Regular traders need to be wary of tax, GST obligations

OPINION: Inland Revenue is looking into possible income tax and GST liabilities of people who actively trade on Trade Me and similar sites as part of a profit-making undertaking or scheme, writes Murray McClennan in this week's Taxing Times.

With increased internet trading people need to be aware of their possible tax obligations in respect of sales on internet sites.

If you buy goods for the purpose of reselling those goods, the profit is subject to income tax.

Similarly, if you buy and sell on the internet as part of your business, the profits are taxable.

There is a liability to account for GST if you make supplies of more than $60,000 pursuant to a taxable activity in a 12-month period ( note the threshold for compulsory registration for GST until recently was $40,000). A taxable activity is any activity carried on continuously or regularly that involves the supply of goods and services to any other person for a consideration.

Inland Revenue has access to trading records from New Zealand internet sites. It is a relatively easy process to trace sales and determine whether there is taxable income or a liability for GST.

There are penalties for not meeting one's tax obligations. The civil penalties include shortfall penalties and interest.

Shortfall penalties can range from 20 per cent to 150 per cent of the tax shortfall. These penalties can be reduced significantly for voluntary disclosure if the shortfall is only temporary, and for past good behaviour.

The current interest rate charged by IRD is 8.71 per cent. Before March 2009 it was 14.24 per cent.

If you regularly buy and sell online, you could be creating an income tax liability and possibly also a GST liability. If you have concerns, contact your business adviser or IRD. If it is clear that there is a tax liability it would be prudent to make a voluntary disclosure to avoid shortfall penalties.wMurray McClennan is tax director at WHK, chartered accountants and business advisers.

» Queenstown-based Murray McClennan is a tax director at WHK Cook Adam Ward Wilson.

- © Fairfax NZ News

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