In Australia, parting with your preloved clothes or household items online has never been more convenient. Platforms such as eBay, Depop, and Facebook Marketplace, alongside new players like Vinted, have eased or eliminated seller fees, contingent on location, item value, and sales volume.
But at what point must you report your online sales income to the Australian Taxation Office and remit taxes?
The rules surrounding this are as tangled as a cluttered closet. Notably, there is no specific sales threshold in Australia that automatically incurs tax obligations.
To navigate this complex landscape, consider if your sales constitute merely cleaning out your wardrobe to fund a new wardrobe, disposing of high-value assets, or venturing into business territory.
Tracking 600 million transactions a year
Major online marketplaces, including eBay and Amazon, are obligated to share comprehensive transaction data with the tax authorities.
What about selling goods on other platforms? The tax office may be tracking that too. Its tentacles are vast, with more than 600 million transactions reported and matched to taxpayers every year from a wide variety of private and public sources.
Even if a platform is not required to report, the transactions may still be captured through credit and debit card payment systems, such as Stripe or Square.
The tax office can also request information from the banks. It may even gather information via insurers on unexplained wealth based on “lifestyle assets” – such as cars, boats or art – you may own. There are also examples of taxpayers being caught out with unexplained deposits leading to hefty tax bills.
Is it just a hobby?
Let’s say you found a dress in your wardrobe that you bought for A$250, wore once, but don’t like. So you decide to sell it on eBay or Amazon, rather than giving it away.
You list it and sell it for $100. While you’ve now got $100 more than before, you have really lost $150 overall.
This is not a sound business model. Anything you sell actually comes at a cost to you; think profit, not just sales.
The tax office is unlikely to be interested in these types of occasional, low-value, generally loss-making personal-type activities.
In this scenario, where you’re just cashing in on your existing wardrobe, the tax office is likely to consider it private in nature and just a “hobby”.
This is unlikely to create a tax bill. However, you still may need to declare certain activity and have records to support your position.
When does online selling become a business?
What happens when you go from selling just a few old dresses to spotting a market opportunity? Perhaps you start to develop a pattern of buying vintage clothes from friends, family and op shops and selling them at a markup?
Now you’re putting in time and money with the aim of making a profit.
That sort of activity makes it more likely for the tax office to see it as a “business”.
A business typically involves repeated and continuous activities. For example, regularly buying items to resell online for profit would be more likely to be considered a business.
Another factor to consider is how systematic you are being. Are you acting in a “business-like” manner? For example, the kind of records you keep, and whether you advertise beyond family and friends, will both be relevant.
No minimum sales to be a business
While the value of sales can be a factor, be careful, as there is no clear dollar threshold for when activities will be considered a business.
But what data the tax office collects from eBay and Amazon provides a clue as to when you’re more likely to be asked questions. Amazon and eBay both share data for people who sell goods worth a total of A$12,000 or more in a particular year.
Earning more or less than that amount does not rule you in or out of running a business, and whether your activities are taxable or not. But if you are earning more than $12,000, you will be on the radar of the tax office – and more likely to be asked to explain your activities.
If you are running a business, you will need to declare income and can claim allowable expenses. You need to pay tax on the net business income.
Consider other tax obligations too. For instance, do you need an Australian Business Number (ABN)? Should you register for the goods and services tax (GST)? If you’re unsure, the federal government’s business website has useful resources.
When in doubt, get advice
Even if you only sell online occasionally, the tax office may be more interested if it involves higher valued goods — such as jewellery originally purchased for more than $500, or other personal items purchased for more than $10,000 – which you’re now trying to sell.
For these more valuable sales, any gain you make – if you managed to sell it for more than you originally paid – is taxable.
However, it gets a little murky if you have made a loss. In general, the tax office restricts how to use losses for these higher valued personal items.
If you’re still unsure whether your online selling is just a hobby, if you’re about to sell a valuable asset, or think you might have crossed over into running a business, don’t risk it — speak to a registered tax practitioner for advice.
Elizabeth Morton is a senior lecturer at Curtin Law School, Curtin University.
She has previously been contracted to co-facilitate a short-term training contract for tax and crypto facilitated by UNSW for the Australian Taxation Office and is currently a member of the ATO’s Crypto Industry Working Group. This is unrelated to this article. Elizabeth has not received grant funding directly related to the content of this article. Elizabeth is a chartered accountant, fellow of the Tax Institute and member of the Institute of Public Accountants.
Lisa Greig is a lecturer in taxation law for accountants at the University of Melbourne.
She is affiliated with the Chartered Accountants Australia & New Zealand, The Tax Institute and the Institute of Public Accountants. She has previously been contracted to co-facilitate a short-term training contract for tax and crypto facilitated by UNSW for the Australian Taxation Office.
Disclaimer: This is not tax advice, it is for educational purposes only. Taxpayers should seek advice from a registered tax agent or suitably qualified professional.
