This is a topic that seems to be very hard to find accurate information about online so I decided to document how my own drop shipping eCommerce businesses are setup for Australia. This will give you a good idea on how you should setup your own eCommerce business in Australia.
Setup your business correctly from day one, it will be much easier when you’re doing big numbers!
This guide looks at an Australian perspective but most Western countries have the same approach. You may however not be able to claim certain deductions but if you have any doubts I recommend getting an accountant early on in your business career.
Sole Trader vs. Limited Company
You should probably decide early on how you want to structure your business.
There is nothing wrong with setting up as a sole trader. This means you’ll appear as:
Joe Smith trading as XYZ.com
You can still get approved for a business Paypal account and a credit card merchant. It’s a legal business entity.
You may decide to start a limited liability company or (LLC in the US). This protects your personal worth should someone take you to court. When your business is starting out, you’re probably not going to have many sales. Once you’re doing thousands of sales a week it’s likely you may want the security and protection of a limited company behind you.
With that said, don’t be put off starting as a sole trader, you can always sell your website to a limited company that you own in the future and continue trading under the limited company.
PTY LTD have many benefits over sole traders but usually come with higher annual fees and require a director/s and shareholders. It’s likely you’ll most definitely need an accountant if you go down this route.
You can usually claim the same deductions under both business entities. A company has special tax benefits you can claim but they differ for every business so it would be impossible to include here.
Some people want to use USA drop shippers but they live outside the US or Canada. It’s a good idea but most US companies only work with US or CA residents and will ask for a social security number or reseller ID which you don’t have.
If you run into an issue such as this you can look at starting an offshore US company however take extreme caution here. Double taxation and the ruthless approach the US Govt take re tax should ensure you seek legal advice and a tax advisor before registering an offshore company.
In this guide we’re going to look at a standard Australian setup.
Getting An ABN or ACN
Whatever option you choose, you should setup an ABN which is an Australian Business Number and is held by anyone who works for themselves. This makes filing tax returns easier and is used for GST.
You can also purchase .com.au domain names with an ABN and you can also claim tax deductions on your work/income made through your ABN.
You’ll need to use the myGov website to create an ABN.
If you create a PTY LTD company then you’ll also receive an ACN when your company is incorporated which identifies the company. Remember your details for an ABN are public including name and post code.
You’ll also need to register a business name which is likely to be your website name.
Registering a business name costs $50 per year.
Should You Register For GST Sales Tax?
In Australia, businesses with a turn over of $75,000 in sales must register for GST which is a sales tax of 10% added into the sales price for consumers and usually added on top for businesses.
If you’re just starting out, it’s optional to register. If you’re just learning and unsure if this business model is for you then you don’t need to register.
Let’s say you were selling a ladder for $100 and you’re registered for GST.
You would charge the customer $100 but their invoice would break down as:
- Ladder Price: $90.91
- GST (10%): $9.09
- Total: $100
How GST Is Collected?
This 10% will be collected and stored by yourself. Every 3 months you will made a GST claim where you note down your total sales, total GST collected and GST expenses.
GST expenses are purchases you made for your business from Australian businesses.
As GST is a consumer tax, you only pay the difference between your sales and purchases.
Back to our example, you made one sale for the ladder and bought a printer which is 100% used by your business for $100.
Your GST payable on that return is $Nil.
If the printer was $150, you’d get a GST refund. If it was $50, you’d pay the difference of: $9.09 – $4.54.
If your GST purchases are higher than your sales then you get a GST refund for that period. If your sales are higher then you will pay the GST collected.
Bank Account Setup
I recommend setting up three bank accounts, a cheque account with a VISA debit card connected. I also have a savings account which is fairly obvious and I also have an online account. This online account is used for tax payments. In my case, my eCommerce business is registered in Australia so this is for GST (10%) and corporate tax payments.
You want to choose a bank cheque account that offers unlimited transactions and no monthly fees. In my own business we pay $5 per month for the account but this gives us a direct dial to a business banker. There are banks that offer free accounts to save money starting out.
Make sure you can access your bank accounts online, probably wise to have one that offers an app too.
Credit Card Setup
If you can then get a credit card, preferably one that gives you points. Whether that’s travel points or reward points, hotel points. Whatever it is, if you can get one, you will start to rack up those points running a drop shipping business.
If you’re in a country like Australia, getting credit can be difficult, especially if you’re young or don’t have assets to use as leverage to get approved. If you get rejected from one or two credit card providers, don’t keep applying.
Your credit rating will get tarnished. Find out why they rejected you, usually it’s because you don’t have credit already, you’ve defaulted on another payment or aren’t earning enough.
In my case, I was rejected on my first application due to not having enough income. I had a business making 6 figures but I hadn’t submitted a tax return yet so had to wait until the following tax year to apply.
I opted for a credit card that gives out points for Velocity. Nothing like flying business class for free right 😉
If you’re a sole trader you’re going to need to use your own address for registering with Paypal/Stripe etc.
If you’re a business it’s likely you can use your business one (maybe your own?) or the services of an accountant or registered mail box. Some providers hate mail box addresses so you may be better placed to use a real address.
From my experience using ClevverMail is a good idea for a virtual mailbox.
Now you’ve got your bank accounts setup, it’s time to apply for a Paypal account.
Paypal is a great way for anyone to accept Payments fast using cleared funds, eCheques and credit/debit card payments including JCB and Amex.
When signing up, use your business name and legal name.
If you’re a sole trader, you can use your own name for both fields (if you haven’t setup your site yet).
Nearly all drop shipping stores accept Paypal.
Stripe/Credit Card Setup
It’s important to note you should never signup for Stripe or a credit card merchant until you’ve setup your eCommerce website. Part of the application process asks for your website details and without this you will get rejected straight away.
Once you’ve got your business you can return to complete this step.
You’ll need to link your Australian cheque account for payments which are made every few days.
You need to include a phone number, support email and address.
Buying Domain Name
To buy a .com.au domain name you must have an ABN which is an Australian Business Number and no one can buy a domain without one. Well you could buy one using someone else’s as many people do but this is against the law and your domain will be deleted if anyone finds out.
You can always use a .com domain for your business.
You can buy your domain through a platform such as Shopify or you can buy through another provider such as OnlyDomains or Namecheap.com.
A .com.au can be purchased for $10 and a .com is usually $12 per year.
Decide on your store niche before buying a domain name. I recommend buying a generic domain for your first store, i.e. JoesWarehouse.com.au or JoesGarage.com
This will allow you to sell anything until you find a niche that people want to buy from.
Building a brand is hard so find winning products first, brand build later.
Learn Store Setup
You’re now ready to start your store, choose a niche, find products to sell and start building your store.
There is so much content that I could include in this section.
If you want to learn how to setup a store from scratch, find winning products, drive traffic, optimize your store, learn from experts and get help and advice then I’d recommend checking out the best low cost course that offers 175+ videos on the topic of eCommerce drop shipping.
In the course they recommend using Shopify which costs $29/mo (USD).
Okay you’ve got your store setup and you’re ready to start running traffic.
You should setup a way to track your financials. There are many ways to do this and if you have an accountant they may suggest the best way forward for you. I’ve used Xero, Wave and the good old fashioned Excel document.
Excel can work well for small eCommerce businesses that only wish to track sales, expenses and drawings.
While some people rely on Shopify or Woocommerce, it’s best to take all your data out of such platforms and use your own dedicated financial tracking platform.
When a transaction occurs in your business it should be recorded in a specific chart of accounts. That’s the technical term for a specific container in your business.
In my eCommerce business we have many accounts but you really only need the following to get started:
- Cost of Goods Sold
Chart of Accounts – Income
This is your sales. When a sale is made you’ll record it in this chart of accounts.
Most businesses use the words, ‘Sales’ but if you have a business with multiple sales channels you might like to split these up.
To give you an idea, I’ve seen businesses using, ‘eBay Sales, Shopify Sales.’
If you’re just selling via your eCommerce store, use Sales.
Usually businesses will include returns here. You can however just add returns into income as it will automatically deduct from the income received. It’s up to you how much tracking you wish to show here.
Chart of Accounts – COGS
COGS is short for Cost of Goods Sold and is another chart of account that you should include all your product costs. Let’s say you’re drop shipping from Aliexpress, all those orders can be linked to this account.
When you read a profit/loss report for a business, COGS is usually included beneath sales.
From here we can see what the gross profit of a business is.
You’ve probably seen my rants on this blog about course owners showing revenue figures. Once you subtract the cost of goods sold you can quickly see how well a business might be performing.
Then we deduct the expenses.
Chart of Accounts – Expenses
Anything you need to run your business, get customers or sell your products is an expense (within reason).
You’ll create specific expenses groups such as, ‘Marketing, Furniture, Office, Utilities.’
Do you need a new Macbook to run your business? Do you need an office?
On a more serious note, your Facebook, Instagram, Google Ad expenses are examples of business expenses. Without these expenses you have no sales so anytime you pay a bill for these companies you should add them under this chart of account.
Other expenses are likely to be web development costs, Shopify subscriptions, credit card fees, bank fees, fraud write offs, depreciation of assets.
Now if you add all these up, you’ll get your net profit.
That business the guru told you was making a million dollars is probably making $100,000 after expenses.
But without looking at the profit/loss statement you’ll never know.
They could be making a loss! That’s right, losing money despite taking a million bucks.
Example Profit/Loss Statement
When we put all of these chart of accounts together we can see how well your business is actually performing. Within seconds you can tell if you’re making or losing money.
You’d be a fool to buy a business without looking at this document. So if you’re selling your store, having this will make your job at time of listing so much easier!
Here’s an example of a business that makes and sells their own products.
I’ve excluded equity which is money you put into the business initially for simplicity.
So this business is doing $1.1million dollars and is making a net profit BEFORE tax of $100,000. Now if this was a one man PTY LTD business they could transfer all this to the owner who would be taxed at their individual tax rate.
So I could take $100,000 out and pay this at my individual tax rate which would be approx $30,000 of this figure.
That would leave me with approx $70,000.
Now in the following tax year, I’m likely to receive a request to make provisional tax payments on income I haven’t even earned yet. Yes it sucks but that’s how provisional tax works.
So in theory I’d be a fool to spend this $70k. I’d be better to keep $20k for the provisional tax payments which are likely to come in the following year, usually every 3 months.
If my business goes down hill, I can get a refund on any provisional tax paid. If my business does well then I’ll simply pay the extra money owing next year.
In our example above, we could have left the money in the company, been taxed at the corporate tax rate of 30% and then re-used the money for next year. Alternatively we could have drawn money from the business throughout the year.
This would appear on our profit/loss as ‘drawings’ and we wouldn’t pay tax on each drawing but we would be required to submit a tax form at the end of the year declaring this income.
How To Get Data Out of Shopify
There are many third party apps out there that will handle this process. For example Xero and Wave both have apps that integrate with Shopify.
Method #1: Excel Spreadsheet
Personally if you’re just starting out then I’d use Zapier which costs $37 a month.
Zapier is a tool used to automate processes between two platforms that don’t integrate currently. For example you can connect your Shopify data with Google or Xero in seconds.
This occurs by making zaps.
You can search Shopify and the first option is to add Shopify paid orders to a Google Spreadsheet.
Create a blank Google Spreadsheet and you can then link the two together.
When a sale is made on your store and paid for, Zapier will run and update the spreadsheet. Pretty cool right?
You can now manually keep track of your expenses in another tab.
If you pay for expenses using Paypal you can link Paypal too in the same way.
Here’s an example of data you’ll expect to see,
You can now use a SUM lookup at the end of the year and make a note of the sales, expenses and then work out your net profit. This is a simple way of getting data out of Shopify and Paypal.
You can use your own bank account transactions for any payments made with your VISA card.
Method #2: Zapier & Wave Apps
You can create as many Zaps as you need to get information from Shopify, straight into Wave Apps.
Here’s an example from Zapier on how to record a sale.
You can learn more about the 45+ zaps you can create here.
Method #3: Xero & Shopify Plugin
If you can afford to pay up to $60 per month for your financial software then you can’t go wrong with Xero. You can use their built in app to link the two platforms together.
You can then automatically add Shopify sales into Xero.
There’s far too many features and tutorials so checkout the official website.
Keep Receipts, Invoices & More.. 7 Years
The ATO recommends you keep your receipts, invoices and anything else relevant to your business for seven years. Make sure you keep the receipt when buying something and if you use your Paypal you make a record of what the transaction was.
I have bought many things over the years only to realise Joe 123 Ltd no longer exists and I can’t remember what that transaction was actually for when it came to tax filing time.
Be smart and keep everything documented and in order.
You might find using a filing software program is handy for keeping documents safe.
How To Learn eCommerce Further?
Now that you know how to correctly setup your business financials and you’re on track to correctly declare and pay your tax at the end of the year you probably should start your eCommerce business.
Buying an eCommerce business can be your first tax expense.
Yes you can claim training as 100% deductible and eCom Elites is the perfect course to start learning. With over 10+ hours of content across 175+ videos on ten modules including store setup, product and niche research, email marketing, Instagram Ads, Facebook Ads, Google Shopping, Sales Funnels, Pinterest, Snapchat, Chatbots and so much more.
There’s also a Facebook mastermind group to ask questions and learn from with over 4,000 members.
The price is only $197 or $297 too, a perfect entry to the world of eCommerce.
Ryan Heart is an Australian drop shipper who bought Franklin Hatchett’s course last year and setup an Australian business. He has written this guest post for imRhys readers. We recommend seeking the advise of a professional tax adviser.