Chartered Accountant Timothy Quinn leads Tax & Accounting at Lawpath. 16+ years in tax advisory, specialising in startup growth and expansion. Passionate about supporting entrepreneurial clients with early-stage investment incentives, restructuring, international exit strategy planning, and more.
Dropshipping has become an increasingly popular business model if you are looking for a low-cost entry into e-commerce. However, navigating tax on dropshipping income in Australia can be complex and confusing. Many new dropshippers struggle to understand their responsibilities under Australian tax law, risking penalties and compliance issues.
In this guide, we will walk you through the ATO dropshipping rules and explain what taxes apply, registration requirements, GST rules, allowable deductions, and compliance tips.
Table of Contents
What taxes do I need to pay as a dropshipper in Australia?
All income earned from dropshipping activities is considered assessable income under Australian tax law. The Australian Taxation Office (ATO) recognises dropshipping as a legitimate business, meaning you must declare all income generated, regardless of whether your business is just starting or earning only a few hundred dollars. This obligation extends to income from both domestic and overseas customers.
There are two main taxes you need to consider:
- Dropshipping income tax: Like any other business, you must pay tax on dropshipping income based on progressive tax brackets. The amount you pay depends on your total taxable income for the financial year.
- Goods and Services Tax (GST): This is a 10% sales tax applied to most goods and services sold or consumed in Australia. Whether you need to charge GST depends on your annual turnover and the nature of your sales.
Understanding these taxes is essential to avoid penalties and ensure your business operates within the law.
Do I need an ABN for dropshipping?
An Australian Business Number (ABN) is a unique identifier required for all businesses operating in Australia, including dropshipping companies. You must register for an ABN if you plan to carry out ongoing dropshipping activities and intend to make a profit.
Registering an ABN early is wise because it:
- Ensures tax compliance with the ATO.
- Enhances your business legitimacy.
- Facilitates better relationships with suppliers.
- Allows access to government grants and support programs.
What business structure is best for my dropshipping setup?
Choosing the right business structure for your dropshipping business is crucial for tax efficiency, liability protection, and scalability. You can operate as a sole trader or register a company. Each has different costs, compliance requirements, and tax implications:
- Sole trader: This is the simplest structure and cheapest to set up, with less administrative burden. Income is taxed at your personal tax rate.
- Registering a company: This is more complex and costly to set up with higher compliance obligations. However, you may access potential tax advantages, ensure limited liability protection, and open possibilities for future growth.
The right structure for you depends on your business goals, scale, and risk tolerance.
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| Business Structure | Pros | Cons | Tax Implications |
| Sole Trader | Easy to set up and manage; low cost; full control | Unlimited personal liability; taxed at personal rates | Income taxed at individual marginal rates |
| Company | Limited liability; potential tax advantages; easier to raise capital | Higher setup and compliance costs; complex reporting | Company tax rate applies (generally 25-30%) |
Consult a legal or tax professional, such as a Lawpath advisor, for tailored advice on the best business structure for dropshipping.
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When does GST apply to my dropshipping business?
Understanding when and how GST applies to your dropshipping business is crucial to staying compliant with Australian tax law.
GST registration threshold and requirements
If your dropshipping business has an annual turnover of AUD 75,000 or more, you must register for GST with the ATO. This turnover includes all sales connected with Australia, including both domestic and certain international sales.
Even if you’re under the threshold, registering early can help you recover GST paid on expenses like e-commerce platforms, advertising, and software tools. It also adds credibility to your business and prepares you for growth.
GST on local vs international sales
Sales to Australian customers
Once registered for GST, you must charge 10% GST on all sales to Australian customers. This means including GST in your product prices, adding it at checkout, issuing tax invoices, and reporting the GST collected to the Australian Taxation Office (ATO).
Sales to international customers
Generally, sales to customers outside Australia are treated as GST-free exports. This means you do not charge GST on these sales, provided you meet documentation and export requirements. For example, goods must be exported within 60 days of invoice or payment to qualify as GST-free.
Digital products and services
Digital products and some services supplied to Australian customers are subject to GST. However, if you sell digital products or services to overseas clients who use or consume them outside Australia, these sales are typically GST-free. Proper documentation proving the customer’s location and use is essential.
Important exceptions
- If goods or services are supplied to overseas clients but are used or consumed in Australia (e.g., accommodation, event tickets), GST still applies.
- Services connected to Australian real estate or activities may attract GST even if supplied to non-residents.
How GST registration works for dropshippers
You can register for GST through the ATO’s online services or via your tax agent. Once registered, you will receive a GST registration number and must:
- Include GST in your prices or add it separately at the point of sale.
- Issue tax invoices for sales over $82.50 (including GST).
- Lodge Business Activity Statements (BAS), either quarterly or monthly, reporting GST collected and GST credits claimed.
You collect GST from your customers on taxable sales and remit this amount to the ATO when lodging your BAS. You can also claim GST credits on business expenses that include GST.
Third-party platforms and GST
Note that some online marketplaces or platforms (like Amazon or eBay) may collect and remit GST on your behalf for sales made through their system. It’s important to check your platform’s policies to avoid double reporting GST or missing GST obligations.
Example calculation of GST for a dropshipping sale
Suppose you sell a product for $100 (excluding GST) to an Australian customer:
- You add 10% GST: $100 × 10% = $10
- The total price charged to the customer is $110
- You collect $10 GST and remit this amount to the ATO when lodging your BAS.
For sales to overseas customers, you would charge $100 with no GST added, assuming the goods are exported within the required timeframe.
Summary table: GST application in dropshipping
| Scenario | GST Charged? | Notes |
| Sale to an Australian customer | Yes | Must charge 10% GST once registered |
| Sale to overseas customers (goods) | No | GST-free if goods are exported within 60 days |
| Sale of digital products (Aus) | Yes | GST applies to digital products sold locally |
| Sale of digital products (Intl) | No | GST-free if used outside Australia |
| Services consumed in Australia | Yes | GST applies regardless of customer location |
| Services consumed overseas | No | GST-free if properly documented |
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What expenses can I claim as tax deductions?
You can claim deductions for expenses directly related to running your dropshipping business. Common deductible expenses include:
- eCommerce subscriptions (e.g., Shopify, Oberlo)
- Website hosting and domain fees
- Advertising and marketing costs
- Software tools for automation and management
- Accountant or legal advice fees
- Home office expenses proportional to business use
Only expenses incurred in earning your business income qualify for deductions. Keeping accurate records is vital for substantiating these claims.
How do I stay compliant with ATO rules?
Staying compliant with the ATO is essential for any dropshipping business to avoid penalties, maintain good standing, and operate smoothly. Here are some of the key tasks and best practices to help you stay on the right side of the law.
Declare all income, including overseas sales
One of the most important compliance requirements is to declare all income earned from your dropshipping activities. This includes income from Australian customers as well as overseas sales.
The ATO considers income from international customers as assessable income if your business is connected to Australia. Even small amounts count, so don’t overlook any revenue streams.
Register for GST when required
If your dropshipping business reaches or expects to exceed an annual turnover of $75,000, you must register for GST.
Registering for GST means you must charge 10% GST on sales to Australian customers and lodge BAS regularly. If you don’t register on time, you risk fines and interest charges on unpaid GST.
Even if your turnover is below the threshold, registering voluntarily can allow you to claim GST credits on business expenses, which can improve cash flow.
Lodge Business Activity Statements (BAS) on time
Once registered for GST, you need to submit BAS reports, usually on a quarterly basis, although some businesses may need to report monthly.
BAS reports detail the GST you’ve collected and the GST credits you’re claiming. Timely and accurate BAS lodgement helps you avoid penalties and keeps your tax affairs in order.
Many dropshippers use accounting software or work with registered BAS agents to simplify BAS preparation.
Keep thorough and organised records
Maintaining detailed records is a legal requirement and a vital part of compliance. To do so, keep all invoices, receipts, bank statements, and contracts related to your dropshipping business. Records should clearly separate business income and expenses from personal finances to avoid confusion.
Remember, the ATO requires you to keep records for at least five years.
Separate personal and business finances
Mixing personal and business finances can lead to errors and complications. To avoid issues, it’s wise to open a dedicated bank account for your dropshipping business to track income and expenses clearly.
This separation simplifies bookkeeping and helps prove your business activities during tax assessments. It also improves your professional image with suppliers and financial institutions.
Avoid common compliance pitfalls
Many dropshippers fall into common traps that lead to compliance issues:
- Failing to register for GST on time: This is a frequent mistake that can result in penalties once your turnover exceeds $75,000.
- Ignoring income from international platforms: All income connected to your Australian business must be declared, even if it comes through overseas marketplaces.
- Poor recordkeeping: Without proper documentation, you risk disallowed deductions and audit complications.
- Not lodging BAS on time: Late lodgement attracts fines and interest charges.
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Should I get professional help with my tax setup?
Tax laws are complex and subject to change, especially for dropshipping businesses dealing with global suppliers and customers. Professional advice ensures you:
- Comply with evolving regulations.
- Optimise your tax position.
- Avoid costly mistakes and penalties.
Using tools and expert advisors from platforms like Lawpath can simplify your tax, GST, and compliance management, allowing you to focus on growing your business.
FAQ
When do I need to register for GST?
You need to register for GST once your dropshipping business has an annual turnover of $75,000 or more. Below this, registration is optional but can be beneficial.
Can I start dropshipping without an ABN?
While you can start dropshipping without an ABN, registering for one is essential once you begin operating as a business. It ensures tax compliance and access to business benefits.
Is dropshipping legal in Australia?
Yes, dropshipping is a legal business model in Australia. However, you must comply with all tax and business registration requirements set by the ATO.
Tax and compliance in dropshipping
Many entrepreneurs are growing dropshipping into successful businesses. However, due to its international nature, dropshipping taxes can be confusing and difficult to navigate.
Avoid penalties and protect your business by ensuring business tax compliance from day one. Work with Lawpath’s professional legal advisors to get started.
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