Online Trading Or Are You Running A Business?
Whether you are selling and/or buying goods online with websites such as TradeMe or eBay, you ought to know if you should be paying tax or not. You may think you don’t really have to, or someone you know probably never paid tax either, but that would be a big mistake, especially if you use it only for selling goods or services online, and on a regular basis!
Just recently, in a bid to uncover the “hidden economy”, IRD decided to probe into TradeMe’s registered users (who had traded more than $20,000 through the site) and identified unpaid taxes netting to $3 million.
TradeMe.co.nz is one of the top trading websites that started way back in 1999, proving that the IRD can always investigate even years later. And it gets worse, if caught, IRD will not only demand the tax you owe them, but will possibly include a severe penalty.
But there’s nothing really to be nervous about. If you are trading online and you answer “Yes” to any or all of the following questions, it’s likely you’ll need to contact IRD and declare income earned:
➾ Did you intend to make a profit from the sale?
➾ Did you regularly sell goods or services online?
➾ Did you provide services in return for cash/cashless payment?
➾ Did you sell online as part of an already established business?
➾ Did you buy goods with the intention of reselling them every time?
Important Note: There is no minimum income level to be in business.
If you answered “No” to all, then there’s nothing to be concerned about. But if you answered “Yes”, then the same rules that apply offline, with the IRD and the Government, will also apply here - like a regular business. The yardstick that IRD uses to decide whether someone is trading online as a business or not - is frequency.
To be more specific, the verbatim rules laid down by IRD for you to declare sales are:
➾ if you acquired the goods with the purpose of on-selling.
➾ if the purpose of the activity is to make a profit.
➾ if your business involves dealing in these goods.
So if you have been trading online and have tax obligations, it is best to contact the IRD as soon as possible. Or, if you are using TradeMe often and not sure if you are doing business, then check out their Trust & Safety section.
Here are some day-to-day incidents to help you understand if taxes apply or not. Try to answer them and check your results at the bottom of this page.
- John, a college professor, recently bought a new car and happily sold off his old one online at almost half the price he bought it for, due to lack of parking space in his garage. Does he have tax obligation? Why?
- Carol regularly buys travel products and other accessories and sells them online. She makes 9% profit on her goods and has been doing this for almost a year now.
- Computer peripherals from China can be bought cheaper than in NZ, therefore, Amit imports a few every now and then and sells them. He does this once every month and never pays tax.
- No. He did not buy the car for the purpose of reselling it and did not intend to make any profit. Plus, he does not run or is not involved in car business.
- Yes. There is possible tax obligation on any profit made. And in this case, her intention was to make a profit.
- He may not know his tax obligations, but that does not mean he don’t have to pay tax. It is highly recommended that he talk to an accountant or a tax adviser.
Still unsure? We as tax agents are definitely prepared to help you out with your predicament. Apply with us or contact us and we can advise you on whether you are safe or not, after which, we can help you file for your tax returns.