If you specialise in handmade goods and crafts, starting an Etsy store can be a great way to sell your products. However, as you expand your small project and begin transitioning into a small business, you will need to consider the legal requirements associated with having an Etsy store. A common question for store owners is whether or not you need to apply for an Australian Business Number (ABN). This article will outline what an ABN is and whether you need to consider applying for one to run your project through Etsy.
What is an Australian Business Number?
An Australian Business Number (ABN) is a unique 11-digit number that identifies your business to the government and community. All people, including customers and other businesses, will use your ABN to identify your business.
You can use your ABN to:
- identify your business to others when ordering and invoicing;
- claim goods and services tax (GST) credits;
- claim energy grants credits; and
- get an Australian domain name.
Registering an ABN is free when you register through the Australian Government’s Business Registration Service. However, if you apply for an ABN and you are not entitled to one, your application may be refused.
Generally, there is no liability to a penalty for improperly applying for an ABN if you either made a:
- genuine mistake and the Australian Business Register (ABR) believe that you took reasonable care not to make the mistake; or
- voluntary disclosure of the false or misleading statement before you are contacted by the ABR.
Do You Have a Hobby or a Business?
As your project has expanded, it can be difficult to tell at what point your hobby becomes a business. If you are carrying on a business in Australia, you must pay tax on your received income. Though, this also means you may be eligible for tax deductions on expenses made for your business.
There is no single question you can ask that can give you clarity as to whether you are carrying on a business. Instead, some of the questions you can ask yourself include the following:
- Is your activity a significant commercial activity involving commercial sales of products or services, and is it of a reasonable size and scale?
- Do you intend to make a profit from setting up your Etsy store as demonstrated by a business plan – unlike with a hobby?
- Is your activity repeated?
- Do you have a system that you follow?
- Do you spend any money to have an online presence, such as advertising, social media or a website?
- Do you have regular sales?
- Are you selling your items for more than the cost price?
- Are you managing the store as if it were a business?
If you answer “yes” to the questions above, your Etsy store will likely be considered a business. Ultimately, your intention to run your store as an online business is a clear indicator that you should apply for an ABN.
Continue reading this article below the formOther Aspects to Consider
If you are in business, you will need to apply for an ABN, as you will need to put your income on your tax return. On the other hand, you can claim tax deductions on items like supplies that you have spent on the goods that you are selling online.
Also, bear in mind that if you are trying to get an Australian domain (for example, for your website), you will not be able to do so without an ABN.
Whether you’re a small business owner or the Chief Financial Officer of an ASX-listed company, one fact remains: your customers need to pay you.
This manual aims to help business owners, financial controllers and credit managers best manage and recover their debt.
Key Takeaways
Turning a hobby into a profitable business can be an exciting milestone. If you specialise in handmade goods or artisan crafts, such as clothes, jewellery or homeware, selling on Esty can be a great way to advertise your products. However, if you are carrying on as a business rather than a past-time hobby, you must apply for an Australian Business Number. Selling products on Etsy without an ABN may lead to penalties if you do not disclose your business profits on your tax return.
If you are still unsure about whether you need an ABN or require general assistance to start your business, our experienced e-commerce lawyers can assist as part of our LegalVision membership. You will have unlimited access to lawyers who can answer your questions and draft and review your documents for a low monthly fee. Call us today on 1300 544 755 or visit our membership page.
Frequently Asked Questions
An Australian Business Number (ABN) is a unique 11-digit number that identifies your business to the government and community. You can use your ABN to identify your business to others when ordering and invoicing.
That depends on whether you are carrying on a business. To determine whether you are carrying on a business, some of the questions you can ask yourself include:
- Is your activity a significant commercial activity involving commercial sales of products or services, and is it of a reasonable size and scale?
- Do you have an intention to make a profit from setting up your Etsy store as demonstrated by a business plan – unlike with a hobby?
- Is your activity repeated?
- Do you have a system that you follow?
- Do you spend any money to have an online presence such as advertising, social media or a website?
- Do you have regular sales?
- Are you selling your items for more than the cost price?
- Are you managing the store as if it were a business?
We appreciate your feedback – your submission has been successfully received.
