Taxman says 'cash jobs' and internet traders on hit-list

[Conquiztador]

So internet traders are the next place IRD is going to collect revenue.

Wonder who is considered a "Internet Trader"? Where is the line drawn?

I already know of Trade Me traders who has more then one account so they don't seem to sell too much. In one case 4 accounts.

But surely the IRD need to then be able to get the details of the trader. And if we do not provide the real info when we sign up, then what?

A little bit of a mystery this.

http://msn.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=10577716

[Slicksta]

So internet traders are the next place IRD is going to collect revenue.

Wonder who is considered a "Internet Trader"? Where is the line drawn?

I already know of Trade Me traders who has more then one account so they don't seem to sell too much. In one case 4 accounts.

But surely the IRD need to then be able to get the details of the trader. And if we do not provide the real info when we sign up, then what?

A little bit of a mystery this.

http://msn.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=10577716

Tm trading for thoes who make a living off it is impossible to police good luck to them

[mynameis]

They'll eventually get there mate, it's not too hard in todays environment.

Hey it's only fair init?

You work and earn 30 40 50 60 k you pay your tax ect ect if you're doing it online you should be as well.

[awayatc]

indeed.................

[Conquiztador]

They'll eventually get there mate, it's not too hard in todays environment.

Hey it's only fair init?

You work and earn 30 40 50 60 k you pay your tax ect ect if you're doing it online you should be as well.

I have no problems with that. Just wonder where the line is drawn. Take the selling of vehicles. I have yet to get the same info when I ask how many cars/bikes I can sell a year before I am considered a trader.

[mynameis]

I have no problems with that. Just wonder where the line is drawn. Take the selling of vehicles. I have yet to get the same info when I ask how many cars/bikes I can sell a year before I am considered a trader.

They draw the line nice and clear and encourage people to declare anything and everything and pay up, reality is just a little bit different.

I guess like any country/society taxman will never pin everything/everyone down hence they are taking the sensible approach of "encouraging" people.

As for competant IRD staff :lol:

[NDORFN]

Trademe (Fairfax) should just pay G.S.T on all sales and take it out of the exuberant fees they're already charging us.

[Conquiztador]

Trademe (Fairfax) should just pay G.S.T on all sales and take it out of the exuberant fees they're already charging us.

There is also the income tax. You only pay GST if you are GST registered. Has to do with how much you sell per year. Cant remember how much now.

But if you are not GST registered then there is the income tax. You just sell some bikes on TM. Say you buy a bunch of s/h bikes for $1,000. You then buy bits to fix them for another $1,000. If you ca't prove the cost of purchase and parts, then the taxman will tax you on the full sale. You sell them for $10,000, lets say the income tax is 25%. leaves you with $7,500. But as you did pay for the bikes and parts (even if you can not prove this, the profit for you is $5,500.

BUT if you do it all legally then you first pay GST on the sale of $10,000. Leaves $8,999.99. Now it gets interesting: As you are now a business you can claim costs for all this. Here a short list:
- Initial purchase costs and cost for parts. (if you have reciepts with a GST number on you will get the GST back too!)
- Running office from home: Normally up to 40% of all costs at home: rent/mortgage, power, phone etc.
- Your car costs as you need the van for business use only (you have a hatchback for personal use). This is 100% of petrol, repairs, rego wof etc.
- Your mobile phone.
- Advertising. You have decided that the best way to advertise is by sponsoring your self when you race. Leathers, tyres, paint job, new bike. List goes on.

And so, after the GST has been paid there is nothing left to pay Income tax on.

So the only thing the IRD will get here is the GST. However, if you are under the GST treshold and you do all this, then there is nothing for IRD to tax you on...

But now the IRD will come knocking and spend time and money trying to get us to pay tax on our sales.

What a waste of exercise funded by our tax dollar.

[YellowDog]

If you don't stay under the radar, you will get caught.

And when you do, you will have to pay back what they say you owe and also fined for not decalring it.

[Usarka]

I have no problems with that. Just wonder where the line is drawn. Take the selling of vehicles. I have yet to get the same info when I ask how many cars/bikes I can sell a year before I am considered a trader.

I don't know the legalities of tax law, but I thought it was simple.

All income is subject to taxation.

Buy and put 4,000 on the clock then sell 2 weeks later - no problem. Buy and sell to make a profit - cough up matey.

[Swoop]

You only pay GST if you are GST registered. Has to do with how much you sell per year. Cant remember how much now.
I believe it was $35,000 or over, per year.

[Mully]

So do I need to pay tax on all the drugs I sell, or just the ones I sell on TM?

[Naki Rat]

Used to be that if you were GST registered you could could claim back a GST content on second hand goods purchased irrespective of whether the seller was GST registered and had added GST.

Example to explain: GST registered person buys a trailer from Joe Bloggs (not GST registered) for $900. At present (12.5%) GST level buyer can claim $100 GST back :niceone:

[Naki Rat]

The Secondhand Dealers & Pawnbrokers Act (http://www.justice.govt.nz/secondhand-dealers-pawnbrokers/about-secondhand-dealers.html) is the legislation that IRD will hunt you down on.

Essentially you get to trade $2,000 or "on 6 days" per year before legally having to have a Secondhand Dealers & Pawnbrokers Licence. The licence costs about $350 and requires police checks, etc. It's all about the authorities having checks in place to be able to track stolen goods.

[vifferman]

You're overlooking a few things.
Secondhand goods aren't (usually) subject to GST - it's presumably already been paid when the item was new.
There's nothing new about what the IRD are doing: they've always been taxing income that tax has been avoided on. F'rinstance, they have people who watch the results of criminal cases, and if someone has a significant income from a criminal activity, and hasn't declared it, they could well be taxed for it (if it's worth chasing up).
The deal with selling cars, houses, junk on TardMe, etc. is whether it looks like someone is deriving an income from it, as evidenced by a regular pattern of behaviour. One or two cars a year, or a new house in the same area every 18 months is not deemed to be an occupational income. Selling 100 items a month on TardMe would be, as would changing bikes or cars every couple of months, provided you were making a profit in doing so.
As for the owners of TardME - they're already paying tax on the charges they make (their income from their business). Any employees of TardMe are paying income tax on their salaries.

It's reasonable, innit? Why should someone be making a living selling crap, and not be helping to pay for essential services like healthcare, paying cops to hand out prizes for driving 12km/h too fast, keeping criminals cozy, well-fed and entertained? Some of us have no choice, and our employers and/or banks work on the IRD's behalf for us.

[vifferman]

So do I need to pay tax on all the drugs I sell, or just the ones I sell on TM?
Is it a hobby, or a business? If it's not enough to live off, then the IRD probably don't care, as they'd deem it to be a hobby.

[CookMySock]

Used to be that if you were GST registered you could could claim back a GST content on second hand goods purchased irrespective of whether the seller was GST registered and had added GST. Example to explain: GST registered person buys a trailer from Joe Bloggs (not GST registered) for $900. At present (12.5%) GST level buyer can claim $100 GST back :niceone:Uh, I don't think so. I think if you weren't charged GST then you can't claim it back, but I'm not an accountant. Lawyer, yes, accountant, no. :lol:


Essentially you get to trade $2,000 or "on 6 days" per year before legally having to have a Secondhand Dealers & Pawnbrokers Licence. The licence costs about $350 and requires police checks, etc. It's all about the authorities having checks in place to be able to track stolen goods.Phooey. I buy and sell shit all the time. Boats, bikes, computers. EVERYONE spends more than $2000 a year on junk, so what, they can't sell it now? Perhaps we have to just chuck it in the bin or something?

Fuck the stupid government. They are full of shit. I will do as I choose.

Steve

[vifferman]

Used to be that if you were GST registered you could could claim back a GST content on second hand goods purchased irrespective of whether the seller was GST registered and had added GST.

Example to explain: GST registered person buys a trailer from Joe Bloggs (not GST registered) for $900. At present (12.5%) GST level buyer can claim $100 GST back :niceone:
That's not actually correct.
You can claim back the GST content as evidenced by the GST receipts you've kept. If it's secondhand, there was no GST content and no GST receipt, so nothing to claim. GST is payable once. You can't add the GST paid on any service for the item, like say you bought a car, and have paid GST on repairs and maintenance. They are services you've paid for, not goods. It might be different if say you bought a secondhand truck, and bought a new HIAB hoist for it. You could claim on the GST on that.

If it's a new item, you can claim back the GST on that asset. However, if you end up selling the item for more than its depreciated value in your books, the money you made from the sale (over and above what your books say it's worth) is taxable as income.

[vifferman]

Phooey. I buy and sell shit all the time. Boats, bikes, computers. EVERYONE spends more than $2000 a year on junk, so what, they can't sell it now?
That's not the point. It's about whether what you're doing is obviously a regular, income-deriving activity. Most people buy and sell stuff, but overall, they make bugger all from it, so it's little more'n a hobby.

There's also an issue of costs: ensuring compliance isn't worth while, if trying to keep track of all the profit people make from "buying and selling shit" costs more than the IRD is likely to derive from doing so.

Another issue is intent: there are people who deliberately 'live below the radar', with the deliberate intent to avoid paying tax. Why the fuck should we support such people? Do you think when they need hospitalisation, or call the cops because their valuable shit has been stolen, they say, "Uh... I'm not a taxpayer, so I'll pay in cash for your services, or would you like this near-new 21" Philips K9?"

[FROSTY]

Take the selling of vehicles. I have yet to get the same info when I ask how many cars/bikes I can sell a year before I am considered a trader.
I can answer that one clearly for you. You are legally allowed to sell up to 6 vehicles a year. However the law says you are not allowed to sell ANY vehicles and make a profit out of it unless you are a registered vehicle trader.
That is the law.
Enforcement is a a whole other kettle of fish.
They have to prove you are selling for a profit.

[ManDownUnder]

But surely the IRD need to then be able to get the details of the trader. And if we do not provide the real info when we sign up, then what?

Then you should consider the IRD has greater search and seizure powers than the police...

They WILL get their money

[p.dath]

I have no problems with that. Just wonder where the line is drawn. Take the selling of vehicles. I have yet to get the same info when I ask how many cars/bikes I can sell a year before I am considered a trader.

The test would be weather the IRD considers that you are selling sufficient to be making an "income" from it (and hence be taxable). I know for some other items selling 4 or more items in a 12 month period makes you a trader.
The IRD may also consider you other sources of income, and the ratio these sales make up.

For exmaple, if 50% of your income is from selling bikes, then you would definately be a trader.
I probably wouldn't risk making it more than 5% of your income.

[Naki Rat]

That's not actually correct.
You can claim back the GST content as evidenced by the GST receipts you've kept. If it's secondhand, there was no GST content and no GST receipt, so nothing to claim. GST is payable once. You can't add the GST paid on any service for the item, like say you bought a car, and have paid GST on repairs and maintenance. They are services you've paid for, not goods. It might be different if say you bought a secondhand truck, and bought a new HIAB hoist for it. You could claim on the GST on that.

If it's a new item, you can claim back the GST on that asset. However, if you end up selling the item for more than its depreciated value in your books, the money you made from the sale (over and above what your books say it's worth) is taxable as income.

If you as a GST registered person buy from Joe Bloggs there will be no GST invoice, or possibly paperwork at all. But if the goods are being purchased for your business they will need to have a GST content once they become part of the business's assets. Being able to claim GST from the purchase price despite not being charged by the seller is the method by which this is done.

Check with an accountant. Mine found this situation to be the case a few years back and I would assume it still stands.

[Naki Rat]

Phooey. I buy and sell shit all the time. Boats, bikes, computers. EVERYONE spends more than $2000 a year on junk, so what, they can't sell it now? Perhaps we have to just chuck it in the bin or something?

Fuck the stupid government. They are full of shit. I will do as I choose.

Steve

Check out the link in my post. The system has it stitched up far more than most people realise. Oh, and reselling secondhand goods sourced overseas (e.g. via Ebay) is exempt from this Act I understand.

[FROSTY]

You guys are making things way complicated. I know the tax laws are pretty complicated but the guts of it is pretty simple.
If you sell anything for a profit you pay GST on the sale but claim back the GST on your purchase and any costs asssociated.
In essence you pay gst on the profit you make.
There really is nothing new here.

[RantyDave]

If you as a GST registered person buy from Joe Bloggs there will be no GST invoice, or possibly paperwork at all. But if the goods are being purchased for your business they will need to have a GST content once they become part of the business's assets.
Nnnnno. I think. Being not an accountant and all that but there's no way the GST content of something is an asset.

What does happen is that if a GST registered business buys a supply on which GST was charged then the business can claim that GST back from the government. Likewise when I (being a GST registered business) sell things I have to charge GST and my clients (also being GST registered businesses) claim *that* back. If I buy a supply from a non-gst registered supplier i.e. joe bloggs selling his car then I can't claim the GST back because I don't get a GST receipt off them. Stuffed, I would be.

Arguably an un-claimed GST receipt is an asset since it can be turned into money or, at least, a tax break.

I dunno. The long and short of it is that I get to buy computers, get the GST back, and count it as a business expense i.e. less corporation tax and the numbers work out as being about half price compared to buying them personally.

Dave

[Naki Rat]

Second-hand goods

If you purchase second hand goods from a non GST registered person/business you can still claim GST on the goods at the normal rate of 1/9 - You must keep a record of the following: name, address, date, description of item, quantity and price paid.


Not sure if this info (http://www.ird.govt.nz/images/flash/tfb/content/gst/supplies/index.html) is still current but any accountants out there should be up on it.

[steve_t]

On a slightly different note, they need to make sure the guys harrassing people at traffic lights and washing their windscreens pay tax!! I reckon these dudes can make more in hour than most of us! And it's tax free. Either that or pass a bylaw making it illegal... probably would have stopped that chick getting punched in the head here in Hamiltron!

[CookMySock]

It's all talk on the cereal box anyway. No sane person wants to go out of their way to pay every cent they can to the IRD. :weird:

It's just as much a sport avoiding the IRD as it is the Fuzz.

Steve

[RantyDave]

It's just as much a sport avoiding the IRD as it is the Fuzz.
With the obvious exception that when you evade tax you're actually stealing off the remainder of New Zealand and not merely getting away with the occasional 130k blat.

Dave

[Quasievil]

Good thing Im clean and pay my taxes in full on the due date....so who cares !

[CookMySock]

With the obvious exception that when you evade tax you're actually stealing off the remainder of New Zealand and not merely getting away with the occasional 130k blat. Yes, but you will notice I used the word "avoid", not "evade."

Evading tax is a criminal offence. Avoiding tax is doing non-taxable activities. Evading tax is hiding taxable activities.

Steve

[Bullitt]

My contract wont let me provide comment on tax matters but I would warn anybody from relying on this thread. Theres more incorrect information in it than there is correct.

[The Stranger]

My contract wont let me provide comment on tax matters but I would warn anybody from relying on this thread. Theres more incorrect information in it than there is correct.

Surely you jest. This is KB, everyone's an expert.

[Usarka]

So do I need to pay tax on all the drugs I sell, or just the ones I sell on TM?

Sell me some weed (akl) and I'll give you the GST on top. I'm hanging out and my contacts are left town..! :niceone:

[steve_t]

Yes, but you will notice I used the word "avoid", not "evade."

Evading tax is a criminal offence. Avoiding tax is doing non-taxable activities. Evading tax is hiding taxable activities.

Steve

Tax avoidance is illegal also.... wasn't there already a thread on this recently?
Krusty the clown got done for tax avoision :laugh:
You can use smart structuring for asset protection and any tax advantages that occur are merely incidental :niceone:

[Max Preload]

I believe it was $35,000 or over, per year.

The threshold at which you must be GST registered recently increased from $40k to $60k. But you should always register immediately - it's to your benefit.


Used to be that if you were GST registered you could could claim back a GST content on second hand goods purchased irrespective of whether the seller was GST registered and had added GST.

That is correct, and is still the case. See here (http://www.ird.govt.nz/gst/additional-calcs/calc-spec-supplies/calc-special/special-supplies-r-v.html#second-hand).


Secondhand goods aren't (usually) subject to GST - it's presumably already been paid when the item was new.


Uh, I don't think so. I think if you weren't charged GST then you can't claim it back, but I'm not an accountant. Lawyer, yes, accountant, no. :lol:


That's not actually correct.
You can claim back the GST content as evidenced by the GST receipts you've kept. If it's secondhand, there was no GST content and no GST receipt, so nothing to claim. GST is payable once. You can't add the GST paid on any service for the item, like say you bought a car, and have paid GST on repairs and maintenance. They are services you've paid for, not goods. It might be different if say you bought a secondhand truck, and bought a new HIAB hoist for it. You could claim on the GST on that.

If it's a new item, you can claim back the GST on that asset. However, if you end up selling the item for more than its depreciated value in your books, the money you made from the sale (over and above what your books say it's worth) is taxable as income.


If I buy a supply from a non-gst registered supplier i.e. joe bloggs selling his car then I can't claim the GST back because I don't get a GST receipt off them. Stuffed, I would be.

You're all WRONG! Secondhand goods bought from a non-GST registered person still carry a deemed GST content regardless. A receipt is all you need to be able to use it as a GST credit against your account.


Nnnnno. I think. Being not an accountant and all that but there's no way the GST content of something is an asset.

Actually, it is an asset- it's a credit against the GST you've collected on behalf so you have a smaller balance of GST to pay (your liability) with your next return.


Tax avoidance is illegal also.... wasn't there already a thread on this recently?
Krusty the clown got done for tax avoision :laugh:
You can use smart structuring for asset protection and any tax advantages that occur are merely incidental :niceone:

Tax avoidance is not illegal. Tax avoidance is legally minimising your tax obligation with many legal methods like tax structure. Evasion is attempting to hide income that is taxable - that is illegal.

[RantyDave]

You're all WRONG! Secondhand goods bought from a non-GST registered person still carry a deemed GST content regardless. A receipt is all you need to be able to use it as a GST credit against your account.
Awesome - tax refund goodness, here we come! (thanks Max)

Dave

[Bullitt]

Im not going to say where this applies but have a look at section BG1 of the Income Tax Act


BG 1 Tax avoidance
Avoidance arrangement void
(1) A tax avoidance arrangement is void as against the Commissioner for income tax purposes.

Reconstruction
(2) Under Part G (Avoidance and non-market transactions), the Commissioner may counteract a tax advantage that a person has obtained from or under a tax avoidance arrangement.

[Patch]

But you should always register immediately - it's to your benefit.
bullshit


ironic how the gubbermint thieves expect us to be honest in our business practices and yet they are the worst at flouting the "rules" to suit them fookn black selves - pack of thieving cunts they is

[davereid]

But you should always register immediately - it's to your benefit.

If you are going to have to register for GST as you anticipate a turnover in excess of $60,000 then I agree with you.

Thats because you may as well get to claim all the stuff you buy, and all the fees you shell out getting started.

Often what happens is a small business starts off at home, and they pay for the extra phone line, and the fax, and the broadband and the new computer without being GST registered so don't get to claim for it. But a few months later, everything is going well, and they have to register anyway, so end up paying GST on all sales.

But if your business is small, and you don't have a legal obligation to register, then why would you ?.

GST takes time to administer, and you are in serious trouble if you make an error on a return. It also has to be done every 8 weeks, which is a serious hassle if you want a decent holiday, or some time out of the business, as it still has to be done unless you deregister.

If your business makes a profit, you will also be better off NOT being GST registered, from a purely profit point of view.

For example (using exaggerated margins to make the point):

I buy a cheap widget for $1.12 from my supplier. I sell the widget for $112.

My gross margin is $110.88, if I am not GST registered.

If I an GST registered, I pay $12 in GST, and claim 12c, meaning my gross margin is $99.

[KiwiKat]

It is usually beneficial for a small business trader to register for GST at startup as there is a definite cashflow advantage in claiming back 1/9th of most of your outgoings, particularly as you're not likely to make a profit for a while.

Businesses and backyard traders selling for cash or online have always been a taget for IRD as there is a temptation not to decalare your income. When business profits are generally down (like now) tax revenue is down and people try to quit their stuff through the likes of trademe. If they declare it sweet. I think IRD is warning traders that they still want their cut.

Backyard traders who are running a 'taxfree' business deserve to get caught and pay their share of tax (or maybe payback some benefits.)

[Beemer]

The Secondhand Dealers & Pawnbrokers Act (http://www.justice.govt.nz/secondhand-dealers-pawnbrokers/about-secondhand-dealers.html) is the legislation that IRD will hunt you down on.

Essentially you get to trade $2,000 or "on 6 days" per year before legally having to have a Secondhand Dealers & Pawnbrokers Licence. The licence costs about $350 and requires police checks, etc. It's all about the authorities having checks in place to be able to track stolen goods.

That sounds a bit unfair - we renovated our two bathrooms recently and also replaced our stove, then sold the old stuff on TM for about $700. Once I factor in all the other crap, whoops, unwanted treasures, I've sold on there, it could easily be more than $2000 in a year. I'm certainly not making a living out of doing it as it's all stuff I owned to start with and now don't need, but I'd certainly stop doing it if that was classed as 'income'.

[p.dath]

That sounds a bit unfair - we renovated our two bathrooms recently and also replaced our stove, then sold the old stuff on TM for about $700. Once I factor in all the other crap, whoops, unwanted treasures, I've sold on there, it could easily be more than $2000 in a year. I'm certainly not making a living out of doing it as it's all stuff I owned to start with and now don't need, but I'd certainly stop doing it if that was classed as 'income'.

You aren't trading are you. You're only selling. Trading is when you buy something with the intention of selling it for profit.

[p.dath]

...
If your business makes a profit, you will also be better off NOT being GST registered, from a purely profit point of view.

For example (using exaggerated margins to make the point):

I buy a cheap widget for $1.12 from my supplier. I sell the widget for $112.

My gross margin is $110.88, if I am not GST registered.

If I an GST registered, I pay $12 in GST, and claim 12c, meaning my gross margin is $99.

Not quite. If you are not GST registered then you will pay GST in that 1.12 to your supplier that you can not claim back, and you sell price contains no GST.

[Naki Rat]

That sounds a bit unfair - we renovated our two bathrooms recently and also replaced our stove, then sold the old stuff on TM for about $700. Once I factor in all the other crap, whoops, unwanted treasures, I've sold on there, it could easily be more than $2000 in a year. I'm certainly not making a living out of doing it as it's all stuff I owned to start with and now don't need, but I'd certainly stop doing it if that was classed as 'income'.

If that was all it took to be in the wrong anybody who sold a secondhand item for over $2,000 would be in the wrong. Note the "absence of evidence" clause:

"For the purposes of the Act, a person is presumed (in the absence of evidence to the contrary) to be engaged in business as a secondhand dealer if, ..."

I would think that if you were buying for resale it would be altogether different.

[YellowDog]

People who believe that the IRD will never get caught may in for a surprise.

If you have a Trademe account, this will be all the evidence they need. So it is a good idea to keep purchase receipts as evidence.

Trademe is audited every year and any traders/clients over the IRD's threshold will be passed to the IRD for inspection.

Don't risk this happening to you!

[Max Preload]

bullshit

While your response is pragmatic although a little subtle, I disagree. It is to your advantage because the change over once you hit the threshold is both tedious and complicated.


ironic how the gubbermint thieves expect us to be honest in our business practices and yet they are the worst at flouting the "rules" to suit them fookn black selves - pack of thieving cunts they is

Unfortunately, I cannot find fault with this statement.


If you are going to have to register for GST as you anticipate a turnover in excess of $60,000 then I agree with you.

I wouldn't bother for less than the threshold turnover, but I concur on the basis of less hassle and other points I'll make below.


Thats because you may as well get to claim all the stuff you buy, and all the fees you shell out getting started.

Often what happens is a small business starts off at home, and they pay for the extra phone line, and the fax, and the broadband and the new computer without being GST registered so don't get to claim for it. But a few months later, everything is going well, and they have to register anyway, so end up paying GST on all sales.

But if your business is small, and you don't have a legal obligation to register, then why would you ?.

You still get to claim the GST content of those goods and services by offsetting it against their income though as I've outlined below to p.dath (although asset purchase costs are capitalised and depreciated so you only get up to 39% of the 12.5% GST back as a sole-trader).


GST takes time to administer, and you are in serious trouble if you make an error on a return. It also has to be done every 8 weeks, which is a serious hassle if you want a decent holiday, or some time out of the business, as it still has to be done unless you deregister.

No - you can elect a 6-monthly GST period. You get the use of money and keep the interest on it for the period. Deregistering is far more hassle. It's not like GST periods come out of the blue either - they're the same time every year.


If your business makes a profit, you will also be better off NOT being GST registered, from a purely profit point of view.

That depends largely on who you are supplying your goods and services to - GST registered or non-GST registered entities. See my rehash of your example below.


For example (using exaggerated margins to make the point):

There's part of the problem right there - a 990% markup is unrealistic and generally unachieveable which grossly exagerates the benefit. However, IMHO the benefit of accounting for GST as a registered entity cannot be exagerated including cashflow benefits and an image of professionalism (it may only be an image but everything helps! :lol:). Also, doing GST returns in your early stages of business with small turnover will mean if/when the business takes off you will be able to do them as second nature.


I buy a cheap widget for $1.12 from my supplier. I sell the widget for $112.

My gross margin is $110.88, if I am not GST registered.

If I an GST registered, I pay $12 in GST, and claim 12c, meaning my gross margin is $99.

Lets go back through your example with more realistic margins - say a 250% markup.

First lets look at...
Non-GST registered entity buying from a GST registered entity and re-selling to a non-GST registered entity.
GST registered entity purchase price: $1.12 ea incl. GST
Sale price: $2.80 ea
Gross margin: 250%

Next...
Non-GST registered entity buying from a GST registered entity and re-selling to a GST registered entity
Non-GST registered entity purchase price: - $1.12 incl GST ea
Sale price - $2.80 ea (no GST content).
Gross margin: 250%

Now here's the trouble. Your GST-registered competitor is selling them with the same 250% margin for $2.50 (buying at $1.00+GST, selling at $2.50+GST). Hell, he could mark up to 275% margin and sell at $2.75+GST to the GST registered entity and they'd still be cheaper than you and neither the widget supplier nor the buyer has to deal with non-GST registered part-time business Joe Schmos either! :lol:

As you can see your target market plays a considerable part in the decision matrix.


Not quite. If you are not GST registered then you will pay GST in that 1.12 to your supplier that you can not claim back, and you sell price contains no GST.

While the GST you paid the supplier (12c per widget) is not accounted for on your GST return because you don't do one as a non-GST registered entity, the GST content is still claimable as a 100% tax deductable expense, hence the $110.88 gross margin on the widgets. Trouble is the tax on your higher profit is also considerably higher than the GST of 12.5%...

[davereid]

Trouble is the tax on your higher profit is also considerably higher than the GST of 12.5%...

I'm not sure that is correct

Using your numbers..
I buy at $1.12
I sell at $2.81
My Gross profit is $1.69 before and after GST

You buy at $1.12
You sell at $2.81
Your gross profit is $1.69 before GST
You claim 0.12c GST and pay 0.31c
Your gross profit is $1.50

I have made 0.19c more on the transaction than you.

As my turnover is under $60,000, I might, if I am very good make $45,000 -$48,000 P.A. so I would have to pay 0.04c income tax on the extra profit, meaning I am still better off than the GST registered party by 0.15c.



Your GST-registered competitor is selling them with the same 250% margin for $2.50 (buying at $1.00+GST, selling at $2.50+GST). Hell, he could mark up to 275% margin and sell at $2.75+GST to the GST registered entity and they'd still be cheaper than you and neither the widget supplier nor the buyer has to deal with non-GST registered part-time business Joe Schmos either! :lol:[/B][/I]

However, the average purchaser on Trade-me will not be expecting to claim GST, so the seller who is not GST registered will make a higher gross margin than a GST registered trader.

But even if he were selling 50% of his product to someone who demanded a lower price as they couldnt claim the GST, it may still be a very marginal call as to the viability of GST registration.

The non GST registered seller may lower his price to be competitive with the GST registered trader - this will make him worse off only by the GST he paid to buy the item, and of course he will get 21% of that back in income tax.

For example..

For 50% of my customers I have to discount as they are GST registered

I buy at $1.12
I want to sell at $2.81, but I can't, as to be competitive with my competitor I have to sell at $2.50.
My Gross margin = $1.38

My GST registered seller (competitor)
Buys at 1.12
Sells at 2.81
Claims 0.12c and pays 0.31c
His gross margin = $1.50

He is 0.12c better off than me, before he pays income tax. If he is at the same income tax rate as me, he will be 0.09c better off than me after income tax.

If my turnover is $60,000, then I can sell about 24,000 widgets.

On 12,000 of them, I dont discount and I make 0.19c more than my competitor.

On 12,000 of them I have to discount, and I make 0.12c less.

I'm still up, more than 0.07c a unit or $1700, and I didn't need to spend any time doing GST returns, or paying my accountant to do them for me.

In fact, I would have to discount for almost 88% of my customers before GST registration made financial sense. And even then, if it cost me time or money to do the GST return, I may be better off remaining GST unregistered.

[Elysium]

So does this mean those people on Trademe like the ones who sell those BMW clones (Chinese bikes) aren't paying their taxes? If that's the case we may see a decline in cheap things like memory sticks, cameras and computer parts for sale on Trademe.

[davereid]

So does this mean those people on Trademe like the ones who sell those BMW clones (Chinese bikes) aren't paying their taxes? If that's the case we may see a decline in cheap things like memory sticks, cameras and computer parts for sale on Trademe.

I would be of the opinion that most large volume sellers on TradeMe etc are fully within the tax laws.

A much smaller and dumber volume would be operating illegally.

Trade me is a public place, and it seems to have a free two-way data flow to the government.

For example, you now have to enter your firearms licence number, to sell a firearm, and its validity is apparently checked.

This means TradeMe must have a data sharing agreement with the police (at least for firearm sales).

IMHO Large volume sellers use trade me for two reasons :

1. Its a huge market place with tens of thousands of potential customers
2. It allows you to sell junk that you culd not otherwise dispose of, as the auction process avoids the consumer guarantees act.

[flyingcr250]

ive done countless cash jobs for people, i mean lots. none of it goes in my bank account, it all goes on stuff and bills.

[Winston001]

Evading tax is a criminal offence. Avoiding tax is doing non-taxable activities. Evading tax is hiding taxable activities.

Steve

Well yes, that is the way it used to be. Evasion = illegal. Avoidance = legal - until the Commissioner had the newish anti-avoidance provisions inserted in the Income Tax Act. Happened in the mid 1980s maybe? So we had a perfectly understood term suddenly turned on its head which is why there is still confusion about avoiding tax. BG1 as referred to above.



You're all WRONG! Secondhand goods bought from a non-GST registered person still carry a deemed GST content regardless. A receipt is all you need to be able to use it as a GST credit against your account.



That's what I thought too. Does that apply to non-registered supply of services though? Say, an invoice from a casual cleaner or gardener.

I only ask because I was told by an accountant a few weeks ago that claiming GST on non-reg services was not allowed. Shame cos I'd been doing it for a club for years. :doh:

[Conquiztador]

Interesting comments and some factual (and not so factual) information. Much has been made of the GST or not GST registration when below $60K.

But what I think the IRD is looking for here is the avoidance of income tax.

If we forget the GST for a moment:

You buy a gadget for $1.12.
You sell the gadget for $2.81.
Lets assume that you only traded on TM.
The profit that IRD would be targeting would be $0.69 before any costs were deducted.
So now it is up to you to show IRD that you made no profit on the sale (you will get away with this for the first, even the second year, but then...)
You need to keep records of the TM listing costs and fees (easily done as they do this for you)
Then you claim office costs as you work from home. Storage costs at home. Stationery, car costs, phone costs, work clothes, sponsorship, travel costs etc. If you can not show a loss or at least a zero profit for the first years you are not doing it well. (This is assuming that you are trading below $60K/year).

So back to my reason for starting this thread: It sounds like IRD will spend our money investigating traders who make no money, as so their investigations are a waste of time.

Case study:

John started a small home based business. He decided not to GST register as he did not expect to trade over $60K/year.
He decided to sell exclusively on TM as it was simple and he did not need a shop or any advertising.
His turnover the first year was $59,999.12.

He achieved this by selling gadgets for $2.81 each. He sold 21,352 of them.
He bought them for $1.12 each totalling a cost of $23,914.24.
That left him with a surplus of $36,084.88.

When the IRD came knocking on his door thanks to the TM collaboration with the guvernment he was able to show that he had in fact made a loss.

This is what he provided the IRD with:
- His transaction fees at TM was $5,000.00 (as he had sold more then one per auction where the cost was to him $0.50/auction)
- He had purchase a accounting package for $3,000.00
- He had purchased a van so he could pick up the gadgets. He had this van signwritten and serviced. there was also new tyres, insurance and so on. Totalling $15,000.00
- He needed a laptop to do the TM work. Cost $2,000.00
- His office and storage was at home. He was therefore able to claim 40% of his rent and power costs: $8,320.00
- He needed a mobile phone and connection: 1,200.00
- He had postage and stationery costs of $2,000.00

That made him show a loss for the first year of $435.12.

After two days of investigation the IRD cappies left and life was back to normal for John.

Next year he knew he would sell double the amount of gadgets. But his sister who lives in Hamilton was happy for him to use her name and TM account to sell 50% of them. She had easily been convinced to agree on this when John told her that he was planning to upgrade his van and he would "sell" his old one to her for money she was making from not doing anything...

[Winston001]

But what I think the IRD is looking for here is the avoidance of income tax.

So now it is up to you to show IRD that you made no profit on the sale (you will get away with this for the first, even the second year, but then...)
You need to keep records of the TM listing costs and fees (easily done as they do this for you)

Then you claim office costs as you work from home. Storage costs at home. Stationery, car costs, phone costs, work clothes, sponsorship, travel costs etc. If you can not show a loss or at least a zero profit for the first years you are not doing it well. (This is assuming that you are trading below $60K/year).

So back to my reason for starting this thread: It sounds like IRD will spend our money investigating traders who make no money, as so their investigations are a waste of time.



I agree with you to some extent. The issue is - the black economy. Economic activity which isn't taxed. International estimates are that 8.8% of GDP falls into this bracket. That's a houseload of money which you and I make up for.

I suspect you are right about many TM traders not making much taxable income. However there will be sophisticated dealers who do very well, using a multitude of TM accounts. They are the real targets.

However anyone trading (which is quite different to just buying and selling the odd item) will face the possibility of an investigation and that can be costly. Tax law everywhere is written in favour of the income tax authorities. It is the one situation where you are guilty until you prove yourself innocent.

All very well to talk about deducting your home expenses, cellphone etc. That doesn't mean IRD will agree with you and allow it. Depends on how busy they are, your attitude, and the money involved. Add in an accountants costs, lawyers fees, compulsory orders on your bank accounts....the powers of the IRD are formidable.

[Max Preload]

I had a big reply almost done for davereid but Firefox crashed and I lost it and couldn't be arsed redoing it at the time, then forgot about this thread until I saw it in my USERCP.

In any case...



You buy a gadget for $1.12.
You sell the gadget for $2.81.
Lets assume that you only traded on TM.
The profit that IRD would be targeting would be $0.69 before any costs were deducted.

Your example would make a profit of $1.69, but regardless of that they'd be seeking tax on the $2.81 if you're discovered. They're not going to know or care about the $1.12 you spent unless you claim it yourself as an expense.


When the IRD came knocking on his door thanks to the TM collaboration with the guvernment he was able to show that he had in fact made a loss.

See below.


- He had purchase a accounting package for $3,000.00
- He had purchased a van so he could pick up the gadgets. He had this van signwritten and serviced. there was also new tyres, insurance and so on. Totalling $15,000.00
- He needed a laptop to do the TM work. Cost $2,000.00


The accounting software & van are capitalised and depreciated so you don't get the entire benefit in the first period. I'm not certain but I expect the signwriting is the same. Repairs, insurance & fuel are 100% deductable in the period the expense in incurred.


- His office and storage was at home. He was therefore able to claim 40% of his rent and power costs: $8,320.00
- He needed a mobile phone and connection: $1,200.00
- He had postage and stationery costs of $2,000.00

The cellphone purchase is capitalised too and the percentage of floor area used determines the claimable percentage of rent/power/rates/mortgage (interest portion only and no GST content in that) etc.


That made him show a loss for the first year of $435.12.


Not once he does it correctly.


Next year he knew he would sell double the amount of gadgets. But his sister who lives in Hamilton was happy for him to use her name and TM account to sell 50% of them. She had easily been convinced to agree on this when John told her that he was planning to upgrade his van and he would "sell" his old one to her for money she was making from not doing anything...

Doesn't work for the reasons outlined above.