Caveat venditor

You can find nearly anything you could want on Trade Me. Most people probably don't give a thought to tax issues when it comes to trading on the internet. Actually, there are no special tax rules to deal with e-commerce, so normal tax rules apply.

Most trading on Trade Me is in "personal property" - generally, anything but land (You can sell real estate on Trade Me, too, but there are special rules that apply to land transactions. I will deal with those in later columns).

When it comes to buying and selling personal property, the language of the Income Tax Act is relatively clear: "An amount that a person derives from disposing of personal property is income of the person if they acquired the property for the purpose of disposing of it." In other words, if you buy something with the purpose of selling it to make a buck, any profit is going to be taxable. In contrast, if you buy something for personal use or as a collectible and you later sell it, there shouldn't be any tax consequences.

Woody visits Trade Me regularly. He finds a listing for 300 dozen scented candles and successfully wins the auction with a bid of $500. He intends to divide them into smaller parcels and re- list them for sale. Woody sells all of the candles for a total of $1500, making a profit of $1000. Woody's profit is taxable because he bought the candles with the intention of selling them.

Jessie wants to upgrade her lounge suite, and lists her old one on Trade Me. She does not have to pay tax on the sale proceeds because she originally acquired the lounge suite for personal use.

Another specific tax provision dealing with personal property covers people who are in business. "An amount that a person derives from disposing of personal property is income of the person if their business is to deal in property of that kind."

Whether or not a person is "in business" depends on a range of factors, including the nature of the activity, the period it carries on for, the scale and volume of transactions, the commitment of time, money and effort, and the financial results.

Many existing businesses use Trade Me as an alternative marketing tool. Clearly, any Trade Me sales are part of their business income. However, some individuals may be so prolific in their Trade Me dealings that their activities actually constitute a "business".

GST is another matter. Compulsory registration will apply if a person "continuously or regularly" carries on the supply of goods and services, whether or not for a profit, and the total amount sold exceeds $60,000 in any 12-month period.

Trade Me is a fun place to shop for bargains. But sellers beware: any regular trading may cause a tax problem. And in terms of evidence, the electronic history of transactions leaves an easy trail for Inland Revenue to follow.

* Geordie Hooft is a Christchurch-based Partner of Grant Thornton New Zealand. Opinions expressed in this column are general in nature and are not intended as a recommendation or guidance to any individuals in relation to structuring their tax or finances. Readers should not rely on these opinions and should always seek independent professional advice specific to an individual's circumstances.

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