Do You Pay Tax on Etsy Sales in Australia?

🕯️ First, are you a hobby or a business?🔗

This is the question that determines everything. Get it wrong and you're either paying tax you don't owe, or not paying tax you do.

The ATO doesn't use a single income threshold to decide. There's no magic number where a hobby suddenly becomes a business. Instead, it looks at the overall picture of how you operate.

🎯 The essential: Most casual sellers who list a few handmade items a year are fine as hobbies. But 50+ active listings, regular restocking, and active social media promotion? That's a business, regardless of what you call it.

Tax treatment at a glance: a hobby means income is generally not assessable and no deductions are allowed. A business means income is taxable, but deductions apply. For a deeper look at how the ATO applies these tests more broadly, see our Hobby or Business ATO Test guide.

📈 When does an Etsy shop become a business in the ATO's eyes?🔗

Etsy shops are sneaky. Many start as genuine hobbies, you make candles for fun, list a few, they sell. Then you restock. Then you open an Instagram. Then you're running a business and you didn't even notice.

The ATO looks at current conduct, not your original intent. It doesn't matter that you started as a hobby. What matters is what you're doing now.

Etsy-specific signals the ATO watches for:

• Regular new listings, not just one or two, but consistent restocking
• Buying materials in bulk, purchasing supplies specifically to make products for sale
• Running Etsy Ads or promoting on social media, this screams commercial intent
• Setting prices to make a margin, pricing to profit, not just break even
• Having shop policies, returns, processing times, FAQs
• Repeat customers and reviews, evidence of an ongoing commercial operation

📝 Do you need an ABN?🔗

Short answer: if it's a business, yes.

Etsy doesn't require an ABN to open a store. But the ATO does require one if you're carrying on an enterprise, and those are two different things.

As a sole trader, you use your individual Tax File Number (TFN) for both business and personal tax. But you still need an Australian Business Number (ABN) to operate legally as a business. You can apply for one free at abr.gov.au, it takes about 15 minutes.

If you're genuinely a hobby seller, no ABN is needed. But if you're in business and don't have one, that's a problem worth fixing now rather than later, payers can otherwise be required to withhold 47% from anything they pay you.

💵 How is Etsy income taxed?🔗

As a sole trader, your Etsy business income goes straight onto your individual tax return. There's no separate business return, it all flows through to your personal taxable income.

The tax-free threshold is $18,200. If Etsy is your only income and you earn less than that, you pay no income tax. But, and this is important, if you have a day job, that threshold is already used up. Every dollar of Etsy profit gets taxed at your marginal rate.

🎯 The essential: These are the current 2026-27 income tax rates for Australian residents, effective from 1 July 2026. Add a 2% Medicare levy on top.

You pay tax on net income, not gross revenue, the bit most new sellers miss. If you made $20,000 in sales but spent $12,000 on materials, fees, packaging, and postage, you're taxed on $8,000, not $20,000.

🧾 What can you deduct?🔗

This is where being classified as a business pays off. You can deduct any expense that's genuinely incurred in running your Etsy shop. Here's what that looks like in practice.

Etsy fees. Every fee Etsy charges you is deductible. The listing fee is US$0.20 per listing (shown as roughly AU$0.28-0.30 on Etsy's Australian platform, the exact AUD figure moves with the exchange rate), and each listing lasts 4 months or until sold. The transaction fee is 6.5% of the sale price including postage, and the payment processing fee is 3% + AU$0.25 for domestic orders, or 4% + AU$0.25 for international orders. If you opt into (or get automatically enrolled in) Offsite Ads, that fee is 15% of attributed revenue if your shop has made less than US$10,000 in the prior 365 days, dropping to 12% once you cross that threshold, capped at US$100 per transaction. Once you're over the threshold, participation becomes mandatory and current guidance suggests the 12% rate applies for the life of the shop, but Etsy can change its fee policies, so confirm the current terms in your Etsy seller dashboard rather than assuming they're fixed forever. Download your monthly Etsy statements and keep them, don't rely on memory.

Materials and supplies. The raw materials you use to make your products are deductible, yarn, resin, timber, clay, ink, whatever goes into what you sell.

Cost of goods sold (COGS). For physical product sellers, this is the big one. COGS is the cost of actually making or acquiring the items you sell, you match costs to the products sold rather than just deducting what you spent on materials this year. At year-end, the ATO requires a stocktake of unsold inventory, generally valued at cost. The correct method for valuing closing stock for a handmade goods seller can get genuinely case-by-case, worth confirming with an accountant rather than guessing.

Packaging and postage. Boxes, tissue paper, bubble wrap, shipping labels, postage costs, all deductible. Keep your receipts.

Photography. Camera, props, backdrops, lighting rigs used for product photography. If it's used for the business, it's claimable. If you bought a camera that's also your personal camera, you can only claim the business-use portion.

Home workspace. The ATO draws a line between two types of home-based business expenses. Running expenses (electricity, internet, phone) are claimable for the business portion, even without a dedicated workspace. Occupancy expenses (rent, mortgage interest, council rates) are only claimable if the area has the character of a place of business, set aside exclusively for the business, with clients or customers able to visit. Most Etsy sellers work from a kitchen table or a shared craft room, meaning running expenses only, not occupancy. The ATO's "place of business" character test for claiming mortgage interest or rent is strict, get accountant advice before claiming occupancy expenses specifically.

Subscriptions and software. Canva Pro, design software, any tool you use specifically for your shop. Deductible.

Professional fees. Accountant fees, legal advice related to your business, even the cost of getting your tax done is deductible.

💱 The currency angle, Etsy, USD and your return🔗

Most Australian sellers set their shop currency to AUD and link an AUD bank account, in which case Etsy deposits in AUD and there's no currency conversion fee.

If your shop currency is set to USD but your bank account is AUD, Etsy converts the funds and charges a 2.5% currency conversion fee. That fee is a deductible business expense.

For tax purposes, all income must be reported in AUD, use the AUD amount you actually received, what hit your bank account. Listing fees are billed in USD (US$0.20) but shown in AUD on Etsy's Australian platform, the AUD equivalent is what you deduct.

🎯 The essential: Whether the ATO requires the official exchange rate or the actual converted amount for any specific USD-denominated Etsy transaction is worth confirming with a tax accountant rather than assuming, this is genuinely nuanced territory.

🧮 What about GST?🔗

GST registration is required once your turnover hits $75,000 in any 12-month period, either looking back at the past 12 months, or projecting forward. If you hit that threshold, you must register within 21 days. See our GST Registration Threshold Australia guide for the full process.

Most Etsy sellers won't get there. But if you do, here's what changes:

• You add 10% GST to your Australian sales
• You lodge a Business Activity Statement (BAS), usually quarterly
• You can claim GST credits on your business expenses, including Etsy's GST-inclusive fees
• Sales to overseas buyers are generally GST-free exports

👀 Does the ATO know about your Etsy sales?🔗

The Sharing Economy Reporting Regime (SERR) requires digital platforms to report seller data directly to the ATO, and it expanded significantly on 1 July 2024. But it's worth being precise about what it actually covers.

🎯 The essential: The SERR's 1 July 2024 expansion covers services, ride-sourcing and short-term accommodation platforms have reported since 1 July 2023, and asset hire, task-based services, and digital content platforms joined from 1 July 2024. It specifically excludes transactions involving the sale of physical goods where ownership transfers. That means straightforward Etsy sales of handmade or physical items generally sit outside SERR's reporting scope, in the same way eBay, Facebook Marketplace, and Gumtree goods sales do. See our Selling Stuff Online Tax guide for how that plays out on other marketplaces.

If you sell digital downloads on Etsy, printables, patterns, digital art, that's a greyer area, since SERR's expanded scope does cover certain digital content platforms. Whether your specific digital product sales fall inside or outside that reporting is worth checking rather than assuming either way.

Being outside SERR's scope doesn't mean you're invisible, though. The ATO runs broader data-matching programs pulling information from banks and payment platforms, and if you're running an undeclared business on Etsy, that data trail exists regardless of SERR. Declare it, claim your deductions, and you'll be fine.

🗂️ Record-keeping for Etsy sellers🔗

The ATO requires you to keep records for 5 years. Digital records are fine, photos of receipts, scanned invoices, electronic files.

What to track:

• Gross sales, not just what Etsy deposits, download your monthly Etsy statements
• All Etsy fees, listing, transaction, payment processing, Offsite Ads
• Materials and supplies receipts
• Packaging and postage costs
• Home workspace expenses, electricity and internet bills, with a note of the business-use percentage
• COGS records, what did each item cost to make, plus a year-end stocktake of unsold inventory
• Subscriptions and software, Canva invoices and the like

Practical tips:

• Set up a separate bank account for your Etsy income and expenses, it makes tax time dramatically cleaner
• Use the ATO's myDeductions app to photograph receipts on the go
• Don't rely on Etsy's shop stats as your only record, useful, but not a substitute for proper bookkeeping

✅ Quick summary table🔗

❓ Frequently asked questions🔗