Originally Posted by: LBD 
I have to ask..... what about the (Drum role please).....GST?
At what stages is GST charged on Gold transactions...I assume if I was to buy 1 oz of gold retail over the counter I would be charged GST on top of the gold price...so what about If I sell it again?
At what stage does a hobby become a business and you are required to become GST registered and become an unpaid tax collector?
Hi LBD... here are some guidelines summarized down a wee bit (cutting out some off the examples and legal discussion) from IRD:
"...A taxable activity does not include an activity that is essentially a private recreational pursuit or hobby.
Factors considered include:
The reasons for conducting the activity –
the intention of a hobbyist is quite different to that of a person carrying on a taxable activity. A hobbyist carries on an activity predominantly for pleasure or enjoyment. A person carrying on a taxable activity may derive pleasure or enjoyment from the activity, but this is a secondary factor.
A business involves the intention to make a pecuniary profit.
Duration of the activity - if the activity is taxable, it will usually possess a certain degree of continuity.
Regularity - an activity that is only undertaken from time to time is more likely to be a hobby.
Frequency of supply - if infrequent, this may indicate that the activity is a hobby. .
Business-like nature of operations - are the methods and actions consistent with those of carrying on a taxable activity?
Structure and organisation - a taxable activity usually exhibits some form of structure and organisation.
Level of financial investment - the hobbyist is less likely to tie up large amounts of money in an activity, compared to a person carrying on a similar, but taxable, activity..
The time available to devote to the activity - a hobby is usually pursued on a part-time basis, because it is carried on as an interest or leisure activity. It is not a major source of income for the hobbyist. The amount of time the hobbyist spends in pursuing the activity is therefore restricted to the amount of spare time available.
Example 1
Jenny works full-time as a receptionist for a large medical practice in the city. She finds that spending some of her free time making scented beeswax candles relaxes her. She gives candles to her friends and family as gifts. Once or twice a year, she has enough candles to sell from a friend’s stall in the Harbourlight City markets. The money she makes from the sales covers most of the cost of the raw materials she has to buy.
Example 2
John works 15 hours a week as a waiter in a Mexican restaurant. Every day, from mid-morning until just before he leaves for work at around 5 pm, he makes children’s wooden toys in a large garage he leases for this purpose. He has a monthly account at the local timber merchants. He has outlaid a considerable sum of money on installing modern woodworking machinery, a new lighting system, and burglar alarms. Every Saturday he sells the toys from a stall at the Harbourlight City markets. For each of the last ten years, in late October, he has published and distributed a mail order catalogue to toyshops, kindergartens, child care organisations, parent groups and similar organisations, to advertise the toys. The Commissioner would accept that for Jenny, the candle-making is a hobby. However, John’s woodwork would be considered a taxable activity..."
If you are in business GST registration is required if your turnover for the last 12 months was more than $60,000, or if in next 12 months is likely to be over $60,000; or you charge GST in your prices (even if your turnover is less than $60,000)
If you are tempted to turn your hobby, LBD, into a business to take advantage of tax losses then don't play that game in my opinion. It is not worth it, with accountancy fees, record keeping, and the risk IRD will question what you are doing. And accountants if they are worth their salt will challange what you are doing if the losses carry on for more than a year or two. I mean, as an accountant myself I would allow a loss in the first year for some kind of part time business, taking into account set up costs. But I would go through the guidelines from IRD, as above, with the client. If they still insist it's a business I would allow it the first year, but if its an ongoing thing loss after loss I may suggest, depending on the circumstances, that they find another accountant in the second year. I mean the bottom line is if you are in business, even a part time one, maybe particulary if its part time, you should be expecting to make a profit. Basically, in my opinion, if you know its a hobby that's going to run at a loss then to pretend its a business for tax advantages, is dishonest. Just my opinion. Plenty will disagree probably.
Hope that helps.
Edited by user Saturday, 4 August 2012 9:18:12 PM(UTC)
| Reason: error
WWW
BLOG
