Over the last three years, John who is a self employed mechanic has also built an online Ebay store which lists and sells second hand car parts. His online business compliments his mechanic shop very well and provides him with an outlet for used parts that would otherwise be waste.
Johns’ Ebay business is growing very successfully and he is starting to earn sales revenue of $80,000 per year, which is in addition to his shop.
John has registered his Ebay store with an ABN and business name. However, he does not include the income from his online sales, but he does claim the GST credits on his purchases.
John is carrying on a business and is avoiding his tax obligations by:
- not reporting all his income
- claiming the GST credits for the online portion of his work.
John should immediately amend the relevant income tax returns to include his online sales.
The ATO has a number of other examples of online business: https://www.ato.gov.au/Business/Starting-your-own-business/In-detail/Getting-started/Online-selling—hobby-or-business-/?page=3
Are you looking for a Lake Maquarie Accountant who is a local, personable and who understands business and personal taxation matters?
Kirk Davis Accounting is now providing accounting, taxation and business advisory services in Dora Creek, Lake Maquarie. This is in additional to our commercial offices in Sydney and Newcastle.
If you need help with year end tax planning, of if your starting a business or if you have any general accounting, tax or GST queries please contact us and we can come to you for a free no obligation meeting.
Our local branch office is on Dora Street, Dora Creek. Phone 0412 776 647
Do you need an online direct sales compliance training program for your independent salespeople?
Kirk Davis Accounting and Tony Davis Lawyers partner with our direct selling clients to provide customised online compliance training programs for use by our client’s independent salespeople. Our compliance training program is an innovative risk management and mitigation tool developed by legal, accounting and taxation professionals who are also experienced lecturers and compliance trainers.
Direct Sales Compliance brings a unique, cross-disciplinary approach to the direct selling and MLM industry and we address clients’ challenges, ensuring the right balance of professional expertise and real world business experience.
I recently hosted a webinar for the Direct Selling Association of Australia (DSA) addressing a number of accounting and taxation issues facing the direct selling / MLM industry.
The presentation slides can be found here: DSA Webinar April 26, 2016
Please let me know if you have any questions.
Businesses normally issue an invoice to the customer once the service is provided or the product is sold. However, independent salespeople often do not know how much commission they have earned in order to issue an invoice to the direct selling business.
Recipient Created Tax Invoices can sometimes be issued by the direct selling company (the recipient of the supply) rather than by the independent salesperson (the supplier). However, this is not a simple process and businesses often incorrectly use RCTI. Some of the common mistakes include:
1. The direct selling business (the recipient) does not meet the $20 million revenue threshold
2. The independent salesperson (the supplier) fails to register for GST
3. The direct selling business and the independent salesperson do not have a written agreement specifying the supplies to which the RCTI relates and that it is current when the RCTI is issued.
Where independent salespeople purchases direct selling / MLM products for personal use, these purchases should be accounted for separately to your business costs. In this case, independent salespeople have to clearly work out how much of the expense is private and how much is related to your business because you can’t claim a deduction for the amount related to private use.
You should seek professional advise where independent salespeople are required to purchase products on ‘auto-ship’ in order to qualify for commissions.
Are you looking to enter the Australian market as a MLM branch office of a foreign company?
Our firm represent a number of top 100 USA direct selling companies within Australia. We have found that a number of USA firm use ‘Pack and Ship’ as a means to enter the Australian market place before moving to an Australian based warehouse. While this can be a low cost E-business approach to international expansion, these firms often fail to register with the appropriate Australian authorities and consequently are often in violation of several Australian corporate compliance regimes.
Australia has a number of complicated legal, accounting, taxation and audit requirements that foreign companies need to understand before selling products into Australia.
For example, a foreign company still needs to register with ASIC and appoint a local agent as representative.
Our firm encourages direct selling / MLM companies to issue annual commission summaries to independent salespeople. These summaries can simplify the process for independent salespeople to prepare their personal year end tax returns.
These commission summaries can include useful information including:
- The direct selling company’s name and ABN
- The independent salespersons name, address and ABN
- A description of the income earned
- Any GST payment included in the income
Kirk was invited to present in Utah, California and Florida to a number of top 100 USA direct selling / MLM firms and International Tax Advisers, where he addressed some of the common problems faced by clients in setting up direct selling firms within Australia.
Some of the topics covered included:
- Registration of branch offices for non Permanent Establishment (PE) enterprises
- Clear separation between USA parent company and Australian local subsidiary
- Failure to qualify for audit exemptions and financial reporting requirements
- Transfer Pricing documentation for inter-entity and related party transactions
- Payment of commissions where independent salespeople do not have an Australian Business Number (ABN)
- Benefits of using Australian holding companies as a tool to enter Listed Country markets, particularly the holding of non-USA subsidiary companies
- The need for direct selling compliance training programs
If you are conducting a business as an independent salesperson, then you may need to register an Australian Business Number (ABN)..
A business is a hard concept to define, though it can often be characterised as having some of the following key elements:
1. The activities performed have a commercial character and they are being done for the purpose and likelihood of earning a profit;
2. There are regular repeating transaction and you are keeping appropriate business records;
3. You have a separate bank account, a registered business name and other registration;
4. Your activities are planned, organised and carried out in a business-like manner.
Alternatively, a hobby is a pastime or leisure activity conducted in your spare time for recreation or pleasure. If your activities are a hobby rather than a business, the income is not assessable and you cannot claim a deduction for you’re out of pocket expense.