A consignment agreement is a contract where you (the consignor) hand your goods to another business (the consignee) to sell on your behalf, while you keep ownership until the goods sell to a customer. The consignee takes a commission or fee from each sale, and anything that doesn’t sell comes back to you.
Here’s the catch most people miss. You’re handing over your stock but you might not see a cent until it sells, and if the business holding your goods goes under, you can lose the lot to their creditors. Even though you still “own” it on paper. A good consignment agreement, plus one registration step, is what stops that happening.
- You keep ownership until the sale. Title stays with you, the consignor, until a customer buys the goods, not when you drop them off.
- There are two structures, and they’re taxed differently. A “sale or return” deal and an “agency sale” handle GST in opposite ways, so the structure you pick changes who pays what.
- Register on the PPSR before you deliver. Most commercial consignments count as a security interest. Skip the registration and you can lose your stock if the consignee becomes insolvent.
- The Australian Consumer Law still applies. Customers who buy your consigned goods get the same guarantees as any other sale, so your agreement needs to say who handles refunds.
- A written agreement is your cheapest protection. It sets out commission, payment timing, risk and what happens to unsold stock before a dispute ever starts.
What is a consignment agreement?
A consignment agreement sets up an arrangement between two parties. The consignor owns the goods. The consignee holds them, displays them, and sells them to customers in exchange for a commission. You’ll see different labels depending on the trade: artist and gallery, supplier and retailer, designer and boutique. The legal structure underneath is the same.
The whole point is that title doesn’t pass to the consignee. They hold your goods as a seller acting on your behalf, not as a buyer who owns them. That’s what lets you ask for unsold stock back, and it’s why consignment suits high-value or hard-to-price items like artwork, designer fashion, jewellery, second-hand cars, and handmade goods.
One thing to flag early, because it trips up almost everyone: keeping ownership in the contract is not the same as keeping your goods safe if the consignee goes broke. Those are two different problems, and we’ll get to the second one below.
Who actually uses consignment?
Consignment works best when you want shelf space or a sales channel without forcing the other side to buy your stock upfront. A maker wanting to test a new city. A second-hand dealer selling cars or cameras for private owners. A boutique that wants a wider range without tying up cash. If you’d rather not deal with customers directly, a consignee does that part for you.
How does a consignment agreement work, step by step?
Most consignment arrangements follow the same four steps. Get the paperwork right at each one and you avoid the usual fights over what was delivered and what’s owed.
- You deliver the goods. You hand stock to the consignee to hold and sell. Attach an inventory schedule listing each item, its condition, and the agreed price. This single document settles most disputes before they start.
- The consignee sells to customers. They sell through their store, website, or marketplace. Your agreement should say who sets the price, whether discounting is allowed, and how your brand can be used.
- The consignee accounts to you. After a sale, the consignee reports it and pays you the proceeds minus their commission. Spell out how often they report and when they pay, because vague payment timing is where consignors get burned.
- Unsold stock comes back. At the end of the term, or whenever you ask, unsold goods return to you. Decide upfront who pays return freight and what happens to damaged items.
Here’s a quick worked example. Say you make ceramics and place 40 mugs with a homewares store on consignment. The store displays and sells them, takes an agreed commission on each sale, and pays you the balance every month. Whatever hasn’t sold after three months comes back to you. You owned every mug the whole time, right up until each customer paid for theirs.
Sale or return vs agency sale: which structure are you using?
This is the part competitors gloss over, and it matters more than any other clause because it decides your tax. There are two ways to run a consignment, and the difference is whether the consignee ever buys the goods.
Sale or return
Under a sale or return arrangement, the consignee only buys the goods from you once they’ve lined up a customer. They buy at an agreed price, then resell, and they keep the difference. If they never find a buyer, they’re not forced to buy, and the stock comes back to you. The consignee is effectively a reseller who pays you only when they’ve sold.
Agency sale
An agency sale is different. The consignee never buys your goods. They sell as your agent for the sale of goods and take a commission, often somewhere between 20% and 40%, though it varies widely by product and channel. Because an agent can create a binding sale on your behalf, your agreement needs to set the limits of their authority, especially who controls the final price. Want to understand the wider relationship first? Our guide to agency agreements covers how an agent’s authority and duties work.
So which should you use? If you want to keep control of the retail price and treat the consignee as a shopfront, an agency sale fits. If you’re happy to set a wholesale-style floor price and let the consignee mark it up, sale or return is simpler. Most makers and artists default to an agency sale because price control matters to them.
| Feature | Sale or return | Agency sale |
|---|---|---|
| Does the consignee buy your goods? | Yes, but only once they find a buyer | No, they sell as your agent |
| Who controls the retail price? | Usually the consignee | You can keep control |
| How the consignee earns | Margin between your price and the resale price | Commission on each sale |
| Who pays GST on the sale? | The consignee (on the full price) | You, if you’re GST-registered |
| GST on commission | Not applicable | The consignee pays GST on their commission |
How does GST work on consignment sales?
GST on consignment sales depends entirely on which structure you picked above. The ATO sets out the treatment clearly, and getting it wrong is a common way for small sellers to over-pay or under-report.
For an agency sale, the consignee is not liable for GST on the sale itself. They only pay GST on the commission they earn. If you, the owner, are registered for GST, you account for GST on the full sale price. If you’re not registered, you don’t charge GST on the sale, but the consignee still pays GST on their commission.
For a sale or return deal, the consignee buys then resells, so they account for GST on the full sale price like any other reseller. They can usually claim a GST credit for the GST in the price they paid you. And if you’re a private seller who isn’t registered for GST, a special second-hand goods credit may be available to the consignee, which is why so many cars, cameras and dresses move this way.
Put numbers on it. A gallery sells your painting for $1,100 as your agent and takes a 30% commission. You’re GST-registered, so you account for $100 GST on the $1,100 sale. The gallery’s commission is $330, and they pay $30 GST on that. You can claim that $30 back as a credit. Same painting, same price, but flip it to sale or return and the gallery accounts for the $100 GST instead, because they bought and resold it.
Are consignment sales taxable? Yes, GST applies to the retail sale in the normal way if the seller is registered. The only question is who reports it, and that’s set by your structure. Tax outcomes get fiddly fast, so confirm your position with your accountant before you start, especially as volumes grow.
The biggest consignment mistake: not registering on the PPSR
This is the gap that costs consignors real money, and it’s missing from most consignment articles. Owning your goods in the contract does not protect them if the consignee goes into liquidation. The protection comes from a register.
Under the Personal Property Securities Act 2009 (Cth), the interest of a consignor under a “commercial consignment” is treated as a security interest, whether or not the deal actually secures any payment. To make that interest count against third parties, you “perfect” it by registering on the Personal Property Securities Register (PPSR). The safest move is to register before you deliver a single item.
Skip it and the consequences are brutal. If the consignee becomes insolvent and you haven’t registered, your unperfected interest can vest in the consignee, meaning your stock is swept into their assets and sold to pay their creditors. You can be left watching your own goods pay someone else’s debts. The WA Supreme Court worked through exactly these issues in the well-known Re Arcabi case, where a dealer held rare coins and notes on consignment and a receiver had to untangle who owned what.
Not every consignment is a “commercial consignment” under the Act, and the definition has carve-outs. But the cost of registering is small and the cost of getting it wrong is your entire stock, so most consignors register and move on. Build PPSR registration into your onboarding checklist, right next to signing the agreement.
Who handles refunds and faulty goods?
When a customer buys your consigned goods, the Australian Consumer Law applies just like any other retail sale. Consumer guarantees on quality, description and fitness for purpose can’t be contracted away, no matter what your agreement says. So someone has to wear refunds and faulty-goods claims, and your agreement should name who.
There’s a 2026 wrinkle worth knowing. Since 9 November 2023, the unfair contract terms rules carry real penalties, not just the old “the term is void” outcome. If your consignment agreement is a standard, take-it-or-leave-it document handed to a small business, one-sided terms can now expose you to fines. A balanced, properly drafted agreement is now part of staying on the right side of the regulator, not just good manners.
What should a consignment agreement include?
Your agreement earns its keep by settling the boring questions before they turn into arguments. At a minimum, cover these:
- The goods. An inventory schedule with descriptions, quantities, condition and agreed prices. Photos help.
- Title and risk. Confirm you keep title until sale. Then decide separately who carries the risk of loss, theft or damage while the goods sit with the consignee, because title and risk don’t have to travel together.
- Pricing and discounts. Who sets the retail price, and can the consignee run sales without your sign-off?
- Commission, fees and payment timing. The percentage or flat fee, any extra costs, and exactly when you get paid after a sale.
- Reporting and audit rights. How often the consignee reports sales, and your right to check the numbers.
- Insurance. Who insures the goods on the premises and in transit, and at what level.
- Returns and unsold stock. The term length, who pays return freight, and what happens to stock that doesn’t sell.
- PPSR and termination. Your right to register a security interest, and clean rules for ending the deal and getting your goods back.
You don’t have to draft all of this from scratch. Lawpath’s consignment agreement template covers these clauses and lets you tailor them in minutes rather than days. If the consignee sells your goods online, pair it with website terms and conditions for a consignment store so the customer-facing side is covered too.
Consignment vs selling outright: which is better?
Consignment isn’t always the right call. If predictable cash flow matters more to you than control, selling outright can beat it. With a straight sale, the buyer pays upfront and the stock is their problem. You get paid now, you carry no insolvency risk on that stock, and you skip the PPSR step. The trade-off is you usually accept a lower wholesale price and lose say over how your goods are presented and priced.
Consignment wins when your goods are higher-value, slow-moving, or you’re testing a new channel and don’t want a retailer to gamble cash on stock that might not move. If you’d rather just sell the lot upfront, a sale of goods agreement is the cleaner tool. Plenty of businesses run both: wholesale for proven lines, consignment for the rest.
Frequently asked questions
What is a consignment agreement in simple terms?
It’s a contract where you let another business sell your goods for you while you keep ownership until they sell. The seller takes a commission or margin, and unsold goods come back to you. It’s common in fashion, art, second-hand cars and handmade goods.
Who owns the goods in a consignment arrangement?
You do. The consignor keeps title to the goods until a customer buys them. The consignee only holds and sells them on your behalf. That’s why you can ask for unsold stock back at any time, subject to the terms you agreed.
Do I pay GST on consignment sales?
It depends on the structure. In an agency sale, the owner accounts for GST on the sale if they’re registered, and the consignee pays GST only on their commission. In a sale or return deal, the consignee accounts for GST on the full sale price. Check your position with your accountant.
Are consignment sales taxable?
Yes. The retail sale to the customer attracts GST in the normal way if the seller is registered, and the income is assessable. The structure only changes who reports the GST, not whether the sale is taxable.
What’s the difference between sale or return and an agency sale?
In a sale or return deal, the consignee buys your goods once they find a buyer, then resells at a margin. In an agency sale, they never buy the goods. They sell as your agent for a commission. The split matters most for who controls price and who reports GST.
Do I need to register a consignment on the PPSR?
In most commercial consignments, yes. The PPSA treats the consignor’s interest as a security interest, so registering on the PPSR protects your priority if the consignee becomes insolvent. Register before you deliver the goods. The cost is small and the downside of skipping it is losing your stock.
What happens to my stock if the consignee goes broke?
If you’ve registered your interest on the PPSR, you can claim priority over your goods and their proceeds. If you haven’t, your unperfected interest can vest in the consignee, and your stock may be sold to pay their creditors, even though you owned it. Registration is the difference.
Can a consignment agreement be verbal?
It can be, but don’t. A verbal deal is hard to prove and useless for PPSR registration, which needs a written security agreement. Put it in writing so the goods, commission, payment timing and return rights are clear from day one.
If you’ve read this far and realised your current arrangement is a handshake and a hope, you’re in good company. Most consignors set this up properly only after a near miss. You’re not behind, and the fix is quick: a written agreement and a PPSR registration, both of which you can sort today.
Protect your goods before they leave your hands. Create your consignment agreement with Lawpath and have it ready in minutes.
