Calculating profit

[egglesdtp]

Accounting was never my strong point, but I have been trying to work out how to calculate my profits. I don't have a shop, and I sell items from around the home (so no buying costs as such). Average item price is $10.

Item price + postage (cost to buyer) = A

Actual postage cost.= B

FVF on item = C

FVF on postage = D

Paypal fee = E

The formula I have come up with is as follows: A - B - C - D - E = profit.

Percentage profit per item = profit /  item price x 100

I have worked out that most of my % profit is in the range of 75% to 85%. Does this sound about right?

There is nearly 10% difference in profit between a $10 item posted in a 500g satchel (~85%) and a $10 item posted in a 3kg satchel (~75%) as the profit is nearly $1 less due to the higher postage FVF, Paypal fee and I make a slight loss (7 cents) on the actual cost of postage of a 3kg satchel. But if I increase the postage charge by 50 cents, I actually would make a loss of 12 cents, so my current charge on a 3kg satchel is the one where I make the least loss on actual postage cost balanced by the ebay FVF on postage.

[clarry100]

Well you may call it a "hobby" but I suspect that the ATO may disagree with you on that one.

If you are audited they will ask you to show just cause as to why they should consider it a hobby rather than a business. It will be up to you to prove its a hobby as opposed to them prove its a business.

Remember if you buy items (or make them) and then resell them with the intent of making a profit then its a business. If it looks like a duck, walks like a duck and quacks like a duck....

If you are selling off old stuff from your shed or your old clothes then its clearly a hobby.

If your gross sales are over the notional $20K per annum (currently) then ebay are obliged to report your sales to the ATO, so they will know about it.

And if you also have a regular 9-5 type job then all income derived from the "hobby" is reportable as income "from any other source". eg bank interest is reportable income. The ATO know about it because the banks are obliged to report it to them from dollar 1. So why do we declare our $50 bank interest earned this tax year? Why would you not declare your $5,000 from sale of clothing this year?

As technology improves the ATO are getting better at data matching so its only a matter of time before they catch up with tax avoidance (non reporting of income). If you believe that you will not be subject to having to pay any tax then its far better to declare the income in the long term and pay no tax. It's then above board and on the table, no worries at all.

I would strongly urge you to speak with a good tax accountant about this. I believe you may be skating on thin ice, so to speak.

Take care they because are ruthless if you get caught.

[egglesdtp]

Well Lyndal - over the last few years or so, I have been all those different sizes (from 12 to 18), plus there are a few from my daughters. I have never purchased clothes specifically to sell. But now I am retired, I don't have any need for the bulging wardrobe, since I now live in jeans..

[egglesdtp]

Clarry - I have only ever exceeded $2000 profit per annum twice in the years I have been selling on ebay - and one of those years was when I sold a lot of furniture. So I am nowhere near the $20K, (or even $5K in my best ever year). I don't buy items (or make them) specifically to sell on ebay. They are all from my personal possessions, or from my daughters. Now I am retired, I have no furrther need for many of the items in my wardronbe. When I was working, I was a prolific buyer of clothes. But to set your mind at rest, when I get my tax return done in the next month or so, I will mention my fantastic earnings from ebay to the accountant.

[clarry100]

OK. Well explained in those terms I would have to concede that you should be OK as a hobby seller. But I think you will do well to have a chat about it with your tax accountant. Just so you know up front the kind of questions an ato auditor might ask. Be armed with prior knowledge if/when required. Good luck to you in your retirement.