Tax warning for unwary clothing rental ventures

Almost 1600 women rent out their designer clothing to strangers on Facebook for some extra cash, but it is unlikely they are paying tax on the income.

There are at least 18 clothing rental Facebook pages and websites in Auckland alone.

New Zealand’s voluntary tax compliance system requires any extra income to be disclosed to the Inland Revenue Department in an annual tax return or personal tax summary.

But it seems the business of online clothing rentals is not on any auditor’s radar.

Saejung Oh, director of online renting marketplace Oh Rent Me, was a broke student at Otago University in 2014 when she tapped into the idea, renting out six dresses.

As her income grew she created a website and registered Oh Rent Me as a business in July 2015.

Oh now has 150 garments available for rent, costing between $25 and $150.

She started New Zealand’s largest Facebook clothing rental group, Designer Renting, which has 1597 individual members and established rental companies, to promote their garments for hire.

The information on the Designer Renting Facebook site warns non-established renters to beware of money scammers and clients who ruin clothes, but it does not mention tax compliance.

Oh said that was a problem and she would make tax liability known to the group.

She expected that most of the women renting only a handful of garments on the Facebook group were oblivious to their tax obligations and were not avoiding it on purpose.

PWC tax director Mark Scott said if a woman loaned a dress to a friend who paid for the dry cleaning, the activity was deemed a hobby, not an income, and tax would not need to be paid.

But anyone advertising dresses for hire to the general public on social media and charging real fees was in business and would be required to pay income tax, Scott said.

Oh said the individual renters with fewer garments who did not pay tax could charge less for their items, which was unfair to companies like hers.

Oh Rent Me paid 28 per cent of its annual profits in income tax.

If Inland Revenue clamped down on the Facebook renters, it would filter out the smaller market players and help the established renting businesses grow their customer base, she said.