Online trading – a hobby or business

Online trading – a hobby or business

Selling goods occasionally via online sites like TradeMe or e-Bay is an okay and simple way to make a few dollars. In fact, with over 4 million TradeMe member accounts it’s likely you are very familiar with the process of online buying and selling.

If, however, you make money regularly selling items or services online you need to consider that you are probably in business and there are tax obligations which need to be taken seriously.

There is no minimum income to be considered when assessing “business” trading; the deciding factors are purpose, frequency or regularity of your trading.

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?

If you are already in business and online trading is part of your normal business operation, IRD does not need to be told 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, Inland Revenue needs to be advised when you start trading.

We at Capital Accounting understand the rules and your situation if we are kept in the loop.
Call us and we can advise and act for you with IRD for best outcome, if it is in fact deemed you are trading beyond just a “hobby”.