Any amount you derive from a business is income, and can attract tax. The ITA provides that ‘business’ includes any profession, trade, or undertaking carried on for profit. If you intend to make a profit, the presumption is that you are operating a business.
There is no minimum threshold for income tax. Even small, part-time, hobby or after-school businesses must pay tax on income earned. If annual turnover exceeds $60,000 you will also be required to register and account for GST.
If you sell something because you no longer want or need it, you will not typically have an obligation to pay income tax. This is because your primary motivation was not to make a profit, so you are not operating a business for the purposes of the ITA.
The FTA applies to online selling only when a seller is ‘in trade’. The definition of ‘trade’ is wider than the definition of ‘business’ under the ITA. ‘Trade’ includes “any trade, business, industry, profession, occupation, activity of commerce, or undertaking relating to the supply or acquisition of goods or services or to the disposition or acquisition of any interest in land.” With such a wide definition, it may not always be easy to determine whether or not you are ‘in trade’. If in doubt, it is important to seek legal advice.
Those ‘in trade’ have wide obligations under the FTA, which details that you must:
The CGA applies to goods and services you sell while ‘in trade’. The CGA implies a warranty that the goods sold match their description, are fit for their purpose, are of acceptable quality and will last for a reasonable time having regard to the price. If you breach one of these implied warranties, you may be required to repair or replace the product within a reasonable time, or provide a full refund.
Many people fall into the trap of thinking these rules won’t apply, because their business is small, part time or just a hobby. If you have any doubts about whether you are in trade or running a business, or if you are unsure of your obligations, give us a call and we will talk it through with you.