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| Are you in the business of selling on Trade Me?
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Being in business includes but is not limited to any profession, trade,
manufacture or undertaking carried on for profit. The consequence of being in
business is that gross income of the business will be taxable; however
additional deductions are available to those in business.
In addition to an intention to make profit the other factors in determining
whether a taxpayer is in business include:
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The nature of the activity.
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The period over which the taxpayer engages in that activity.
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The scale of operations and the volume of transactions.
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The commitment of time, money and effort.
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The pattern of activity.
Scenarios:
a) Joshua regularly sells items on Trade Me
Selling items on Trade Me has become a regular source of income for Joshua. On
an almost daily basis he is purchasing goods and selling them on Trade Me with
the intention of making a profit. He has been doing this for the last 18 months
and generally holds inventory costing at least $5,000. Due to the period and
pattern of activity, the commitment of time and money Joshua would be deemed to
be in business and therefore will be subject to income tax on all profits.
Joshua may also have obligations under the Consumer Guarantees Act and/or Fair
Trading Act.
b) Anthony and Eric run a business and use Trade Me to sell some inventory
Whenever Eric and Anthony want to clear inventory they sell the goods through
Trade Me. As the sale of the inventory is part of their business the profits
will be taxable.
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| Types of business structure
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There are a number of structures that can be used to operate a business, these
include:
- Sole Trader - This is a person trading on their own who will assume all of the
risks and rewards. The business is controlled, managed and owned by that
person.
- Partnership - A partnership is much the same as a sole trader except that there
must be two or more partners, and they jointly assume all the risks and
rewards.
- Company - A company is a separate legal entity registered under the Companies
Act.
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