Do I Need an ABN for Dropshipping in Australia?

So you’ve decided to start dropshipping. Congratulations! Now it’s time to familiarise yourself with all the aspects of running a new business, including your responsibilities as a tax entity.

One of the first things you may be asking before you start selling online: Do I need an Australian Business Number (ABN) to start dropshipping in Australia?

Most Australian dropship service providers, as well as wholesalers, require their customers to hold an ABN. In Australia, an ABN is required to apply for a trade or wholesale account with another business, such as a third party supplier.

On top of that, it's compulsory for businesses with a GST turnover of $75,000 or more to have an ABN and to be registered for GST. While your business may not be turning over more than $75,000 right now, if you don't have an ABN, it's important to know that your business will receive different tax treatment without one. For example, if you're reselling products to other online sellers, they will have to withhold tax from any payments made out to you at a rate of 47 per cent. This ultimately all adds up.

If you’re looking for a more detailed answer, or you want to know exactly what it means to hold an ABN when dropshipping in Australia, read on!

What is an Australian Business Number?

An Australian Business Number, which is referred to as an ABN, is a unique 11-digit number that identifies your business to the Australian Government for tax purposes. Your ABN allows you to:

• Identify your business for invoices and orders

• Avoid pay-as-you-go (PAYG) tax on payments you receive

• Claim back GST credits

• Claim fuel tax credits, if you qualify

• Offer fringe benefits to employees

• Register for an Australian domain name

Who needs an ABN in Australia?

It’s a legal requirement to register for an ABN if you’re running a business in Australia. You don’t need to register for an ABN if:

• You’re carrying out work as an employee (including as a trade assistant or labourer)

• You’re partaking in a hobby (even if that hobby includes sometimes selling goods or services)

Why does a dropshipping business need an ABN?

When it comes to registering for an ABN, it mostly comes down to whether you’re running a business or partaking in a hobby. 

According to the Australian Government, there are several determining factors to help you make your decision. 

A business is:

• Run for profit

• Operates in a businesslike manner (e.g. keeping records, applying for business names)

• Demonstrates room for or an interest in growth

• Follows a business plan, or carries out planned or organised activity

Generally speaking, a hobby is: 

• Run for leisure or personal enjoyment

• Done on your own time

• With work produced gifted or sold at the cost of materials

By itself, the act of selling products online doesn’t automatically make you a business owner. For example, someone who enjoys flipping furniture and selling it on Facebook Marketplace for a small profit may be a successful online seller, but not strictly an ecommerce business owner.

When should I make the switch to ABN?

Unless you take steps to grow and solidify your business (for example, advertising your services, regularly procuring new inventory, and creating a business plan) then it may be classified as a hobby. If you were to apply for an ABN and business name, hire employees, establish a business model, charge GST and set up a storefront, then you may change classifications from hobby to business.

In terms of dropshipping as a retailer, this means selling someone else's products on your own platform and making money on the margin. In this way, dropshipping is similar to maintaining a traditional wholesale relationship, but unlike wholesale, sourcing from dropshipping suppliers means you don't need to find storage space or hold any physical inventory whatsoever.

If you’re considering dropshipping in Australia, you may be at the stage where you're ready to sell products. You may have already done the market research to sell particular products, developed a marketing strategy, and even set up an online store, in which case you should already have an ABN. Not only is holding an ABN a legal requirement for operating this type of business, but many dropshipping suppliers - in Australia and other countries overseas - simply won’t work with unregistered businesses.

If you’re unsure how to proceed with getting your business ready for tax time, the process of applying for an ABN is as easy as ABC. Read on.

How to apply for an ABN

1. Visit the Australian Government Business Registration Service website.

2. Have your personal and business details on hand: proof of identity, details of your colleagues and associates, and your business structure.

3. Complete the online forms and submit.

4. The Australian Taxation Office (ATO) will contact you in case of missing information or other confirmation.

I have an ABN… now what?

Now that you have an ABN, there are lots of things you can do (and some you need to do) to get your business rolling. Your ABN is not just a number, but an essential step to running your own business and opening many doors, including the gateway to dropshipping.

Register a business name

You need an ABN to register a business name. It is also illegal to operate under an unregistered business name unless it is your own name (e.g. John Smith) so this is an essential step for any business.

You can only use business names that are available (you can check this on the ASIC Business Name Register), and you can operate multiple businesses under the same ABN as long as they are the same business structure. You have to pay for this registration, and you will have to renew your registration every 1-3 years.

Register a domain name

While you don’t need an ABN to register a domain, you do need one for a .com.au, .au, or .net.au extension. The cost of a domain name depends on what platform you purchase from, and what kind of domain you want.

You can buy your domain through ecommerce platforms such as Shopify or Squarespace, or through any domain registrar, such as GoDaddy. You will also need to keep in mind that many domains have lower introductory costs with scaling prices from the second year onwards.

Register a trademark

Registering your business name doesn’t give you exclusive rights to that name. If your brand needs protection from copycats, or if you’re in a competitive market, you may want to consider applying for a trademark.

A trademark doesn’t just consist of your name or logo, but can include specific letters, numbers, words, fonts, smells, colours, or any unique aspect of your brand. In Australia, you can check your eligibility at the IPA website, before conducting a quick search on existing trademarks.

Register for GST

The Goods and Services Tax (GST) is a 10 per cent tax on most goods and services sold and consumed in Australia. If your business has a GST turnover of $75,000 or more, you must register for GST. You can calculate your GST turnover and find more information at the ATO website.

Register for PAYG instalments

If you’re a business owner who is planning on hiring employees in Australia, then you will have to deal with Pay As You Go withholding (PAYG). Withholding is when you take a certain amount from a payment to an eligible party and give it to the ATO to pay income tax in advance.

A business in Australia must withhold tax from payments to:

• Employees.

• Contractors who you have entered into a voluntary agreement to withhold PAYG amounts.

• Businesses that don’t quote their ABN number to you.

You have to apply for PAYG withholding before you’re first required to withhold any amount.

When you are PAYG registered, you will not only have to withhold amounts from employee wages and other payments, but you will have to lodge activity statements, provide payment summaries to employees and payees before July 14 annually, and provide a withholding payment summary annual report to the ATO before August 14.

If you’re a sole trader in Australia, you may not need to register for PAYG instalments until you meet certain entry thresholds.

Find an accountant

It can be hard to keep up with finances and when you need to pay taxes. Hiring an accountant is one way to keep on top of your tax requirements.

Your accountant should hold a legitimate accounting qualification and be a member of an accounting body such as the Institute of Public Accountants (IPA), CPA Australia (CPA) or Chartered Accountants Australia and New Zealand (CA).

To get tax advice, you will need to hire an accountant who is also a tax agent. For financial planning advice, you need an accountant with an Australian financial services license or an authorised representative of a license holder.

Tips for choosing an accountant in Australia

A general rule of thumb to make scaling your business smoother is to seek advice from accountants that already work with online merchants. As this is still an emerging area of business, they will better understanding the nuances of operating an ecommerce business.

Beyond that, you may consider working with an accountant that's operating at a similar scale to your business. Starting out, won't need the support of an industry giant, just as a large dropshipping company may have outgrown the advice of a small business accountant.

Choose an accountant who will answer your calls and emails in a reasonable amount of time, has the capacity to grow with your business, and is transparent regarding how they handle your business data.

At the end of the day, a business can absolutely handle finances solo, but an accountant is a neutral third party that can help ensure your company is completely legal and paying taxes as required.

Find Australian dropshipping suppliers for your online store

Once you have an ABN, finding Australian dropshipping suppliers should be relatively easy. You can find dropshipping suppliers on your own by visiting trade shows, contacting manufacturers directly, or ordering from your competitors.

With the internet your front door to the world, you could even research trending products as keywords by qualifying with 'B2B wholesale' or 'dropshipping' on search engines such as Google. This is similar to shopping online as a consumer, just specifying this is for business purposes.

To get a more holistic view of the marketplace, you may also like to consider using dropshipping supplier directories, which compile lists of vetted dropshipping suppliers from all over the world. Finally, you may like to sign up for a service such as Dropshipzone for free, which provides access to hundreds of local Australian suppliers offering tens of thousands of products.

What else do I need to know about my ABN?

How much does it cost?

It’s free! A tax agent may charge a fee if you engage them in the process, but otherwise, there’s no charge for the online or paper application.

How long does it take?

Not long at all! If you’re lucky, it will all be processed on the same day. However, if there’s missing information or something is unable to be verified, it may take up to 28 days. To check on the status of your application you can contact the Australian Business Register (ABR).

What if I need to change my business details?

If you already have an ABN but need to change your details, visit the ABR website and log in using your myGovID. From here you can update your business address, activities, and additional locations.

Your gateway to dropshipping

Holding an ABN is a gateway to dropshipping in Australia. From registering for an ABN, to finding a suitable accountant, fulfilling legal and tax requirements may be daunting at first. But beyond that, if you’re interested in starting a product-based business in Australia, Dropshipzone makes it easy. 

Dropshipzone does the heavy lifting, providing a B2B marketplace platform that connects retailers with suppliers. From a retail business perspective, Dropshipzone facilitates instant access to an extensive product catalogue, fast delivery, a dedicated account manager, plus a Shopify app. 

Dropshipping means selling products to end customers, without having to worry about fulfilment, shipping, or logistics. After working out your business model, registering for a business name and ABN, all you have to do is set up your own website or marketplace storefront.

Ready to start selling? We help retailers find suppliers, reach more Australian customers, and give you professional advice to get the most out of your online business. It's never been easier to start a successful dropshipping business. Get started with Dropshipzone today.