Amazon & Shopify tax guide series: Australia

Part 4: Australia – big tax changes

An in-depth series on tax for Amazon and Shopify sellers

The ecommerce industry is booming – and Australasia is no exception. Last year Australians spent A$28.6 billion dollars shopping online, and New Zealanders NZD$4.2 billion. For both countries, that’s the equivalent of approximately 9% of all retail spend.

Like other ecommerce markets around the globe, they’re both projected to continue growing at a rapid pace – not in sales, but in the numbers of people selling online.

A fundamental part of running a successful ecommerce business is staying on top of your taxes. We’ve called on two of our partners in Australia and New Zealand to help us put together this fourth and final guide, in a four-part series looking at your tax obligations as an ecommerce seller in different markets around the world.

For Australia, Jason MacDonald, founder of White & Black Chartered Accountants, has worked in international tax for 15 years, and works daily with Amazon sellers who sell in international marketplaces.

In New Zealand, Brad Golchin, managing director of Wise Advice, works with Amazon and Shopify sellers trying to sell locally – and grow internationally.

In summary, this guide will cover

If you’re looking to expand your ecommerce business internationally, use these guides to understand your international tax obligations:

Stay on top of your taxes in Australia

Goods and services tax (GST)

To conduct business in Australia, you’ll need an Australian Business Number (ABN). Getting an ABN as a foreign seller can be time-consuming, because it’s a paper-based application, and original copies need to be certified. Jason says the process can take weeks, depending on how quickly you can prepare the documentation.

If you’re a foreign seller, your main tax obligation in Australia will be GST, known as VAT in other countries. Your obligations will depend on two main factors:

  1. Whether you’re importing and storing goods in Australia; and
  2. Your volume of sales.

If you’re fulfilling in Australia, for example as an Amazon FBA seller, you’re required to register for GST if you’re forecasted to sell more than A$75,000 worth of goods in Australia in a 12-month period.

Once you hit the A$75,000 threshold, you’re legally required to register, and then hand over 10% GST on your sales. Your ABN automatically becomes your GST number on registration.

The other thing to bear in mind is you’ll be required to pay 10% GST on importation, which will be collected by customs, usually by your customs broker. If you’re registered, you can claim that GST back. Depending on which country you’re importing from, a free trade agreement might make things easier.

This is where, as Jason puts it, things get “a little bizarre.”

If you’re fulfilling from overseas – you might be an ecommerce seller from New Zealand using Shopify – you’re required to register for GST when you meet the A$75,000 threshold. Previously, the 10% GST was only added to goods and services imported into Australia over A$1,000, i.e. customers could purchase from an international seller and have their goods imported duty and tax-free so long as the total value was under A$1000.

As of July 1, 2018, a law change has come into effect requiring all overseas retailers to collect 10% GST on items under A$1,000 as well.

There are two ways GST is collected for ecommerce sellers fulfilling overseas. If the import is under A$1,000, GST is collected by the seller and paid to the Australian Tax Office (ATO). If the sale is over A$1,000, the GST is collected by customs, and the purchase will need to be collected directly from the port or airport.

The good news is, if you’re fulfilling overseas, there is a simplified ABN registration process for online sellers that can be completed online.

For Australian-based Amazon sellers selling overseas, your sales are considered an export – and are therefore GST-free.

“However, Amazon may charge GST on some of their fees. That’s an import of the service, because the end consumer for them is Australian,” explains Jason.

Whether you’re fulfilling in Australia or overseas, GST forms part of your sales price – it is not something you can add on top. You also need to remit GST each quarter through a business activity statement (BAS).

Other tax considerations:

Income tax

If you live outside of Australia, and you don’t have what is considered a ‘permanent establishment’ in Australia, you won’t have to pay income tax. Jason explains that a permanent establishment means you have staff, an agent, a company, or a physical presence in Australia.

“As a foreign seller you won’t pay income tax until you’ve got a permanent establishment i.e. rent or buy a warehouse, open a store. Amazon doesn’t count.”

Profit tax

Australia does not have profit tax. That is covered by income tax.

Advice from the expert:

Understanding your tax obligations in any market is essential if your business is to remain compliant – and eventually grow.

Jason explains that ecommerce sellers fulfilling in Australia don’t typically understand that GST must be included in the sales price, not added on. They also often misunderstand the time it takes to get an ABN – something which can affect sales.

“Ecommerce is a growth industry, and it’s complex, so you really do need to specialise in the area to understand the nuances and issues that sellers aren’t often aware of.

“It’s really important for Amazon sellers to get their GST registrations right, to ensure their GST settings in Amazon are correct, and to avoid paying more than they need to.”

When asked how Australian tax requirements impact on merchants who sell their products in other countries, Jason says it all depends on the country.

“For income tax, the first question is whether the country you’re selling in has a tax treaty with Australia (e.g. the United States or the United Kingdom). The second is the extent of your footprint, i.e. whether you have employees, a warehouse or office space.

“An Australian entity is less likely to trigger a foreign income tax obligation in a treaty country, where the only presence is the use of a 3PL (third-party logistics), or FBA warehouse (Fulfilment by Amazon) to store inventory.

“Again, sales tax and VAT (or GST) depend on each country. But generally, sales taxes do not impact on Australian tax requirements. That’s why the most common business structure for ecommerce sellers in Australia is to use an Australian-based entity.

“The purpose of any structure is to limit your liability, protect your wealth and be flexible with your tax planning.”

Stay on top of your taxes in New Zealand

Goods and services tax (GST)

A hot topic of conversation in New Zealand this year is trading in an online economy. Brad, managing director of Wise Advice, elaborates saying the major concern has been levelling out the playing field between foreign ecommerce sellers and local brick-and-mortars.

Up until recently, to sell goods in New Zealand, you needed to:

  1. Apply for a business IRD number
  2. Incorporate your company online with the Companies Office (if applicable)
  3. Register for GST

GST in New Zealand is a 15% tax added to the price of most goods and services – including the majority of goods imported by foreign sellers.

You can register for GST voluntarily, but it becomes compulsory when your gross income over 12 months is NZD$60,000 or more. Once registered, you must charge 15% GST on all your sales, and file regular GST returns.

Like its neighbour across the ditch, there are two sides to the NZ GST equation. You collect GST through the sales of goods and services, and you pay GST through purchases and business expenses – the latter of which you can claim back.

The GST is collected on behalf of the New Zealand government. If you pay more GST than you collect, you’ll receive a GST refund, but if you collect more than you pay, the balance must be paid to the government.

Currently customs doesn’t collect GST on imported goods where the amount of duty and taxes is less than NZ$60 – approximately $400 worth of goods. This means international sellers have been able to sell low-value goods to New Zealand consumers without charging GST.

That will all change from 1 December 2019, after which all overseas sellers, irrespective of the platform you use, will need to register for, collect and return 15% GST on goods valued at or below NZ$1,000 – essentially removing the need for import duties. For purchases over $1,000 you’ll need a client code and a supplier code.

For Amazon sellers, this means you’ll need to provide a GST-exclusive item price, and a GST-exclusive shipping price. GST will be automatically charged by Amazon, which is the price Kiwi buyers will see on your listings. As the international seller, you’ll receive the GST-exclusive payment.

NZ-based ecommerce merchants exporting their products overseas to an international market don’t need to pay GST in New Zealand, but will more than likely need to pay the equivalent elsewhere.

Other tax considerations

Income tax

As a New Zealand tax resident, you must declare your income from sales in New Zealand and overseas. Your personal income tax rate will depend on how much you earn – the lowest currently sits at 10.5% on income up to NZ$14,000, the highest is 33% for income over NZ$70,000.

Company income – and corporates – are taxed at a flat rate of 28%.

If you move away from New Zealand, then you’re not a tax resident and won’t need to declare any income.

Customs duties

All commercial goods imported into New Zealand must be cleared through Customs and, in the process, will be screened for security and to determine what you’ll pay in import duties, GST for certain items and/or other applicable charges. The custom charges you’ll pay depend on what and how much you’re importing and where you’re based.

Get to know the legislation – or find someone who does

Brad’s one piece of advice to online sellers is to get to know the jurisdictions you’re selling in – or find someone who does. As an Amazon or Shopify seller, you’re liable for tax – and how much is determined by each country.

He also says international sellers need to consider the concept of tax residency.

“They have to make sure for every country that they’re selling in, they don’t become a tax resident inadvertently.”

For instance, a New Zealand-registered company has New Zealand tax residency. If you were to expand into Australia and hire staff to manage distribution, under their legislation you’ve become a tax resident and would need to declare your income. The only way to avoid having dual residency status is if two countries – as is the case with New Zealand and Australia – have a double tax agreement.

The likelihood in New Zealand of dual tax residency is low. New Zealand’s government provides credits for tax paid overseas on income that would have also been subject to New Zealand tax. They also have agreements with 39 main trading and investment partners, which eliminates double taxation.

To finish, Brad strongly suggests keeping local currency for all the jurisdictions you’re likely to owe tax in.

“You can lose a lot transferring money back and forth, 10-20% per transaction, which in some cases may be more than the sales tax you owe.”

Don’t fall behind – get help

Tax is an inevitable part of business. With the rapid rise of ecommerce, the tax landscape in Australia and New Zealand is evolving quickly to keep pace. For Amazon and Shopify sellers, taxes could prove costly if not monitored. Jason and Brad both recommend using a product like A2X, especially if you’re not able to engage the help of an ecommerce specialist accountant.

“Most people use systems like Xero, which gets the bank feed. When they receive $100, they put it in as sales, not realising it was $120 sales including fees. Then they must identify which sales have sales tax in order to claim or pay,” Brad explains.

Jason says that’s basically why you need a product like A2X.

“A2X will split that out, then work out if you’ve got it wrong and need to get it fixed up.”

To understand what your tax obligations might be outside of Australia and New Zealand, use our other tax guides for: