eCommerce Business Structure: Sole Trader vs Company vs Trust for Online Sellers
Key Takeaways
- Sole trader is simplest but all profit is taxed at your marginal rate (up to 47%) — best for early-stage businesses under $80,000 net profit.
- A company pays a flat 25% tax rate (for base rate entities) — significant savings at higher incomes, but company losses cannot offset personal income.
- A discretionary trust allows income splitting to family members on lower tax rates and retains the 50% CGT discount — but trust losses are trapped inside the trust.
- Inventory is an asset, not an immediate deduction — only the cost of goods actually sold during the year is deductible.
- If your eCommerce turnover exceeds $75,000, you must register for GST — exports to overseas customers are generally GST-free.
- All platform fees (Shopify, Amazon FBA, eBay, Etsy, Afterpay) and advertising costs are fully deductible business expenses.
- Structure for CGT concession eligibility before you plan to sell — restructuring at the last minute can disqualify you from the Small Business CGT Concessions.
One of the most common questions we receive from eCommerce business owners — whether they're selling on Shopify, Amazon, Etsy, or their own website — is: "What's the best business structure?" And the answer genuinely matters. The structure you choose affects how much tax you pay, your personal liability exposure, and how easily you can scale, bring on investors, or eventually sell the business.
This guide explains the three main options for Australian eCommerce sellers and when to choose each one.
Option 1: Sole Trader
A sole trader is the simplest structure — you operate the business in your own name, using your personal TFN. All profits are included in your individual income tax return at your marginal rate.
Pros
- Simple and cheap to set up (just get an ABN)
- No separate tax return — business income on individual return
- Full access to 50% CGT discount if you sell the business
- Losses can offset other income immediately
- No ongoing ASIC compliance costs
Cons
- Personal liability — your personal assets are at risk
- Taxed at marginal rates up to 47% — no flat rate benefit
- No income splitting with family members
- Less credible to suppliers and marketplace platforms at scale
- Hard to bring on co-owners or investors
Best suited for:
eCommerce businesses in the early stage — under $80,000 net profit annually, testing products, or a side hustle that hasn't yet become a primary income source.
Option 2: Company (Pty Ltd)
A company is a separate legal entity with its own TFN and ABN. It pays tax at a flat rate of 25% (for base rate entities with turnover under $50 million).
Pros
- 25% flat tax rate (significant saving at high incomes)
- Limited liability — personal assets generally protected
- Credibility with suppliers, marketplaces, and platforms
- Easy to add co-directors and issue shares to investors
- Franking credits when distributing profits as dividends
Cons
- Separate company tax return required each year
- ASIC annual fees and compliance obligations
- Company losses CANNOT offset personal income
- No 50% CGT discount on company assets
- Profits must be extracted via salary (PAYG) or dividends
Best suited for:
eCommerce businesses generating $120,000+ net profit consistently, businesses with liability exposure (e.g., physical products where a customer could claim injury), or businesses looking to bring on co-founders or investors.
Option 3: Discretionary (Family) Trust
A trust is not a separate taxpayer — it distributes income to beneficiaries who pay tax at their own marginal rates. A discretionary trust gives the trustee flexibility to decide how much income each beneficiary receives each year.
Pros
- Income splitting — distribute to family members at lower tax rates
- Trustee discretion means flexibility year-to-year
- Access to 50% CGT discount (distributed to individuals)
- Asset protection — trust assets separate from personal assets
- Can layer under a corporate trustee for maximum protection
Cons
- More expensive to set up and maintain
- Trust losses are trapped — cannot offset personal income
- Distributions to minors taxed at penalty rates
- Annual trust tax return required
- More complex for marketplace seller verification
Best suited for:
eCommerce businesses with a spouse or adult family members who can receive distributions, and where the owner has a long-term view and wants income splitting flexibility. Popular for $80,000–$300,000 net profit range.
eCommerce-Specific Tax Considerations
GST Registration
If your eCommerce turnover exceeds $75,000 per year, you must register for GST. You'll charge 10% GST on most Australian sales, claim input tax credits on your business costs, and lodge BAS (quarterly or monthly). For imported goods sold to Australian consumers via a marketplace (Amazon AU, eBay), the platform is typically the GST-responsible party.
Selling Internationally
Exports are generally GST-free. If you sell physical goods to overseas customers, you won't charge Australian GST. However, you may need to understand overseas GST/VAT rules (e.g., EU VAT OSS, US sales tax by state) if your international sales are significant.
Inventory and COGS
Inventory is an asset, not an immediate deduction. Goods you've purchased but not yet sold are held as stock on hand. The cost of goods sold (what you actually sold during the year) is deductible. This requires accurate stock records — particularly at 30 June each year.
Amazon FBA and Platform Fees
All platform fees — Shopify subscriptions, Amazon FBA fulfilment fees, eBay final value fees, Etsy listing fees, Afterpay or Klarna fees — are fully deductible business expenses. So are advertising costs (Amazon PPC, Google Shopping, Meta ads).
When Should You Change Structure?
Side hustle becoming primary income
Review whether sole trader is still appropriate; consider trust
Net profit consistently exceeding $120,000
Compare company tax rate savings vs your current personal rate
Partner or co-founder joining the business
Partnership or company — get proper legal and tax advice
Physical products with liability exposure
Company or corporate trustee for liability protection
Planning to sell the business in 3–5 years
Structure for CGT concession eligibility now, not later
Not sure which structure suits your eCommerce business?
Elite Accounting Solutions works with Shopify, Amazon, Etsy and multi-channel sellers across Australia. We'll help you choose the right structure, set up your accounting systems, and make sure you're capturing every deduction available to your business.
Written by
Elite Accounting Solutions
CPA-registered accounting firm based in Mooroolbark, Victoria. Specialists in tax, SMSF, business advisory, and cloud accounting for individuals and small businesses across Melbourne's outer eastern suburbs. Learn more about us.
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