Freight Expenses or Cost of Sale?

(Newbie)Newbie

17 July 2021

I have some questions in regard to business tax.

I have started an online business and I need some advice and help from following scenarios (example only) based on Australian Small Business tax.

If I buy products from overseas, product will be shipped from oversea to Australia and the freight shipment is $500

a) Is the freight shipment ($500) considered as EXPENSES or Cost of Sales?b) If I ship items to customers do I count the shipping as Cost of Sales or as a regular expense?

I am asking this as I am a bit confuse in regard to General business operating expenses "purchases of trading stock, including delivery charges" under this ATO linkhttps://www.ato.gov.au/Business/Income-and-deductions-for-business/Deductions/Deductions-for-operating-expenses/

Thanks and can you please kindly help?

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RichATO

(Community Support)Community Support

19 July 2021

Hi @zeon89

Please refer to my reply to your other post.

I will add here that the page on our web site you refer to is referring to 'operating expenses' as a total, i.e. it is lumping all costs which can give rise to an eligible business deduction together.

A tighter definition of cost of good sold is the expenses directly related to the production or purchase of a product.

So you could choose to include the cost of freight to import your goods as part of COGS if you wished to.

Ultimately it's not that important as it forms part of your overall expenses and is deducted in the Net Profit calculation.

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