E-Commerce Contracts: An Australian Tax Perspective
29 April 2020 | Minutes to read: 6

E-Commerce Contracts: An Australian Tax Perspective

By William Buck

This article aims at understanding the application of contract law to Australian e-commerce transactions with a focus on Taxation and Enforceability in view to provide its readers with a set of recommendations as to achieve enforceability and avoid adverse tax ramifications.

In the absence of overriding statutory provisions, common law principles of contract law apply to e-commerce contracts (Offer, Acceptance and Consideration). However, the current Law did not evolve in a digital environment and issues may arise as to when and where the contract arose which may have complex and serious legal and tax implications.

The timing of a contract may be important for tax purposes, because it may affect when income is derived and when deductions are incurred, the date of ownership from which an asset is depreciated, the value of trading stock (FOREX), and the timing of GST liabilities or a Capital Gains Tax (CGT) event.

In a typical transaction involving a sale of goods, a prospective purchaser responds to the display of goods on a website and makes an order. Depending on the intention of the parties and the conditions of the sale, the display of the goods on the website may itself constitute an offer. If it is an invitation to treat, the offer would actually be made by the prospective purchaser who makes the order and, depending on the circumstances, communication of acceptance by the seller would be implied from the dispatch of the goods to the purchaser.

In the case of contracts made by telephone, telex or fax, receipt of the acceptance would normally be required though this may be affected by special circumstances. The Commonwealth Electronic Transactions Act 1999 and its state counterparts which define when an electronic communication is despatched and received allows any Australian to give information, provide a signature, produce a document and record / retain information electronically and applies to all laws of the Commonwealth unless they are specifically exempted. In practice, the area has often be defined as “grey” with limited global uniformity. However, Australia is currently considering acceding to the United Nations Convention on the Use of Electronic Communications in International Contracts.

The place in which a contract is made may also be important for tax purposes, because it may affect the jurisdiction in which stamp duty and other transaction taxes may be levied, the determination of the source of income from performance of the contract and the legal and tax consequences of the contract, according to which law applies.

The place where the contract is made will generally be the place where the last act necessary for the conclusion of the contract is performed. So, for example, it will typically be where the communication of the acceptance of the offer is received.

Where two jurisdictions are involved, as will commonly happen with electronic commerce, the place where the contract is made will be a factor in determining the jurisdiction whose law governs the contract, unless this is varied by the parties and the variation is valid under the laws of that jurisdiction. Care will therefore need to be taken to ensure that this is taken into account in drafting the contract and where the law governing the contract is different from the law in the home jurisdiction.

The next question surrounding e-commerce contracts becomes: Who are the parties entering into a contract? There is no requirement to identify the physical owner or controller of a website. Care will need to be taken to ensure that there is certainty as to which legal entity is being dealt with, as otherwise a customer may not have anyone accessible to sue if the goods or services are unsatisfactory.

In many cases it may be difficult or impossible to identify the taxable entity associated with an internet site. There are no requirements to identify the physical owner or controller of the site. In the absence of such regulation, the anonymity of site owners may mean that income simply cannot be traced by tax authorities.

The Tax Office Electronic Commerce Project, in its report Tax and the Internet, recommended that businesses be required to include in their tax returns details of relevant e-mail addresses, the address of any website operated by the business, and a notification as to whether sales of goods or services were made on the internet (this latter notification is now required). However, these measures would have no impact on persons outside Australia who do not lodge returns.

The project also recommended that site identifiers such as company and business names and uniform company numbers be mandatory on commercial websites. There would be obvious difficulties in applying such a requirement to businesses operating overseas, or to Australian businesses who shift to offshore servers.

Specific recommendations

Based on the above, the enforceability and clarity of electronic contracts is paramount to the avoidance of tax ramifications for business contracting with customers online and will generally require:

  • Sufficient notice of terms (particularly onerous terms specifically brought to attention);
  • Sufficient opportunity of the user to consider terms and to decline;
  • Evidence of acceptance of terms that is sufficiently clear and positive as to demonstrate actual consent to be bound by terms; and
  • The absence of terms that are unconscionable or greatly unfair.

E-Commerce operators should therefore ensure that:

  • Notice of where the contract is concluded is clearly stated;
  • Notice of the existence of user terms and conditions are clearly presented to potential users of the web site. Do not rely solely on legal terms that are merely posted on the web site (whether by hypertext link on the home page or otherwise buried on pages deeper in the site) and require the user to find and/or review on their own initiative (i.e. so-called “browse-wrap”). Users should not be able to agree to terms and conditions and/or be permitted to access and use the e-commerce platform to obtain products and services available without having been presented with the terms of the proposed agreement and agreeing to such terms of use;
  • The user’s ability to review terms and conditions is as simple and straightforward as possible – if terms are multiple pages, user should be able to easily navigate back and forth. Furthermore, all terms and conditions governing access and use (e.g. user terms, privacy policies, etc.) should be consistent and work together in a coherent manner;
  • The terms and conditions are always accessible to the user (i.e. before, during and after the review and acceptance process) and be capable of being retained by the user (e.g. automatic emailing of terms after agreement of the same);
  • If the law requires specific agreement or consent to a particular type of term (e.g. privacy legislation), the format of the consent / consent process should comply with that legal requirement;
  • Terms and conditions that are unconscionable or greatly unfair are avoided. If some terms and conditions are, or could be construed as, unusual, unfair or unduly onerous, use efforts to highlight such terms and conditions (bold typeface, capital letters, etc.);
  • Ensure evidence of acceptance of terms is sufficiently clear and positive as to demonstrate actual consent to be bound by clear terms e.g. clicking a button or icon or typing in the specified words of agreement or rejection ( “I agree,” “I accept,” “I consent,” rather than “OK”, “Continue,” “Next” “Submit,” or “Enter.”);
  • “Acceptance by conduct” be avoided – depending on the structure and circumstances, such manner of acceptance creates significant risk of non-enforceability;
  • The acceptance process should provide a reasonable method to avoid, or to detect and correct, errors that could be made by the user in the review and acceptance process;
  • Ensure a notice mechanism of proposed changes to the terms and conditions exits and that provides means for ensuring the user’s acceptance of the proposed changes;

It also needs to be noted that  it is not unusual for many web site operators to use the services of third parties in the performance of some web site services that is transparent to the user. Often the user ends up (unbeknownst to the user) on a third-party site that remains branded by the original web site operator, but which has the different terms and conditions of the third party service provider, resulting in a potential contractual conflict of terms.  Therefore, ensuring the design of the web site contemplates this issue when using third party sites.


Businesses that conduct transactions online are bound by the relevant industry codes of practice and Contract Law along with Australian and international laws that govern internet transactions.
Just because a transaction is initiated electronically does not mean that the agreement between parties is not enforceable.

The Law can often be grey in the context of electronic transactions. From the enforceability of digital signatures, the use of third party providers with their own contractual terms and conditions, the ambiguity as to when and where an electronic contract arise and the complexity of cross-jurisdiction dealings, these transaction if not well though-out and implemented within a poorly design platform can result in serious tax and legal ramifications.

It is therefore important for businesses to involve their tax and legal advisors when designing online e-commerce strategies and contractual frameworks. Tax advisors will specifically work with you to ensure the contractual arrangement clearly defines the timing and place of the transactions and identify the parties entering into the agreement. When it comes to e-commerce contracts, it is as easy to get wrong as it is to get it right. Let William Buck help you make it right!

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