Proposed law changes will force Trade Me users to disclose whether they are professional traders, making it harder for them to avoid paying tax on their profits.
The move could see thousands of the website's 2.8 million members lumped into the "professional" category until a clear definition is established of what an online trader is.
Parliament's commerce select committee published its report on the Consumer Law Reform Bill yesterday, recommending a raft of changes to the Consumer Guarantees Act and the Fair Trading Act.
They include extending the Consumer Guarantees Act to cover all transactions between traders and consumers. That would include all types of auctions - online ones as well as competitive tenders.
Trade Me backs the changes, but is wary that the legislation does not clearly define the point at which someone meets the “trader” threshold.
"So some guidance, hopefully from Government, will be needed," head of operations Michael O'Donnell said.
Trade Me has a chart on its website - created by Deloitte - that says if you are using the site to sell goods bought with the intention of onselling then your profits are subject to income tax. If your sales are or are expected to be more than $60,000 a year it is also necessary to register and account for GST.
But Consumer Affairs Ministry analyst Evelyn Cole has been quoted as saying sellers could be deemed to be "in trade" if they either buy or sell such goods on six or more days a year, regardless of value.
Mr O'Donnell said the latter definition could include a large number of the site's members, but did not want to comment on the implications until there was some clarity around the trader threshold.
"Our understanding is that's not the definition."
He felt the proposed changes would encourage people to the site rather than deter then, because consumers would be better protected online than offline.
Another key change would make senders responsible for goods, up to the point of delivery.
Consumer Affairs Minister Simon Bridges welcomed the report, saying New Zealand's 25-year-old consumer laws needed to be brought up to speed with modern technology.
If the bill passes three further debates in Parliament, it should become law early next year.
Joy Clark has made close to 3700 trades on Trade Me with 2431 individual members, and is described by almost all of them as a "pleasure to trade with".
Mrs Clark, of Whanganui, is in favour of extending the Consumer Guarantees Act to cover online auctions.
"It's going to upset certain sellers, but I would be asking what have they got to hide."
That said, Mrs Clark believed Trade Me's current system of user feedback was just as good a measure of a member's integrity.
"‘If they value their feedback, they value their integrity, and they will see someone right.
"I don't care what the law says, I would go above and beyond to make sure people were happy anyway – and a lot of sellers are like that."
A change has been made to this story to correct previous misleading tax information.
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