Small business - tax question

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Forums › Startups › Small business - tax question - second income

theitman

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#196662 8-Jun-2016 11:42

Hi Everyone,

So i work in I.T. and in my spare time i repair broken/damaged laptops and sell them on trademe.

Does anyone know what the IRD will specifically look for? I only have a real trace of items sold/purchased off trademe/success fees/parts purchased etc. I have purchased off facebook and sold on facebook but have no way to prove it.

Does anyone also know what tax rate i will getting charged at?

help

Thanks!

mdf

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#1567854 8-Jun-2016 11:49

You'll be charged at your marginal tax rate.

i.e. IRD charges tax on your total income. If you make $100K per year, you will pay $23,920 tax. This is regardless of whether you earned $100K from a salary, wages, self employment or a mix (e.g. $60K salary + $40K profit on the side = the same tax as $100K salary).

You work this out at the end of the year. Unless you are doing it via a company (IR4), you include this in your personal tax return (IR3).

If you have a residual income tax of more than $2,500 (basically a tax bill of more than $2,500) you also need to pay provisional tax. Which is kind of a PITA PAYE/pay-tax-as-you-go for companies.

If your turnover is more than $60K, you also need to register for GST. There are some advantages in voluntarily registering even if you are short of that (claiming back GST you pay). You need to weigh that up against the hassle of keeping records and doing GST returns.

IRD's website has some pretty helpful information here.

knoydart

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#1567866 8-Jun-2016 12:18

Provisional tax maybe going in the next year or so, so long term that's a good thing. Short term however, you still have to stump up the cash.

theitman

189 posts

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#1567887 8-Jun-2016 12:45

Anyone here work for the ird haha

Say if i bought a broken laptop with the intention to fix then on sell for $500, fix and sell for $1000 am i taxed on the $1000 or the $500 profit i make?

mdf

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#1567893 8-Jun-2016 12:55

theitman:

Anyone here work for the ird haha

Say if i bought a broken laptop with the intention to fix then on sell for $500, fix and sell for $1000 am i taxed on the $1000 or the $500 profit i make?

For income tax, just the profit. You basically add up your income and deduct the (allowable) expenses. The broken laptop counts as costs of goods sold, which is an expense.

GST is on the whole amount, but you can get an input credit for any GST you paid. If you're buying it from a non-GST registered person (which I guess you are) you won't get the input credit though. Unless there's some special rule I don't know about (which there might be).

timmmay

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#1567894 8-Jun-2016 12:55

You're taxed on profit, which is income less expenses. Tax is based on total income earned, regardless of how it's earned.

If you don't declare income and pay tax you can be liable to fines and penalties. IRD probably keep a good eye on Trademe.

theitman

189 posts

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#1567896 8-Jun-2016 13:00

timmmay:

You're taxed on profit, which is income less expenses. Tax is based on total income earned, regardless of how it's earned.

If you don't declare income and pay tax you can be liable to fines and penalties. IRD probably keep a good eye on Trademe.

Yup I know they keep an eye on trademe, just trying to get this sorted so i don't get any fines etc.

Just going around in circles atm trying to get it sorted. I have purchased off facebook and messages have been deleted so have no way to prove what i paid etc

Starting to freak out a bit

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knoydart

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#1567897 8-Jun-2016 13:01

timmmay:

IRD probably keep a good eye on Trademe.

Yes they do

networkn

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#1567899 8-Jun-2016 13:05

theitman:

Anyone here work for the ird haha

Say if i bought a broken laptop with the intention to fix then on sell for $500, fix and sell for $1000 am i taxed on the $1000 or the $500 profit i make?

Call the IRD. They have people who understand this entirely. They aren't boogeyman out to get you, and unlike the bad old days, are keen to help.

They will help you fully understand your responsibilities.

richms

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#1567909 8-Jun-2016 13:19

mdf:

For income tax, just the profit. You basically add up your income and deduct the (allowable) expenses. The broken laptop counts as costs of goods sold, which is an expense.

GST is on the whole amount, but you can get an input credit for any GST you paid. If you're buying it from a non-GST registered person (which I guess you are) you won't get the input credit though. Unless there's some special rule I don't know about (which there might be).

There is the ability to claim GST on second hand goods, but when it was explained to me it sounded like far too much work on the odd piece of obsolete gear off trademe. Might be worth it if that is your sole source of parts tho.

Richard rich.ms