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Media release
July 7, 2010
Internet sales could attract tax man
By Gail Thomson, Staples Rodway Tauranga Limited
People using sites such as TradeMe to run a business could find themselves on the wrong side of the tax man if they are buying items with the intention of on-selling them.
The use of internet websites for buying and selling has increased significantly over recent years. And while some still choose to hold garage sales to get rid of their extra household items, many now prefer to use sites such as TradeMe instead. Others use these sites to run a business.
Recently the Inland Revenue Department has expressed an interest in people trading over the internet as they feel that some people are not meeting their tax obligations. If you are only trading occasionally and selling household or personal items you need not worry.
However, if you have established a regular pattern of selling on the internet it may be a different story, especially if you are buying the items with the intention of on-selling them.
With the internet now a widely accepted part of our society, there are an increasing number of businesses operating using this forum.
If you operate a business via the internet you are still required to keep business records and meet your tax obligations just like any other business, including filing annual tax returns and completing GST and Employer returns.
The word business for tax purposes has a broad meaning and includes any profession, trade or undertaking carried on for profit. The test involves two aspects, firstly the nature of the activities and secondly the intention.
The problem arises if you trade on the internet in an organised and coherent manner with the intention to make a profit, because you may be considered to be in business. If you intend to trade on the internet to raise a bit of spare cash you are probably not in business, but if you go about the trading in a business-like manner with the intention of making a profit, the tax man will expect his share.
Take Sara, who bought a bike to achieve her New Years resolution of getting fit, but in March realised that this was never going to happen and the bike was just taking up room in the garage, so re-sold it. A sale like this of Sara’s own belongings would not be taxable.
However, after realising how easy it can be to trade over the internet, Sara decides that there is money to be made and starts to look for cheap items on the internet to buy and then on sell at a profit. Depending on the level of activity and the effort involved this would generally be considered to be trading as a business.
Consequently, Sara would need to declare the income in her tax return, and she is also able to claim expenditure incurred in deriving this income to arrive at her profit. If the trading exceeds the $60,000 threshold then she would also need to register and account for GST.
Inland Revenue has even gone so far as to public a guide to tax consequences of trading over the internet because of special rules in relation to the GST treatment of internet transactions with non residents.
There’s a fine line between what would be an acceptable level of personal trading over the internet, and what would be considered to be a business. What we can expect to see is the Inland Revenue Department more actively pursuing people that they consider to be internet traders in the future to make sure that they are meeting their tax obligations.
If you are uncertain about your level of internet trading please talk to your Staples Rodway advisor.
For further information please contact:
Gail Thomson Melanie McKay
Staples Rodway Tauranga Limited Star Public Relations
(07) 578 2989 (09) 912 7827
021 0200 8550