Online trading: A hobby or your business?
If you regularly sell goods online, including on auction sites like Trade Me, you are “in trade”.
This means you have the same tax obligations as any other business — income tax and possibly GST. And you must also follow consumer laws, eg the Consumer Guarantees Act and product safety rules.
Frequency is key
If you're occasionally selling your stuff on sites like Trade Me and eBay, you're OK. There are no tax implications for private one-off sales.
If, however, you make money from regularly selling things online, you’re probably in business and your tax obligations are exactly the same as if you were selling goods in a shop.
Any money you make on these sales is treated like any other business income, and you’ll need to make sure that you’re paying proper business tax to stay out of trouble.
You’ll also need to register for GST if you have online sales of more than $60,000 a year.
There is no minimum income to be considered ‘in business’.
The deciding factor is the frequency or regularity of your trading.
Am I in business?
As a general guide, you are regarded as being in business and should be declaring sales from online trading if any or all of these apply:
- You acquired the goods with the purpose of on-selling.
- The purpose of selling is to make a profit.
- Your business involves dealing in these goods.
Questions to ask yourself
Still wondering if your online trading is a hobby or a business? If you answer “yes” to some or all of these questions, you probably need to declare your income.
- Did you buy goods with the intention of reselling them?
- Did you intend to make a profit from the sale?
- Are you providing services in return for payment? This means payment doesn’t have to be cash.
- Do you regularly sell goods or services online?
- Do you sell online as part of an already established business?
Becoming a sole trader (external link)
When to tell Inland Revenue
If you are already in business and online trading is part of your normal business operation, you don’t need to tell Inland Revenue when you start trading electronically. These sales should be accounted for as a part of your regular tax and GST reporting.
If you are starting a new business, you need to contact Inland Revenue to let them know when you start trading. They can help you stay compliant by sending you the right forms and information at the right time.
Introduction to taxes and levies (external link)
Consumer laws also apply if you’re considered to be in trade.
“In trade” means regularly selling goods or services, or regularly buying to sell on. You might be GST registered and/or have staff. Or you might not. Frequency is a deciding factor.
Understanding consumer laws (external link)
If you haven’t been paying tax
If you’ve been trading regularly online for some time and think you’ve overlooked your tax obligations, talk to a tax advisor or contact Inland Revenue immediately. You can make a voluntary disclosure to help put your tax returns right.
Putting your tax returns right (external link) — Inland Revenue
If you’re still not sure if your online trading activity is a business, check out the tax implications factsheet or contact Inland Revenue to discuss your situation.
Online trading tax implications (external link) — Inland Revenue factsheet