Landed Cost for Australian Importers | GST & Inventory

Between the 2020-21 and 2024-25 financial years, the Australian dollar fell from an average of 74.68 US cents to 64.82 US cents. An importer whose supplier never changed its US dollar price still paid 15.2 per cent more in Australian dollars for exactly the same goods.

Most online retailers never see that shift, because they measure product cost using the supplier invoice. The supplier invoice is not the cost of the product. It is the starting point.

This guide sets out what landed cost is, how it differs from cost of goods sold and from the customs value, which costs Australian tax law requires you to capitalise into trading stock, how to allocate freight and duty across a mixed shipment, which exchange rate applies, and what happens to unsold imported stock at 30 June.

What Is Landed Cost?

The distinction matters because two different numbers are often called "cost". The first is what the supplier billed. The second is what the business actually spent to have saleable stock sitting in its warehouse. On imported goods, the gap between them is rarely small.

Pricing, discounting and reorder decisions made on the first number will be wrong in a predictable direction: they will flatter the product. Our e-commerce profit margin calculator shows what happens to reported margin once the real cost of selling is loaded in. This article deals with the step before that, which is establishing the cost itself.

Is Landed Cost the Same as Cost of Goods Sold?

The two numbers are built from the same components, so they are easy to confuse. The difference is timing, and timing is what decides which income year your profit falls in. A shipment that lands in June and sells in September is a June asset and a September expense.

That is why a landed cost error never stays in one place. It moves closing stock at 30 June, it moves cost of goods sold, and it moves taxable income in both the current and the following year. Sellers using third party fulfilment carry the same issue with an extra layer, because units sit in a warehouse they do not control; we cover the bookkeeping side of that in our guide to Amazon FBA in Australia.

What Costs Form Part of the Cost of Trading Stock?

This is the point most importers get wrong. Freight and duty are commonly coded straight to an expense account when the invoice arrives. For tax purposes, where stock is valued at cost, those amounts belong in the value of the stock and are only released to the profit and loss as the goods are sold.

Coding freight to expenses understates profit while stock is building and overstates it while stock is being run down. In a growing importing business, which is almost always building stock, the effect is a persistent understatement of taxable income. That is a compliance exposure, not a saving.

The ruling is specific about the list. Paragraph 7 of TR 2006/8 names the purchase price, import duties and taxes other than those recoverable from the tax authorities such as GST, inwards transport and handling charges, insurance on the stock while in transit, and the costs of receiving and inspecting it. The ruling also draws the cut-off: costs are absorbed until the stock is in its final selling location, which leaves display costs, advertising and delivery to the customer outside stock value.

The ATO confirms that where you are entitled to GST credits, you generally exclude the GST component when calculating the value of trading stock. The general trading stock rules then work the deduction out from opening stock plus purchases less closing stock. Getting the inputs right is what our bookkeeping team builds into the ledger from day one.

Where the accounting rule and the tax rule line up

The accounting standard says much the same thing. Paragraph 10 of AASB 102 Inventories requires the cost of inventories to comprise all costs of purchase, costs of conversion and other costs incurred in bringing the inventories to their present location and condition. Paragraph 11 breaks the costs of purchase into the purchase price, import duties and other taxes that are not recoverable, and transport, handling and other costs directly attributable to acquisition.

In practice this means one landed cost figure serves both purposes for most importers, which is worth knowing before anyone proposes running two sets of numbers. The differences that do arise, mainly in the treatment of trade discounts, rebates and write-downs to net realisable value, sit in the detail rather than in the method.

What Is the Difference Between FOB Cost and Landed Cost?

The Incoterm on the supplier invoice decides how much of the landed cost is already inside the price and how much still has to be added. Two quotes that look thousands of dollars apart can land at the same number once the missing pieces are filled in.

The customs value is a separate question again, and it is the one that costs money when it is answered carelessly. The usual method is transaction value, the price actually paid or payable for the goods, under Division 2 of Part VIII of the Customs Act 1901. The Australian Border Force is explicit that the customs value does not include freight and insurance in transporting the goods from the place of export to Australia.

That produces a practical trap on CIF terms. Duty is calculated on the customs value, while GST is calculated on the value of the taxable importation, which adds the overseas freight and insurance back in. Enter a CIF invoice at face value as the customs value and you have inflated the duty base, not the GST base. Where the goods attract a 5 per cent rate, overseas freight and insurance of A$7,180 entered in error costs A$359 in duty that was never payable. The ABF guidance on the value of imported goods sets out the methods and the order in which they apply.

How Do You Allocate Freight and Duty Across a Shipment?

The choice is not academic. In the mixed container below, switching from a value basis to a unit basis moves the cost of one product by 7.8 per cent and another by 5.7 per cent in the opposite direction. That difference flows straight into reported margin and into every pricing decision that follows.

Worked example: one container, three products

A Melbourne homewares importer orders a container from an overseas supplier that invoices in US dollars on FOB terms. The supplier invoice is US$48,000 for 4,000 units across three products. The stock becomes on hand when the exchange rate is A$1.00 = US$0.6482.

There is A$13,673 of on-costs to spread across the three products. The table below shows what happens when the same A$13,673 is allocated on value and then on unit count.

Product C sells for A$69 excluding GST. On the supplier invoice alone, its cost is A$29.31 and gross margin looks like 57.5 per cent. On a properly built landed cost allocated by value, the cost is A$34.72 and the margin is 49.7 per cent. That is 7.8 percentage points of margin that never existed.

Our view is that value is the sensible default for goods of broadly similar size, and weight or volume should be used where one product is disproportionately heavy or bulky. Whichever you choose, document the reasoning and apply it consistently. A basis that changes between shipments makes period comparisons meaningless.

How big is the margin overstatement in your own numbers?

The 7.8 points above is not a rule of thumb, and it should not be borrowed. It is the product of two things you already know: the on-cost loading on the shipment, and the product's supplier cost as a share of its selling price. Multiply them and you have the overstatement in percentage points.

The table below runs that formula across the range we see most often in Australian importing businesses. A seller with heavy freight and a thin markup is exposed far more than the single worked example suggests.

A five-step shipment allocation worksheet

Run the same five steps on every shipment and the result is defensible without being laborious. It takes about twenty minutes a container once the template exists.

1. Convert the supplier invoice to Australian dollars at the rate prevailing when the stock became on hand, not the rate on the day you paid.
2. Pool every on-cost for the shipment: freight, insurance, duty, brokerage, port, handling and inbound freight. Leave out recoverable GST and anything incurred after the goods reach the selling location.
3. Choose one allocation basis, note in the file why it suits this shipment, and use the same basis next time.
4. Work out each product's share of the basis, then apply that share to the on-cost pool.
5. Divide by units for the landed cost per unit, then check the allocated column adds back to the pool.

Worked through on the container above, with value as the basis, the worksheet looks like this.

How do you record landed cost in the ledger?

Code the supplier bill and every on-cost invoice to the inventory account rather than to purchases or freight expense, so the pool accumulates in one place. Post the allocated amounts into the inventory system at the unit level, and let cost of goods sold pick them up as units sell. The GST charged on the customs entry is coded to the GST account, never into the stock value.

Most cloud ledgers, Xero included, do not spread a freight or duty invoice across product lines for you. The allocation happens in the inventory application or in a spreadsheet before the figures reach the ledger, which is precisely why the basis needs to be written down. Our Xero and Shopify setup guide covers how the stock and sales data flow together.

Which Exchange Rate Applies to Imported Stock?

This is a detail that catches out businesses using a single year-end rate for everything. The ATO sets out the position clearly in its trading stock valuation example: stock valued at cost is translated at the rate applying when it became stock on hand, under item 3 of the table in subsection 960-50(6).

Taxpayers may generally use either the prevailing rate at the date of the transaction or an average rate for a period, provided the average is a reasonable approximation of the actual rates. Where currency moves sharply within a year, an annual average can stop being reasonable, and a shorter averaging period becomes the better answer. The translation rules sit in Subdivision 960-C of the Income Tax Assessment Act 1997, and the ATO explains their operation in its guidance on foreign exchange gains and losses.

Why a stable supplier price is not a stable cost

A supplier holding its price at US$20 per unit looks like cost stability. It is not. At the 2020-21 financial year average of 74.68 US cents, that unit cost A$26.78. At the 2024-25 average of 64.82 US cents, the same unit cost A$30.85. The supplier changed nothing and the cost rose 15.2 per cent.

The currency you are billed in matters as much as the currency of the country you buy from. Many suppliers based in China invoice in US dollars, which leaves the buyer carrying US dollar exposure rather than Chinese yuan exposure. Across the seven financial years charted above, the Australian dollar moved through a range of 13.2 per cent against the US dollar, from 74.68 US cents to 64.82 US cents.

There is a second gap worth watching. The rate published by the RBA is not the rate your bank gave you. Bank and payment provider spreads mean the effective rate paid is usually worse than the market rate quoted online. Reconcile against the actual amount debited, not the screen rate. Modelling the effect of a further fall before it happens is exactly what a 3-way forecast is for.

How Is GST Calculated on Imported Goods?

Applying the ATO's rules on GST and imported goods to the container above, the value of the taxable importation is A$84,934, being the customs value of A$74,051 plus duty of A$3,703, freight of A$6,400 and insurance of A$780. GST is A$8,493.

That A$8,493 is a cash flow event, not a cost. A GST-registered importer bringing goods in for a creditable purpose claims it back. The question is when. Paying it at the border and recovering it on the next activity statement can leave the money out of the business for weeks.

The deferred GST scheme

The deferred GST scheme allows approved importers to defer GST on taxable imports to their monthly activity statement instead of paying it at the border. The ATO prefills the deferred amount at label 7A, the importer claims the corresponding credit at label 1B in the same statement, and in most cases nothing is paid out at all.

• You must be registered for GST and hold an ABN
• You must lodge activity statements monthly, so quarterly lodgers need to switch
• Lodgement and payment must be made electronically
• The goods must be entered for home consumption
• Customs duty is still payable at the border; only GST is deferred
• Your returns, activity statements and payments must be up to date, and late lodgement can cost you access

Timing catches people out. A switch from quarterly to monthly lodgement does not take effect until the start of the next quarter, so an importer who applies in November is not deferring GST until January. Plan the application around the shipping calendar rather than the other way round.

The trade-off is real. Monthly lodgement means twelve activity statements a year rather than four, which is more work and less room for error. For a business importing regularly, the cash flow benefit usually outweighs it. For an occasional importer, often it does not. Our BAS and IAS team can model both before you apply, and the Australian Border Force sets out how the deferral operates at the border.

Consignments with a customs value at or below A$1,000 are generally non-taxable importations, though GST may still apply at the point of sale where the overseas supplier or marketplace is registered. We cover that in detail in our guide to GST for Australian e-commerce sellers.

What Happens to Unsold Imported Stock at 30 June?

The three methods are set out by the ATO in its guidance on valuing trading stock. Market selling value is what the stock would fetch in the ordinary course of business. Replacement value is what it would cost to obtain a near identical item on the last day of the income year.

For importers this is a genuine planning point rather than a formality. Where stock has been superseded or is not moving, market selling value or replacement value may be materially below landed cost, and choosing the lower valuation reduces closing stock and therefore taxable income. The choice must be supportable, so keep the evidence.

Note the interaction with currency. If you value at cost, the historical rate applies. If you switch an item to replacement value, you are translating at the year-end rate instead. Where the dollar has fallen, replacement value can exceed original cost, which is the opposite of what most people expect from a write-down.

Under the simplified trading stock rules, an eligible small business that reasonably estimates the movement in stock value at $5,000 or less need not conduct a stocktake or bring the change to account. In our experience most importers exceed that threshold quickly, and a proper count is worth doing regardless. Timing decisions of this kind sit naturally inside annual tax planning, and the accuracy of the underlying numbers is what our tax compliance reviews test.

What Importing Taught Us About Margin Discipline

In our work with Watches of Mayfair, a luxury e-commerce client selling imported stock, the discipline that mattered most was knowing the real cost of every item before it was priced. Luxury goods carry high unit values, which means customs duty, freight and insurance are large absolute amounts, and small errors in how they are allocated move margin quickly.

Two things made the difference. The business tracked landed cost rather than supplier price, so pricing decisions were made against a number that was actually true. And it kept fixed overheads deliberately low, so a period of rising interest rates and weaker discretionary spending could be absorbed without cutting into core operations or taking on debt.

When conditions improved, that same lean structure let the business scale without unwinding excess cost. The lesson generalises. Margin management is not only about knowing your numbers; it is about building a cost base that survives a downturn and can move quickly in a recovery. We see the same pattern across our e-commerce accounting clients, and it starts with costing stock properly.

Summary and Key Takeaways

Revenue tells you what customers are buying. Landed cost tells you whether it was worth selling. For an importing business, it is the number every other decision depends on. Earlier stage sellers building this from scratch can start with our startup advisory support.

Frequently Asked Questions