17 August, 2010
The Tax Office has successfully obtained records from eBay and The Trading Post that will enable them to data match income declared by taxpayers to their income generated online.
Targeting those with earnings of $20,000 or more in any of the last three financial years, the ATO crackdown is looking for online operators who are effectively running a business but not declaring the income. The Tax Office also expects to catch existing businesses that are generating additional income through the trading sites but not declaring or understating the income.
The Tax Office will match data from the trading sites to Tax File Numbers, ABNs, addresses and dates of birth. The data matching program identifies a list of taxpayers 'of interest' to the Tax Office who are then contacted for review or audit.
For many, sites like eBay offer a distribution channel for home or start up businesses without the expense of a shop front or developing a retail network where margins can be squeezed and profits reduced. It's a way of 'dipping your toe' in the retail market to gauge a product lines appeal without many of the overhead costs associated with traditional business. The Tax Office focus means that they suspect there are a host of eBay business entrepreneurs who are not declaring income earned.
So, at what point do you have to declare income you have earned to the Tax Office? The Tax Office will be looking to see if your activity online could be deemed to be a business.
There is no one test for what qualifies you as a business versus a hobby but factors such as the regularity of your transactions, whether or not you are promoting yourself as business (developing a brand name etc), if you engage in marketing activities, whether you intend to develop a business and make a profit (or have the capacity to generate a profit over time), the size, scale and permanency of your activities, and whether you operate in a business-like manner, all go toward determining whether what you are doing is a business or merely a hobby.
If your activities are just a hobby then the income is not assessable, and the expenses are not deductible. If you are a business then you need to declare the income earned but you also get to claim deductions for the cost of the business activities.
If you think you might be affected by the ATO's data matching program, contact us on (02) 9957 4033. The ATO is offering reduced penalties to taxpayers who voluntarily disclose income earned from the online trading sites.
Download August 2010 Newsletter (PDF, 408 kb)
This article is provided for information purposes only and correct at the time of publication. It should not be used in place of advice from your accountant. Please contact us on 02 9957 4033 to discuss your specific circumstances.