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For traders - what are your obligations when selling goods online?

August 20, 2015

Online auction websites (like TradeMe) can be an easy stepping-stone towards starting or growing a business. The systems are already in place and there are relatively few barriers to entry. As with any business it is important to be aware of your rights and obligations. Typically, running a business in an online auction environment is no different to running any other business. Outlined below are some issues to keep in mind.

Income Tax Act 1997 (ITA)

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.

Fair Trading Act 1986 (FTA)

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, seek legal advice.

Those in trade have wide obligations under the FTA, which details that you must:

  • make it clear to potential buyers you are ‘in trade’,
  • have a reasonable basis for claims that you make about your products or services,
  • not make representations that mislead or deceive consumers about the product or their rights,
  • not bury qualifications, limitations and other important terms in fine print or on a link-through web-page,
  • not offer to sell goods or services that you do not reasonably believe you can supply. If you source goods from a supplier only once the product has been sold, you must ensure any representations you have made about availability and delivery times are accurate.

Consumer Guarantees Act 1993 (CGA)

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, you can seek legal advice. 

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