Dropshipping Tax Rules for Australians

Dropshipping is a popular business model because it requires low capital. However, the tax rules can be incredibly confusing, especially when the goods never touch Australian soil.

A common scenario: You live in Australia (Tax Resident). You have a Shopify store. Your supplier is in China. Your customer is in the USA.

1. Income Tax

If you are an Australian resident for tax purposes, you pay tax on your worldwide income. It does not matter that the products are in China or the customers are in America. The profit you make is taxable in Australia.

2. GST (The "Connected with Australia" Rule)

This is where it gets interesting. GST usually applies to goods that are "connected with Australia."

• China to USA Direct: Since the goods do not originate in Australia and do not enter Australia, this sale is generally not subject to Australian GST. You do not charge GST, and you do not pay GST to the ATO on these sales. However, you still report the income on your BAS as "GST-Free Export" or "Input Taxed" (depending on interpretation, usually export/out of scope).
• China to Australia: If you dropship to an Australian customer, GST may apply depending on the value of the goods and whether you (the merchant) or the supplier are the importer of record.

3. US Sales Tax (Nexus)

While you might avoid Australian GST, you need to watch out for US Sales Tax. If you sell enough volume into a specific US state (e.g., California or Florida), you may trigger "Economic Nexus" and be required to register and collect US sales tax.