

Re: Tax & postage

decoretrocollectables — Thu, 12 Jun 2014 09:05:23 GMT

I don't charge handling or packaging fees, my accountant tells me - just rang him, that it is not considered as profit or part of my sales price...

Oh Dear..

Re: Tax & postage

jensmanchester-australia — Thu, 12 Jun 2014 09:26:13 GMT

Postage comes under other income and is considered part of your total business turnover.

You claim the actual postage costs you paid out (which will need to proved with receipts from Australia Post) as an expensive against the income.

So the accountant is correct in that it is not part of the sales price and is not profit however the figures still need to be included.

A lot of accountants have very little or no experience with online businesses which may be the case with your accountant.

Re: Tax & postage

lane-ends — Thu, 12 Jun 2014 10:34:40 GMT

Its part of total turnover or Gross business profit. Net profit is Gross profit minus business cost (eg postage). Net profit is your business income. Add this to any other income you may have then deduct general deductions (eg accountants fees, super contributions if deducting, and any other deductions not directly related to business). This will give you your taxable income.

Re: Tax & postage

chameleon54 — Thu, 12 Jun 2014 12:16:58 GMT

@decoretrocollectables wrote:
I don't charge handling or packaging fees, my accountant tells me - just rang him, that it is not considered as profit or part of my sales price...

Oh Dear..

I charge postage seperately to my sale price. Like you I only charge actual post price and dont profit from my postage. I have two main selling accounts in different names so that I can keep under the $75,000 GST registration limit, ( so postage income is not an issue with GST registration limits ). I keep all of my PO reciepts in case of ATO audit, but dont do all of the shenaningans of adding them to my turnover figures and then deducting them from profit. Basically I ignore post costs for profit declared to the ATO. If I had to keep track of all of the postage costs it would be a huge increase in paper work for no difference to outcome. My accountant treats postage as a fee that belongs to the purchaser which I manage for them, ( by buying postage services for them ) but dont actually keep. If postage was included in sale price ( free postage ) this would be completely out the question. If other forum posters information that ebay will include postage in its sales figures it reports to ebay are correct, this system will probably not dot all of the i's and cross the tees for the ATO. The FVF on postage is going to add another layer of complexity. If it is not built into the postage cost, but into the item sale price, it should be a tax deduction. I include it in my postage price 95% of the time so it wouldnt make much difference to my profit / loss staements for ATO. Basically I treat postage in the way your accountant suggests, but have reservations that it will be 100% correct in future in view of ebays latest changes.

Re: Tax & postage

jensmanchester-australia — Thu, 12 Jun 2014 12:32:08 GMT

An accountant can do whatever they want but at the end of the day they hold no responsibility if the tax department decides to do an audit. The onus is on the taxpayer to ensure the information submitted to the ATO is correct.

With all the facilities the ATO now have to cross check bank accounts etc if what is going through your bank accounts/paypal accounts doesn't match up with the figures provided to the ATO then it could raise alarm bells.

I would be seeking clarification from the ATO on this and also on opening different accounts to avoid having to register for GST rather than relying on an accountant.

Re: Tax & postage

chameleon54 — Thu, 12 Jun 2014 12:52:02 GMT

@jensmanchester wrote:

With all the facilities the ATO now have to cross check bank accounts etc if what is going through your bank accounts/paypal accounts doesn't match up with the figures provided to the ATO then it could raise alarm bells.

I would be seeking clarification from the ATO on this and also on opening different accounts to avoid having to register for GST rather than relying on an accountant.

Agreed 100 % with your first statement. The way ebay are now treating postage, changes things quite a bit. Hence my concerns that what has worked in the past may no longer suffice.

In response to the second statement. My wife and I have one ebay account in my name and one in hers. We have seperate paypal accounts and the bank accounts linked to the paypal accounts are in our own individual names. Profits from each store is declared to the ATO on each individuals annual return.( income splitting ) My wife has signifigant input in the management of her account, deciding what products are sold, business policies, sales prices etc. All perfectly legal and normal business practice. I have had much more complex business ownership structures than this in the past with up to five seperate tax file numbers, family trust ownership structures of assets and multiple ownership tax arrangements , multiple ABN accounts etc. This system is very simple, legal and normal practice in the business community. I have already lodged annual returns to the ATO with this system without problem.

Re: Tax & postage

jensmanchester-australia — Thu, 12 Jun 2014 13:14:56 GMT

Running two separate businesses like that is definitely not a problem. Hubby and I have done that in the past as he worked in construction whilst I had the online business.

The problem arises when sellers think they can open multiple ebay accounts all under the same name to avoid their tax obligations. I am sure this is one of the reasons the ATO is now collecting data from sellers who have sold as little as $10,000 in one year as they now have the resources to match the data from ebay with bank accounts.

Re: Tax & postage

chameleon54 — Thu, 12 Jun 2014 13:37:03 GMT

Jen, Again I agree 100 % with your comments. It is essential that the seperate ebay ID's are in seperate ( officially registered ) business names with completely seperate financial arrangements.

As for the postage being included in income I am considering keeping a seperate log of postage costs in the new financial year with a view to including postage costs in my taxation records . It will add considerably to my accounting though. ( for no nett benefit to anyone )

Re: Tax & postage

lyndal1838 — Thu, 12 Jun 2014 14:43:44 GMT

Surely you have been declaring your postage as income though? And claiming it as a deduction?

What is different now, except that ebay will now be treating it as income for reporting purposes.

Re: Tax & postage

ejholden1963 — Thu, 12 Jun 2014 19:17:50 GMT

As your ebay invoices are going to show FVF on shipping which is calculatable by the ATO, I would suggest you look at developing a better business model.

I would recommend building the cost of the FVF into your shipping fee.

As for the ATO, this is a basic reporting model that I have been using with several SOHO businesses I have run over the last 15 years.

Declared income = ALL income recieved.

Declared Deductions = outgoings:

Rent. Calculated on % dedicated space used for the gerneration of income. (Do NOT include this if operating from a home you have money invested in unless you need a capital gains issue when you sell it)

Overheads = Electricity, insurances, storage space costs, internet. Usually these are a calculated % of the total.

Capital equipment: Computers, printers, modems, desks, fining cabinets, chairs, storage shelves, cupboards, packaging machines, etc. Usually a calculated depreciation schedule based on %/PA.

Consumables = Printer ink, packaging tape, satchels, boxes, packing material, stamps, pens, staplers, reporting books, petty cash etc ....

Fees & Charges = Site joining fees, site FVF, Paypal fees, ..... and now, the FVF on shipping.

Motor Vehicle use = This is a fixed per Klm rate determined by the ATO based on the vehicle used which has to be fit for the purpose.

You are required to keep a log book detailing date, Klm's, purpose.

You are allowed to claim travel milage used to collect supplies, stock, ship, etc, but only if the trip is for that express business purpose. If you stop to get milk, bread, pick up kids, etc .... FORGET IT!

Wages = If you pay yourself or staff a wage. This must include superannuation contributions & leave entitlements.

Drawings = Any sum taken from the business by the owner at any time during the year. IE: You have some $$ profit you use to buy your kid's birthday present, etc ..... This must also be shown on your Personal Gross Income line.

Reimbusement of time = You are entitled to claim a reasonable amount each month for the time taken to compile records for reporting purposes. Not available if you pay yourself or someone else a wage to do this.

Reimbursement of time = Compilation of reporting data & preparation of returns for submission to the ATO or your tax accountant.

Same parameter as above but only applicable once per annum.

Claim for last years Tax Accountant fees if applicable.

Disclaimer: While this model was prepared for me by the ATO & has operated without flaw for many years, your personal circumstances (centrelink payments such as part A/B, childcare, etc ...) & needs may differ as may ATO rules change. Please consult with the ATO or your personal Tax Advisor.

While this information is provided in good faith, the poster accepts no liability implied or expressed.

Re: Tax & postage

chameleon54 — Thu, 12 Jun 2014 22:30:17 GMT

@lyndal1838 wrote:
Surely you have been declaring your postage as income though? And claiming it as a deduction?
What is different now, except that ebay will now be treating it as income for reporting purposes.

Short answer is no I havnt. In the past Ebay itself ( with their legal department and ATO reporting responsibilities ) has not considered postage as income ( in its declarations to the ATO ) and my accountants advice has been that there have been ambiguaties from a legal point of view, depending on how a person structures their business affairs.There are some "other circumstances" relating to my ebay business, that I havnt disclosed on the forums which come into play regards my personal financial arrangements. Things are not always black & white and without full information it is not possible for forum posters to be accurately assessing my affairs. . The important thing is that I have paid the correct tax on my profits.

That said, I agree with the general sentiments of this thread and accept that in future there may be less ambiguity regards postage costs. As a result I will be making some changes. The biggest one is that I will be going to the bank today to take out a new CREDIT CARD. I will use this purely for purchasing postal supplies and postage. Rather than running a daily log and chasing all of the little bits of paper around, all I will need to do is keep 12 bank statements per year for my tax. This should make it extremly simple to keep track of all postage related costs and would be more reliable in an ATO audit situation than a bag full of faded bits of paper. ( the records would also be stored on the banks systems so much more reliable & robust system than reciepts. )

Re: Tax & postage

chameleon54 — Thu, 12 Jun 2014 23:26:29 GMT

Lyndal, your post regards what has changed makes an interesting point. Has anything changed ? If a seller includes postage cost in the item price, there is no ambiguaty, it is assessbale income. Ebay is pushing for this to occur and has said it will now include postage in the figures it supplies the ATO. As per usual their statements are generalised and vague at best. Will they only forward postage cost as income to the ATO for free post sellers. If a seller still charges post seperately what information will ebay forward to the ATO ?. My ebay sales figures are still showing sales ex postage. No wonder there is uncertianty among sellers when we are not given any definitive robust answers from ebay.

Re: Tax & postage

harley_babes_hoard — Fri, 13 Jun 2014 01:39:57 GMT

my sales totals are also excluding postage. I would say they will wait until the new financial year. Well that would be the most sensible thing to do.

Re: Tax & postage

decoretrocollectables — Fri, 13 Jun 2014 01:52:09 GMT

@chameleon54 wrote:
Lyndal, your post regards what has changed makes an interesting point. Has anything changed ? If a seller includes postage cost in the item price, there is no ambiguaty, it is assessbale income. Ebay is pushing for this to occur and has said it will now include postage in the figures it supplies the ATO. As per usual their statements are generalised and vague at best. Will they only forward postage cost as income to the ATO for free post sellers. If a seller still charges post seperately what information will ebay forward to the ATO ?. My ebay sales figures are still showing sales ex postage. No wonder there is uncertianty among sellers when we are not given any definitive robust answers from ebay.

There is no way on earth that I can add free postage to my items, some of them cost above $90 to ship to Cairns, WA etc..

I just can't do it!

Others because they are so large can cost up to $90 to Vic

It's unreasonable for me even to consider!

Re: Tax & postage

chameleon54 — Fri, 13 Jun 2014 02:53:29 GMT

I have the same problem. I sell items internationally and post costs are all over the place ( and always expensive ) . I will continue to charge postage seperately as long as it is an option on ebay. I,m still not convinced about postage always being classed as income for tax purposes. Both ebay and the ATO in the past have indicated by their actions ( Not requiring post to be included in income / sales figures reported to the ATO by ebay ) that postage was not classed as income. Although I dont know all the changes that have been made to laws in the last twelve months, the big change has been ebays push for postage to be built into the item selling price. ( free postage ) If you are only charging actual post cost, it could be argued you are purchasing a service for your customer and not charging any fee for the service of buying the postage, therefore you are not making a profit or income. ( you are providing a free non taxable service to your customer ) If a seller charges more than the actual post cost the balance would need to be declared as income.

I have been convinced enough by other forum posters to go to the bank this morning and apply for a new credit card to purchase all of my postage and packing materials in order to have a simple way of keeping track of postage costs. I should be able to find a simple way of finding my total income incl. postage from paypal records. I will then use these figures to submit all information including postage costs to the ATO starting next financial year. I think the credit card idea is going to be the answer for me as I simply dont have time to collate all of the little bits of paper.

Re: Tax & postage

decoretrocollectables — Fri, 13 Jun 2014 03:01:59 GMT

This is a hobby at the moment, looking forward to my retirement in a few years... all this tax stuff is new to me, but ive just realised I not only have to submit to ATO for the end of this financial year but the previous one also..

Confused at the moment

WIll contact ATO

CHeers

@ejholden1963 wrote:
As your ebay invoices are going to show FVF on shipping which is calculatable by the ATO, I would suggest you look at developing a better business model.
I would recommend building the cost of the FVF into your shipping fee.

As for the ATO, this is a basic reporting model that I have been using with several SOHO businesses I have run over the last 15 years.

Declared income = ALL income recieved.

Declared Deductions = outgoings:

Rent. Calculated on % dedicated space used for the gerneration of income. (Do NOT include this if operating from a home you have money invested in unless you need a capital gains issue when you sell it)
Overheads = Electricity, insurances, storage space costs, internet. Usually these are a calculated % of the total.
Capital equipment: Computers, printers, modems, desks, fining cabinets, chairs, storage shelves, cupboards, packaging machines, etc. Usually a calculated depreciation schedule based on %/PA.
Consumables = Printer ink, packaging tape, satchels, boxes, packing material, stamps, pens, staplers, reporting books, petty cash etc ....
Fees & Charges = Site joining fees, site FVF, Paypal fees, ..... and now, the FVF on shipping.

Motor Vehicle use = This is a fixed per Klm rate determined by the ATO based on the vehicle used which has to be fit for the purpose.
You are required to keep a log book detailing date, Klm's, purpose.
You are allowed to claim travel milage used to collect supplies, stock, ship, etc, but only if the trip is for that express business purpose. If you stop to get milk, bread, pick up kids, etc .... FORGET IT!

Wages = If you pay yourself or staff a wage. This must include superannuation contributions & leave entitlements.
Drawings = Any sum taken from the business by the owner at any time during the year. IE: You have some $$ profit you use to buy your kid's birthday present, etc ..... This must also be shown on your Personal Gross Income line.

Reimbusement of time = You are entitled to claim a reasonable amount each month for the time taken to compile records for reporting purposes. Not available if you pay yourself or someone else a wage to do this.

Reimbursement of time = Compilation of reporting data & preparation of returns for submission to the ATO or your tax accountant.
Same parameter as above but only applicable once per annum.

Claim for last years Tax Accountant fees if applicable.

Disclaimer: While this model was prepared for me by the ATO & has operated without flaw for many years, your personal circumstances (centrelink payments such as part A/B, childcare, etc ...) & needs may differ as may ATO rules change. Please consult with the ATO or your personal Tax Advisor.
While this information is provided in good faith, the poster accepts no liability implied or expressed.