Income, Exchange rates, Free Shipping and GST

[cumos55]

There has been a lot of talk recently about each of these topics.

My question… Is Free shipping an option with my listings?

First individual topics.

(1) Income in US dollars…

For a seller annual income of $12,000 US makes one a powerseller. In spite of this requirement PS status is better guaranteed with an annual income of $15,000 US.

Personal goal is $20,000 US annual income

(2) Exchange rates

Five years ago … $1.40 CDN = $1.00 US

Oct-Nov 2007 … $0.90 CDN = $1.00 US only one year ago

Today $1.25 CDN = $1.00 US.

Things have changed and are changing quickly.

(3) Free shipping = shipping included.

Annual Income at $15,000 plus annual shipping at $5,000 US

With Free shipping annual income becomes $20,000 US, and annual income has suddenly jumped 33 %

(4) The collection of GST/HST

A Business with an annual income over $30,000 Canadian must register and collect GST/HST

Scenario I --- Only with an annual income of $20,000 and an exchange rate of $1.50 CDN = $1.00 US does income in CDN dollars become $30,000

Scenario II --- Free shipping with an annual income of $20,000 the sum of $15,000 + $5,000 reaches $30,000 with an exchange rate of $1.50 CDN = $1.00 US

Scenario III --- Free shipping with an annual income of $25,000 the sum of $20,000 + $5,000 reaches $30,000 with an exchange rate of $1.20 CDN = $1.00 US.

Conclusions.

(1) Incorporating Free shipping as an option adds income to the total.

(2) Free shipping with the right balance between ...income due to sales ... the cost of shipping ... and exchange rates .... can very quickly put a seller above $30,000 Canadian

If this is correct ... then... a seller who uses Free shipping can very quickly be in GST/HST collection territory.

[momoftwingles2]

cumos55,

When you include shipping as income...you also are able to lower that income by claiming the full costs of shipping as an expense.

Or am I missing something???

Susan
momoftwingles2

[cumos55]

With free shipping and with shipping as part of total income...

The cost of postage is deducted in the calculation of net income for income tax purposes. So for income tax purposes Free shipping has no effect.

If I am correct.. By including shipping with the cost of the items... total income is higher.

and in turn it can get one to that $30,000 number a lot quicker than many may expect.

I know of one Powerseller who has added free shipping to almost all, if not all his listings... I estimate that without free shipping this seller's income is about $18,000 to $20,000

[fatdane]

Any serious seller on Ebay that is exporting any of his/her sales should be registered for GST IMHO. If you pay more GST than you collect the Government refunds the overpayment to you. You do not have to be at the $30,000 level to register for GST, but at $30,000 you MUST register. Yes collecting it can be a pain in the backside, but getting a cheque from the Government compensates for it.
If the Government visits and insists that a seller register for GST based on the information supplied by Ebay the seller may well end up getting money back from the GST people. The Government will probably calculate the GST that should have been collected, at which point a seller should be able to calculate the GST that he/she paid out for business purposes in the same time period.If the Government calculates the GST as a percentage of total sales it would be smart for a seller to point out what percentage of sales would be zero(0) rated for GST - ie anything sold outside of Canada which may apply to most Ebay sellers.

[cumos55]

Registering at below $30,000 annual income is optional... atleast that is this seller's understanding.

If it is advantageous to register then one should register..

If the GST on inputs are high compared to the GST collected .... one would get a cheque from the government.

It would serve one well if everything that one bought for sale on eBay had GST applied to it and

then in turn the GST collected on sales to Canadian buyers would be less than that paid out on purchases ...

then registering for GST at less than $30,000 annual income could be advantageous.

Is it worth it to keep track of $250 paid in GST each year and then charge GST? to get that $250 back.

That $250 is 1.7 % of annual income.

Now the question is can one be forced to rgister at income levels below $30,000 annual income.

[cumos55]

Lots of things to think about..

The optional registration was something I had forgotten.

40 % of sales to Canadian buyers..

[fatdane]

Doing some quick plying with numbers. Assume you sold $C1000 in a month. If 40% of your sale were to Canadians and you collected GST you would collect 5% times $400 = $20.00. If your expenses ( cost of goods sold, postage shipping office supplies etc) were $400 you would have paid 5% times $400 = $20 in GST, and you would have no benefit to registering. If your expenses were $600, then you would have paid 5% times $600 = $30 in GST, and the Government would send you the $10 ($30-$20) when you filed your GST return.

My sales rarely run more than 10% to Canadians, so most of the time I get money back.

[recped]

If I am correct.. By including shipping with the cost of the items... total income is higher.

This in not really correct....example (simplified)

Selling price $10 / your cost of item $5
shipping $3 / Actual shipping cost $2.50

Gross Income = $13
Net Income = $5.50

Selling Price $13 / your cost of Item $5
shipping FREE / actual shipping cost $2.50

Gross Income = $13
Net Income = $5.50

Bottom line....there is no difference unless you are going to eat some of the shipping cost, in this case both your Gross & Net will be reduced by the same amount.

Here's an example of that scenerio

Selling Price $10 / your cost of Item $5
shipping FREE / actual shipping cost $2.50

Gross Income = $10
Net Income = $2.50 (I'm not liking the look of this!)


* note that nothing is factored in for any other fees and expenses which would obviously affect the Net Income figures.

I think it's the term "Gross Income" which is confusing you. If you would refer to it as "Gross Revenue" perhaps this would not happen. The two terms are interchangable and equally valid for accounting purposes

[pierrelebel]

"A Business with an annual income over $30,000 Canadian must register and collect GST/HST"

Actually, one should remember GST/HST registered sellers must remit GST/HST on their Canadian taxable sales. There is no obligation to collect it. Many businesses (all sizes) incorporate the GST/HST in their prices or absorb it for marketing/competitive purposes. .

[cumos55]

Sales have not come close to $20,000 annually as yet.. So in that context registration is not a requirement.

I then looked at what is bought to sell on eBay... and there is only one place that charges GST on all purchase... and that place represents less than 30 % of purchases.

The situation is that at present it is not advantageous to Register.

Free shipping is an option for selling on eBay.

The disadvantage for Canadian sellers include

(1) The FVF that eBay collects on shipping

(2) Including the price of shipping in with the price does add to total income, and

the right balance of ...income due to sales ... the cost of shipping ... and exchange rates .... can very quickly put a seller above $30,000 Canadian

With free shipping total income is Income due to sales plus the cost of shipping

There are many sellers like me who will add free shipping to some or even all of their listings and in so doing put themselves into a situation where they will have to register and collect GST/HST.

[pierrelebel]

"The disadvantage for Canadian sellers include (1) The FVF that eBay collects on shipping"

For PowerSellers with high DSRs, that may work out OK since you currently get double the monthly FVF rebate if you offer free shipping (40% rebate instead of 20%)

" in so doing put themselves into a situation where they will have to register and collect GST/HST. "

Once again, NO, NO and NO.

Whether the shipping charge is included in the selling price (free shipping) or charged extra, does not change to the total revenue received by a seller.

Whether you sell $25,000 plus $8,000 shipping for a total of $33,000 or sell $33,000 shipping included (free shipping) both situations require GST/HST registration. .

[cumos55]

Shipping is included..... That I did not know...

I had the impression that if my income was $20,000 and shipping was $5,000 that my income in relation to GST was $20,000.

I use Canada Post and they charge GST... and That gets passed on to the buyer.

My thinking just went down the drain.. Fortunately I have never gone over that $30,000

Got to do some reading....

[cumos55]

Income has increased over the years... This has occurred as the exchange rate changed from $1.40 CDN to parity.

Income in Canadian dollars plus postage in Canadian dollars did increase but never exceeded $30,000 Canadian.

Now things are changing. The exchange rate is at about $1.25 and if the value of sales continues to go up then

Sometime in the future it means registering for GST/HST collections. perhaps sometime in 2009...

Learn something new every day... and this is a big one.

[pierrelebel]

"Fortunately I have never gone over that $30,000"

Fortunately?

I don't get it. One would think you want to exceed $30,000 in sales. The requirement for GST/HST registration is a non-event. Anyone doing $10,000+ and exporting a substantial percentage of his sale should register. It is beneficial as you get back 100% of the GST/HST paid of your purchases and sale related cost (such as postage). .

[cumos55]

I am now considering registering for GST, to start January 1, 2009.

Sales in US dollars never went over $15,000..and with a shipping of $6,000 CDN $ ... I could quickly come close to $30,000 with the right exchange rate.

I do anticipate higher sales in 2009... both local and on eBay

It was not until I starting thinking.. and commenting and learning that I realized that whether I reach $30,000 or not that it would be advantageous for me to register to collect GST/HST.

The word ... Fortunately ... is expressed in a sense that I had not gone above $30,000 in any previous year of selling.

That will change in 2009. Thinking ahead and not looking back...

[sourcenaturals]

My advice, forget all the variables and just use your final bank deposits....the end $cad amount in your pocket.

CRA Income:
The simplest way, and the only way in my opinion, is to claim bank deposits. The final $CAD amount that reaches your account, simple, accurate, preferred method.


GST:
You do not need a GST# until your "Canadian Only" sales gross 30,000 or more per year. For example, if I sold 100,000 in product 2007, and 17,000 was Canadian sales, I do not need a gst number nor do I need to be collecting GST. But, often we need a GST number to register for various accounts, like merchant accounts, so GST collection becomes optional under 30,000 but required for other purposes.

[pierrelebel]

"You do not need a GST# until your "Canadian Only" sales gross 30,000 or more per year"..." if I sold 100,000 in product 2007, and 17,000 was Canadian sales, I do not need a gst number.

That is wrong. Please take the time to check the facts with CRA. Sale volume of Cdn$30,000 (including zero rated exports) require GST/HST registration. .

[pierrelebel]

From the CRA website:

"You have to register for GST/HST when you no longer qualify as a small supplier because your total worldwide taxable supplies of goods and services exceed the small supplier limit of $30,000 in a single calendar quarter or in four consecutive calendar quarters."

http://www.cra-arc.gc.ca/tx/bsnss/tpcs/gst-tps/rgstrng/mndtry-eng.html

Many folks often confuse tax exempt sales (basic food for example) with zero rated taxable sales (exports of otherwise taxable goods). .

[sourcenaturals]

That information comes directly from the mouth of a CRA auditor.

**$30,000 in a single calendar quarter*** =($120,000/year)
I quoted 100,000, my apologies.

[pierrelebel]

Read the whole thing. Do not take a few words out of context. Consult your accountant if you do not understand the rules. .