Posts Tagged ‘Direct Selling’

Am I Running a Direct Selling / MLM Business?

Posted on: June 24th, 2017

With the ATO reviewing a number of direct selling / MLM business to access whether their independent contractors/associates are entitled to an Australian Business Number (ABN), our firm has compiled some general information to help explain the criteria in determining ABN entitlements. That is, am I running a business?

The intention of the taxpayer in engaging in the activity is a relevant indicator. However, there needs to also be an activity. (see Brennan J in Inglis v. FC of T 80 ATC 4001 at 4004-4005; (1979) 10 ATR 493 at 496-497).

“The extent of activity determines whether a business is being carried on”

Factors which are relevant to demonstrating whether you are running a business include:

  • You have consulted with an accountant or business advisor;
  • You are advertising through social media or a webpage;
  • You have obtained the required business insurance (such as public liability);
  • You are undertaking activities of significant size and scale;
  • You have a business plan which demonstrates an intention to make a profit;
  • Your activities are systematic, repetitive and organised;
  • You are keeping records of activities and receipts of expenses;
  • You have the relevant knowledge or skill to operate the business.

Table 1 below can help determine if you are running a business or whether the activity can better be described as a hobby (which is a form of recreation or a sporting activity).

Table 1: Am I Operating a Business?

Indicators which suggest a business exists Indicators which suggest a business doesn’t exist
A significant commercial activity Not a significant commercial activity
Intention to carry on a business activity No intention to carry on a business activity
Intention to make a profit from the activity No intention to make a profit from the activity
The activity is or will be profitable The activity is inherently unprofitable
Repetition and regularity of activity Little repetition or regularity of activity
The activity is organised and carried on in a businesslike manner and records are kept The activity is not organised or carried on in a businesslike manner and no records are kept
Significant size and scale of the activity Small size and scale of activity
Not a hobby, recreation or sporting activity Is a hobby, recreation or sporting activity
A business plan exists There is no business plan
Commercial sales of product Sale of products to relatives and friends
You have the relevant knowledge or skill You lack the relevant knowledge or skill

It is a question of overall impression, rather than how many of the factors exist.

see http://law.ato.gov.au/atolaw/view.htm?DocID=TXR/TR9711/NAT/ATO/00001

ATO review of the Direct Selling / MLM industry

Posted on: March 27th, 2017

It has come to my attention that the Australian Taxation Office (ATO) is about to conduct a review of the direct selling industry. In particularly they are going to select 12 companies and review the entitlements of that companies independent salespeople (agents) to be registered for an Australian Business Number (ABN).

I have spoken with the ATO Assistant Director and she has informed me that the ATO will pick 12 companies at random (some of which will be members of the Direct Selling Association).

The purpose of this review is for the ATO to establish a position in relation to ABN entitlement for independent salesperson operating within the direct selling industry. The aim will be to develop case studies that can be used by the direct selling industry to outline when it is appropriate to have an ABN and when it is not appropriate.

The ATO have advised me that they are looking at:

  • The entitlement of independent salespeople to an ABN;
  • The treatment of good and services tax (GST) by independent salespeople;
  • The treatment of withholding tax where there is no ABN; and
  • Whether independent salespeople are actually operating independently or should they be classed as employees.

I expect the review to start in the next month and most likely to complete in the next 12 months. At this state I am not aware of which direct selling companies are going to be reviewed, though as this is an important issue I wanted to bring it to your attention. This is also a good opportunity to revisit the entitlement for an Australia Business Number (ABN).

For example, while becoming an independent salesperson (agent) can also include the added benefit of being able to purchase products at a discount while also receiving commissions. A genuine business opportunity can usually be characterised as having some of the following:

  • The activities performed have a commercial character and they are being done for the purpose and likelihood of earning a profit;
  • The business has repeating transactions and appropriate business records are kept; and
  • There is a separate bank account, a registered business name and other registrations.

Where independent salespeople (agents) purchase products for personal use and for their immediate family, such purchases are private in nature and would not indicate the existence of a business opportunity. Furthermore, this could lead to a further legal issue where a business opportunity is being wrongfully promoted.

I will be sure to keep you informed of any developments and please let me know if you have any questions or require further information.

How to setup a Direct Selling / MLM Business

Posted on: December 10th, 2016

If you are looking to setup a direct selling / MLM business then generally we suggest the following:


Australian Cothe-advantages-of-direct-sellingmpany

We generally recommend registering and trading through a local Australia company because it enables you to establish a local business presence while also helping to stop other businesses from using your business name. Furthermore, if you want to get Therapeutic Goods Registration (TGA) then you will need a local company anyway.

The Australian company will need to have a local Australian director, public officer and a registered office address. Our firm can provide these services while we setup the company and get ready to start trading.

Overseas Shareholders

Generally an Australian Direct Selling / MLM company with a foreign shareholder needs to be audited and submit its financial statements to the Australian Securities and Investment Commission (ASIC). However, there are a number of options available within the first three months for the Australian company to elect not to be audited. Applying for audit relief can save business a fortune in audit fees.

No Australian Business Number (ABN) Withholding

If your Independent Salespeople do not have an ABN and the total payment for goods and services is more than $75 (excluding GST) you:

  1. cannot claim the GST input tax credit for that supply; and
  2. must withhold 49% of the payment and pay it to us.

However, our firm is able to get an exemption from the 49% withholding tax where Independent Salespeople’s commission is less than $10,000 per year.


Please contact our office for further information.

Direct Selling / MLM and ABN Requirements

Posted on: December 2nd, 2016


The Australian Taxation Office (ATO) is reviewing several Australian Business Number (ABN) registrations of Independent Salespeople within the direct selling /MLM industry. The ATO is becoming increasingly concerned that many people who believe they are conducting a commercial enterprise are in fact only engaging in a hobby or part time recreational activity.

The Australian business landscape is complicated and it is not enough to simply register for an ABN and then rely on that ABN as proof of your commercial enterprise. The ATO’s view is that a business consists of many characteristics including: repeated transactions, a thought-out business plan, a separate office space and an intention to generate a profit, etc.

Our firm sees difficulties for both the Direct Selling / MLM firms and their Independent Salespeople where no ABN is provided by the Independent Salesperson. Particularly as the ATO requires that 49% of the commissions be withheld from the Independent Salesperson and reported and paid by the Direct Selling / MLM firm to the ATO.

However, our firm has been successful in getting exemptions from the requirement to withholding 49% of the commissions where no ABN is provided, up to $10,000 a year in commission. This has proved very helpful for our clients and their sales teams.