Do you sell goods or services online?
In most cases when you’re selling goods or services over the internet,
you have the same tax obligations as any other business.
Trading online is no different from doing business from a shop, or from
your home. Any income you earn from a business (and this includes online
auction or sales sites such as TradeMe or Ebay, or online market places such as
Felt or Etsy) needs to be included in an income tax return.
of course, not everyone who sells something online is considered to be
conducting an online business.
If, for example, you have a second hand fridge
to sell because you’ve bought a new one, or some clothes to sell because you no
longer want them, then of course the money received from online sales such as this
isn’t considered to be business income.
tax office lists some questions you can ask yourself when you trade online in
order to determine if you are conducting an online business. If you answer “yes”
to some or all of these questions then it’s likely that you will need to
declare the income earned:
you buy goods with the intention of reselling them? (It doesn’t matter if the goods were
purchases new or second hand what matters is whether the intent was to resell
you intend to make a profit from the sale?
(Are you selling something at a higher
prices than you paid for it or that it cost you to make? You may not have had
enough sales yet to cover your overheads but you are still selling with an
intent to make a profit.)
you providing services in return for payment?
(The payment doesn’t have to be cash,
any type of return that you have received for your services is considered to be
a payment for those services.)
you regularly sell goods or services online?
(This lets of those shown in the
examples given above but captures those who, for example, sell handmade goods
online and consider that they are conducting a hobby rather than a business)
you sell online as part of an already established business?
(This obviously speaks for itself and
covers business, such as brick and mortar shops who also sell online).
one thing the tax office does state, in addition to posing these questions, is
that “There is no minimum income level to be in business”. This is an important
point to note if you are debating as to whether you are conducting a hobby or a
Another important point to note is the following statement that the Inland Revenue
Department has made in relation to conducting an online business:
routinely monitor online transactions”
if you conducting an online trading business than make sure that you report it
accordingly as you don’t want to be caught understating your income.
handmade revolution growing all the time more and more people are making
products to sell. With the wealth of talent out there handmade products are growing
in popularity, anything from jewellery to art, cards to clothes, and candles to
candies. While many people make their products just for themselves or as gifts
for their friends and families, a growing number of hand makers are now selling
their products. With the growth of such online market places as Etsy and Felt
and the increasing number of physical designer and hand craft markets the
opportunity to sell is increasing.
once someone starts selling their products on a regular basis, be it online, at
a market, or even via a shop or gallery, they are no longer enjoying a hobby,
they are conducting a business and this needs to be properly accounted for.
who makes and sells jewellery under the name of Shazzabeth Creations this is
something I have had to deal with. Fortunately of course I have the advantage
of also being an accountant and so this hasn’t been a problem for me.
accounting for a handmade business it is easy to overlook some of the costs
that can be claimed against sales. While some may be obvious, others may be
less so. There are two categories of costs, direct and indirect.
obvious direct costs are material costs, the raw materials that you actually
use to make your products. For most people selling hand made products this may
well be the only specific direct cost that there is. However, you need to
ensure that you are accounting for the whole material cost, and that not only
includes the actual cost of the material but could also include:
Costs to get the material to you
Duty potentially charged by customs if the materials have come from overseas
Rate charges imposed by a financial institution (again for overseas purchases)
these add together to create the TOTAL material cost.
order contains several different items then the easiest way to handle this is
to pro-rata the additional costs (freight etc.) against the items in your order
in order to then give you a total cost for each individual item.
potential direct cost that hand makers could have is salaries. This would be if
the business has grown enough that you are now paying one or more people to
help you make your products.
Some of the
indirect costs could be fairly obvious. There are some which more directly
relate to the handmade business as a whole and it would generally be easy to recognise
these. These would include:
Fees (online market sites)
Design and Hosting Fees
(when posting products to customers)
equipment (More about these later)
of an Eftpos machine
(More about these later)
however some other costs that may more easily be overlooked and which can quite
legitimately be applied against the handmade business. These include (but are
not necessarily limited to):
for driving to markets, the post office or retail outlets
Parking (relating to any of the above)
Costs (If you are selling online you can claim a percentage of your internet
costs as being business related)
costs (again if you are selling online a percentage can be claimed)
Office / Studio costs (see earlier post on Home Office Costs)
design related fees (logo, website, business cards etc.)
to industry related magazines (i.e. Metal Clay Magazine, Quilting Magazine
tutorials purchased (either individually or in books and/or dvds)
- Accountants Fees
Tools and Display Equipment/Materials
area that you have to be careful with is the cost of tools and display
materials. Whether these are tables or display racks for market stalls, or
sewing machines, pliers etc. used for making your products, if the useful life
for these items is expected to be more than one year then the items have to be
capitalised and depreciated. You can’t claim back the total cost of these items
in the year of purchase.
the easiest way to ensure that you are accounting for your handmade business
properly is to employ an accountant, specifically if possible an accountant who
understands handmade businesses.
If you are working from home and have a
dedicated work space, such as an office, studio etc. then you are entitled to
claim tax relief against a percentage of
certain of your household costs. There are
just two principle conditions:
area must be used principally for business use
must keep a full record of all the expenses you want to claim
So what percentage are
you entitled to claim?
In order to work out the percentage you are
entitled to claim you need to calculate the floor space (in square metres) of
the dedicated work space you have as a percentage of the floor space for the
house as a whole.
example, if your dedicated work space is 8.6 square metres and the whole of
your house is 151.6 square metres, then your dedicated work space accounts for
6% of your total house.
(If you need help converting room measurements
to square metres then here is a great tool -
The percentage of your work space against the
whole house is then the percentage of the household costs that you are entitled
So exactly which
household costs can you claim a percentage of?
The sort of costs that the tax office states
you can claim a percentage of, based on floor area, are as follows:
Interest (if you own the property)
(if you are renting the property)
So using the
above example, you would be entitled to claim 6% of these costs.
Unlike the above mentioned costs telephone
costs are not based on a percentage of floor area. If your home is the
management centre for your business then you are entitled to claim 50% of the
fixed line rental costs of your phone. You are then also entitled to claim all
the toll calls that are business related.
Of course, if you have two phone lines, one for
business and one for personal then you can claim 100% of the costs for the
business line but none of the costs for the personal line.
For both of the above types of costs, if you
are NOT registered for GST then you can claim your percentages based on the
GROSS costs. However, if you are registered for GST then your percentage claim
needs to be against the net costs. You can then claim back the relevant
percentage of the GST cost through your GST Return.
Employees Working From
While the tax office specifically mentions
small business owners working from home in relation to claiming home based
costs, if you are an employee working from home you may also be entitled to claim
home based costs as long as you are not receiving
any sort of reimbursement or allowance from your employer in relation to these