Reseller Tax Analysis 2019

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Disclaimer: Any words assembled below into sentences within this post constitute general information only. For advice specific to your own reselling journey consult a registered tax professional. Also: Be 100% accountable (pun intended) for your own tax obligations and do your own research.

2019 RESELLING AS A BUSINESS

These concepts relate to Australian based resellers.

When I first decided that I wanted to elevate reselling from a hobby into a part time business or side hustle that supplements my current 9-5 I knew I would be writing this post at some stage. I have been looking forward to it actually. Why? Well, I feel like I have read a disproportionate amount on the subject of taxation over the years (I like money theory what can I say) and I have also noted the absence of this discussion in the reselling space.

Some don’t take the subject of taxation as seriously as it should be. I get it – It’s tax. It already has the stigma of being boring and mundane it it is also critical to maximise business advantages (such as paying tax last – post expenses). In many ways this is the business of my dreams, imagine being able to load up the car, drive 500km over a week, stopping at all the small op shops you are ever get to, staying at some nice Air BnBs and as long as you pick up a few items along the way to resell being able to claim the whole trip as a business expense. This is my eventual plan one day as I transition to part-time work and more full time reselling. My point is that understanding of taxation can actually markedly improve your life, particularly with this business that involves a lot of travel.

I thought I had a reasonable way of tracking items and certainly I have been able to keep a close eye on the cash flow of this business. As always however, I look to improve processes and practices as I better understand them. Seeming as this business was growing at a steady pace I knew that I needed to become better organised to have any chance of scaling one day in the future.

To this end I collated some questions and put them to an accountant for some feedback. They are somewhat generic but should give a broad overview of some ways to meet tax obligations and also some possible ideas of some tax deductions which may apply to this type of business legally.

The more knowledge you can accumulate on tax issues the better questions you will be able to ask your tax professional relevant to your own personal situation.

TRACKING THE COST OF GOODS SOLD

This items was where I needed the most clarification for my own business.

I was already tracking the costs of my purchases with all receipts. Every time I purchase items I take a photo of the receipt and once I return home it automatically uploads to Google photos. Later I will enter incoming inventory into my spreadsheet with its cost. If I have multiple items to sell with one cost, for example, a bag of 10 magnets I will sell individually, I will simply divide the total cost by the amount, so if the bag cost $2, individually each magnet is 20c.

I was also diligent in recording the cost of each item that had sold over the last financial year, which was lucky as my eBay sales report has been broken for the last month not showing the correct figures which eBay is still looking into. I may have been overcharged hundreds of dollars… more on that another time.

The other critical item to track is the cost of the stock on hand of the inventory. I didn’t really have this covered as well as I would have liked and this resulted in a large amount of time to go back through and work out the cost value of almost 800 items that were listed… and the death pile…

Still, I now had the knowledge I needed to move forward here and make some adjustments to the spreadsheet I am using and to processes moving forward.

One last point I asked about was tracking of those cash sales that have no receipts, for example, garage sales. The accountants reply was to record this using a ledger type system. So if using cash, they suggested on Friday go and get $200 out from the ATM, buy all the items from the garage sales over the weekend and then redeposit the balance back in on the Monday. Sounds simple in concept but creates some painful time issues also. Anyway the point is there needs to be an opening and a closing amount on the ledger. I suppose you could do this with a separate business account as well with digital transfers which would be the same, transfer money out to a different account, take out the cash, buy items, transfer left over remaining balance back in to business account. This way removes the need to go anywhere near a bank to deposit money!

TRACKING BUSINESS ITEMS

Q: Do you have a recommendation of an accounting app or software for people using eBay or PayPal or for this type of business?  What is the easiest format from the Accounting side of things? What do you actually need or how would you like this laid out? What MUST I have on a spreadsheet?

A: An accounting system we recommend to all our clients is Xero. Xero is an online accounting software that has many applicable features which will assist with your inventory tracking. Xero enables you to track your inventory you purchase. From here you will be able to assign unit price, quantity, account code, tax code (making BAS preparation simple) and provide a description. This may be something to consider if you are buying bundle a of goods with specific amounts.

Xero will also allow you to track the sale side of the business . When you raise an invoice for the inventory sold and send to the customer, Xero will recognise the double entry. As Xero has a live paypal feed, this will allow you to reconcile the sale when cash hits your paypal or bank account.

Xero’s features will enable you to track your inventory purchases and raise sale invoices once you sell these goods.

**I followed this response up by considering the cost of Xero for my own requirements and decided that at this point in time I could not justify the cost, and therefore asked the following question**

Q: How about a Spreadsheet? I am already using one.

A: An accounting software such as Xero is a much more practical and effective method at tracking inventory but that is not to rule out your spreadsheet.

If you are opting into a spreadsheet, what I would recommend is tracking your inventory purchased, purchase price, total value of the inventory as well as a running balance of inventory. Once you have sold that inventory on hand, raise the sale and update your inventory sold in the same row but different column. Essentially showing the cost of sale (expense) and sale (income). As well as recording all other expenditure such as packaging, eBay and platform fees, posting and other material expenses.

**I took the opportunity to review and massively upgrade the spreadsheet I am using. I now also track Return On Investment (ROI) and also now tracking Gross profit per hour. That is, what is the equivalent hourly rate I am effectively making once time is factored in. This has been most useful in determining what items I should pay more attention to and where I can continually improve. I will make this spreadsheet available in the next week or so.**

GST

Q: At what point do I need to think about registering for GST?

A: The point at which you will need to consider being registered for GST is when your reselling business reaches or is expected to reach a GST turnover (gross income minus GST) of $75,000 or more. Your GST turnover is your gross business income, excluding the following:

  • GST included in sales to your customers
  • Sales that aren’t for payment and aren’t taxable
  • Sales not connected with the reselling business
  • Sales not connected with Australia

Q: Do I have to do Qtrly BAS Statements? Or IAS? Or does this only apply once registered for GST?

A: When you initially register for GST you will be able to report GST in two ways:

  1. Annual GST return
    • An annual GST registration is where you pay you quarterly GST in instalments with a full reconciliation done at 30 June, where you will either be liable to pay extra GST or entitled to a GST refund as you have overpaid your instalments.
  2. Quarterly BAS’
    • Lodging quarterly BAS’ is based on the actual income and expenditure incurred for that quarter, reporting the GST you both collected and paid in relation to your reselling business. As mentioned earlier, using Xero will automatically track your GST obligations.

IAS (Instalment activity statement) will not be applicable if you do not have any employees withholding wages.

DEDUCTIONS

Q: What items should I be looking to legally deduct for this type of business?

A: Expenses you should be looking to legally deduct for this type of business is any expense you have incurred to produce that income.

  • Car travel used to source items

Two approaches you may take for claiming your car to source items:

  1. Cents per Kilometre method
    • This method is a single rate used allowing you to claim a maximum of 5000km. You will be able to claim a deduction for the business kilometres you travel.
  2. Logbook method
    • Claim the business-use percentage of the ongoing running expenses. This is includes fuel, registration, insurance and decline in value of motor vehicle. For this to be applicable you will need to keep a logbook of your odometer readings for a 12-week period detailing your business and private usage.

At year end we will calculate which method provides the best tax outcome and apply accordingly.

Computer and the Internet

Eligible to claim the business percentage of depreciation for your laptop and total internet bills.

Packaging Materials 

Packaging expenses you may claim as they are expenses incurred as a result of reselling your goods.

Postage

Postage expenses you may claim as they are expenses incurred as a result of reselling your goods.

eBay and other platform fees

eBay and other platform expenses you may claim as they are expenses incurred as a result of reselling your goods.

Q: I’m currently doing this from my main residence. The physical storage of these items takes up almost an entire bedroom now. Can I claim power, etc…? What options are available here and tax implications of doing this?

Dedicating a specific room of your main residence for your reselling business you may claim the following:

  • The cost of the rooms utilities such as gas and electricity. This must be apportioned based on the hours of business and private usage.
  • Decline in value for the plant and equipment used such as any storage platforms / desks used to store your inventory, decline in value for any other capital items in that storage space (e.g curtains, carpets and light fittings), costs of using your home computer this will need to apportioned accordingly to your business and private usage.
  • Occupancy expenses such as your mortgage interest, home insurance, council rates and other expenses you incur from your main residence. This will need to be apportioned too, a reasonable way in which we can determine how much you can deduct is working out the floor area of your storage room in proportion to your whole home (floor area or storage / floor area of whole house = deductible percentage). However, this does  attract CGT implications, reducing our main residence exemption. See below:

Tax implications

Normally if you sold your main residence you will not be liable for any capital gains tax. However if you choose to claim the above mentioned expenses, you will be liable for capital gains made for that area of your main residence used to produce assessable income.

For example – You make a capital gain of $350,000 when you sell your main residence, the floor area used for your inventory storage was for 1 year of the 10 years you owned your main residence, the floor area for your storage is 15% of your house.

The capital gain you will liable for is (Capital Gain x percentage of the time storage was used at your main residence x floor area of storage room) = $350,000 x 10% x 15% = $5,250.00 assessable income.

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