Last month we looked at how issues of double insurance could arise inadvertently. The same applies to seemingly private activities. They can morph into mini-businesses with all kinds of unintended consequences.
A recent example referred to an Inland Revenue Department publication, involves payment for YouTube uploads. Money or moneysworth paid for these can be treated as taxable income. If you don’t return it, you have a potential tax problem.
The same principle applies to activities on Trade Me and similar trading platforms. These can easily go beyond an occasional pastime or hobby and become profit-making undertakings or schemes and even businesses. In such cases, any gains will be taxable income.
Taking this further, technology and the ubiquitous “app” is monetising many otherwise private activities. Ride sharing activities, such as Uber and house letting ventures, such as Airbnb may seem like an innocuous way of making better use of a personal asset, e.g. car or dwelling. However, they can have many unintended consequences. Returns from those activities fall squarely into the tax-net as assessable income. Further, if the required thresholds are met, GST registration may be required or deemed by the IRD.
While car or house-sharing use platforms may have their own insurance cover (thereby filling a large initial gap), those involved need to understand the extent of their cover (if any) in relation to the car or house that they are now using for a commercial activity. Issues of double insurance arise but more so – what is the extent of cover?
Where the insurance provided by the platform owner picks up and leaves off in relation to the car owner or house owner’s own insurance can be a very difficult question. If a car or house owner doesn’t disclose to the insurer their commercial activities in relation to what appears to be a private asset (car or house) insurance cover could be limited or disappear.
What’s more, if the activity is deemed by the insurer to be illegal: no cover is the result. The risk arises where an app platform pushes the regulatory boundaries, an example being Uber where its precise regulatory status compared with the taxi industry is not absolutely clear.
In short, as with double insurance, an insured only finds out the extent of the cover when the rubber hits the road resulting in tears before bedtime.Careful review of often difficult to understand policy wording and seeking professional advice is a must.
An insurance policy clearly covering the risks with full disclosure is the safer option. In this respect expect to see the insurance industry respond to the challenges with policies tailored to app opportunities.
Supplied by – Wynyard Wood consultant, RICHARD OSBORNE, whose specialties include commercial law and intellectual property law.