Understanding Australian Business Number (ABN) Requirements and Direct Selling Issues

This presentation is general information only and you should seek advice on your specific circumstances. www.kirkdavisaccounting.com.au kirk@kirkdavisaccounting.com.au

Topics Covered This webinar focuses on some of the issues and problems we have seen with independent salespeople. 1. Background and experience 2. Who is entitled to an Australian Business Number (ABN) 3. What are the consequences of paying agents who don t have an ABN 4. How does Goods and Services Tax (GST) effect the Direct Selling / MLM industry 5. Recipient Created Tax Invoices (RCTI) 6. MLM purchases for personal use 7. Providing year end commission summaries 8. Genuine business expenses 9. Record keeping requirements

Our Background Direct selling experience Grew up in the industry and worked for a law firm specialising in direct selling Worked as an independent salesperson for: 1. Australian Aqua Air ( Rainbow vacuum cleaners) 2. World Book (encyclopedia) 3. Vapor Master (steam cleaners) Accounting and business advisor 1. Worked at a BRW top 100 accounting firm 2. Started my own firm in 2011 specialising in the direct selling / MLM industry 3. Joined the Australian DSA as a suppler member in 2015 4. Presented to a number of top 100 USA direct selling / MLM companies

Business or Hobby A business can often be characterised as having some of the following: The activities performed have a commercial character and they are being done for the purpose and likelihood of earning a profit Repeating transactions and appropriate business records are kept There is a separate bank account, a registered business name and other registrations We often hear complaints where independent salespeople promote a business opportunity , however the downline ABN applications are rejected by the ATO for being too similar to a hobby.

Australian Business Number (ABN) A genuine business needs an Australian Business Number (ABN) There is often confusion as the USA doesn t have a business number requirement Where the business makes payments to agents who don t have an ABN: Business needs to withhold 49% of the payment and report it to the ATO ATO assumes the business did withhold the 49% $10,000pa threshold for DSA members: DSA members need a mechanism to check ABNs to identify when individual agent commissions approach $10,000pa We often see that commission payments are above the $10,000pa exemption, but there is still no ABN and no ABN withholding

Goods and Services Tax (GST) Businesses normally do not charge GST where customers import products directly: Customs charges GST to the importer directly We have seen agents and customers effectively paying GST twice Commission payments need to include GST where the independent salesperson is registered for GST: Agents often register for GST before reaching the $75,000 threshold Agents often already have GST registration from a previous business Independent salespeople may earn $30,000 from 3 different companies and therefore be required to register for GST

Recipient Created Tax Invoices (RCTI) Recipient Created Tax Invoices are issued by the recipient of the supply (direct selling business) rather than by the supplier (independent salesperson). We have identified a number of common issues effecting direct selling businesses: 1. Independent salespeople fail to register for GST 2. The direct selling business and the independent salesperson do not have a written agreement in place specifying the supplies to which the RCTI relates 3. The direct selling business often does not realise that it is required to indemnify the independent salesperson for any liability for GST and penalties that may arise from an understatement of the GST payable There is a potential liability for GST and fines to the direct selling company

MLM Purchases for Personal Use Direct selling companies promote a business opportunity and often say that being on autoship is a genuine business expense as it s a requirement to earn commissions. Personal use However, where independent salespeople purchase products for personal use (eg on autoship), such purchases are private in nature and therefore not a genuine business expense. Furthermore, purchases for personal use would normally not attract GST on the associated commissions for these purchases.

MLM Year End Commission Summaries Our firm encourages direct selling / MLM companies to issue annual commission summaries to independent salespeople. These summaries can simplify the process for independent salespeople in preparing their personal year end tax returns. These commission summaries could include: The direct selling company s name and ABN The name, address and ABN of the independent salesperson A description of the income earned Any GST included in the commission payments

Genuine Business Expenses There must be a clear link between the income earned and the expense incurred. 1. Products purchased for personal use are not genuine business expenses 2. Genuine business expenses can include the work related percentage of: Motor vehicle and travel expenses Home office expenses including rent, electricity and computers Telephone and internet Hostess gifts Professional seminars, courses, conferences and workshops or trade books Independent resellers can include the cost of goods sold (COGS)

Record Keeping Requirements Independent salespeople need to ensure they keep appropriate business and tax records for at least five years. It is important to note that agents can scan and keep digital copies of their records as long as they can provide them to the ATO at a later date. Independent salespeople who start a company need to also keep their company records for seven years.

www.kirkdavisaccounting.com.au kirk@kirkdavisaccounting.com.au