Selling online but not as a business

Marika wishes to clear an excess of clothing from her wardrobe.

She lists them on the internet for individual sale. Some of the items sell for more than her buying price, some for less.

She charges the buyers postage and receives a total of $2,075.

Marika is not carrying on a business because she:

  • did nothing to improve the value of the items
  • does not sell any more items for a long time
  • does not pay the online auction site for a 'shop' space
  • generally receives less than the original purchase price of the clothes
  • has no intention to sell clothes online as a business.

Selling online as a business

Shari Belmont pays for a store online to sell antique items from her grandmother's estate after her death. This costs her $2,000 for the year.

As some of the items are quite valuable, the total value of the sales is $42,000.

During this time, Shari discovers she enjoys the activity and starts looking for other antiques to sell. She goes to garage sales, antique shops and op shops. She pays cash for the antiques, has them repaired if needed, and sells them on her online store.

Shari considers this is a hobby, as she only looks on the weekends and has a full- time job as an office worker.

Although she doesn't pay to advertise, she has more than a thousand visits per month to her website via a Facebook page she has set up, where she posts photos and details about the items for sale. Her Facebook page is shared by many people in the antique-buying community.

Apart from the sale of her grandmother's estate, Shari has total sales of $37,400 from 205 items sold during the financial year.

Shari is carrying on a business, even though her sales started off as a hobby. She should declare her online income because she:

  • has a specific online store for her antiques
  • advertises her antiques (although at no cost) through Facebook
  • repairs and resells them for a profit
  • makes repeated sales over an extended period of time.

The sales from her grandmother's estate do not need to be declared as income, but her other sales should be declared as income.

Selling online as a business

For two years, Bob Zaeta from Z's Carpentry has had a listing on Gumtree (online selling) for selling his carpentry work.

Even as his business gets busier and he needs to employ someone, Bob still uses the same Gumtree listing because he is now established and has good ratings - he doesn't want to disadvantage his business.

He continues to use this site to sell his work and services and makes over 1,000 sales per year at a total value of $100,000.

Z's Carpentry also trades offline and reports an annual income of $458,000. He has an Australian business number (ABN) and is registered for GST.

Bob does not include the income from his online sales, but he does claim the GST credits.

Bob is carrying on a business and is avoiding his tax obligations by:

  • not reporting all his income
  • claiming the GST credits for the online portion of his work.

Bob should immediately amend the relevant income tax returns to include his online sales.

A real-life case

A 2010 court case has highlighted the importance of being sure that an activity that you might think is a hobby actually is a hobby. A person who raised and sold over 1,200 turtles was found to be in business, rather than simply enjoying a pastime as the person claimed.

The turtles were sold after they were purchased from an interstate supplier and advertised on the internet; payments were received in both cash and direct deposit to a bank account. Gross sales were in excess of $100,000 over a three- year period, and were not reported on the income tax returns.

The person was convicted and fined. So, if you fail to correctly declare when you are in business, you may have additional costs and penalties on top of the tax you would have paid.

    Last modified: 12 Mar 2013QC 28130