Income tax Dates
How to tell if your activity is considered a hobby or a business for tax purposes.
Hobbies
A hobby is generally something you do in your spare time for enjoyment or fun. You may:
- earn no income from your hobby
- earn occasional income from your hobby, perhaps from selling what you have made to family or friends.
But in any case, you have no intention to put a lot of time, effort and money into your hobby and no intention to make a profit. That means any money you make from your hobby is not considered to be income and therefore not taxable.
You do not need to keep records or include any income from your hobby in your income tax return or income tax assessment.
You also cannot claim any expenses or costs from your hobby in your tax return unless your hobby has developed into a business. That’s because you can only claim expenses that help you earn taxable income.
You also cannot claim a loss. If you claim a loss in your tax return, and you are not in business, we’ll reassess your tax return and you may get a bill for tax to pay.
Common examples of hobbies
These activities are usually considered hobbies for tax purposes.
- Selling things you make occasionally for enjoyment or fun to family and friends.
- Selling things you make occasionally at markets.
- Children or young people earning less than $2,340.
Businesses
Generally, you're in business when you’re providing or selling goods or services to other people with a sufficient level of activity and you intend to make a profit.
So, your hobby or side hustle might be a business for tax purposes, even if you do not think of it that way.
If you’re running a business, you’ll need to pay income tax on your net income.
There are penalties if you’re in business but do not pay your taxes.
If you’re running a business, you can also claim expenses.
Business indicators
We assess if your hobby has become a business by looking at whether you:
- intend to make a profit
- put a lot of time, money and effort into your activity
- sell or provide your goods or services to customers on a regular basis
- keep records to monitor the financial status of your activity ─ like budgets and statements of income and expenses
- earn income from your activity
- run the activity in a similar way to most businesses in the same trade
- intend to continue with your activity long term
- rely on your activity to pay your living expenses.
Industries with special rules
Read about the special tax rules that apply if you’re making money as a sportsperson, digital content creator or in shares or cryptoassets.
Amateur and professional sportspeople
Get advice if you’re not sure
Most of the time you’ll know if you’re in business. Still, sometimes it can be tricky to work out if you’re running a business or doing a hobby.
Especially if your activity is on a small scale or you’re making losses.
The information below will help you decide. If you’re still not sure, please talk to a tax agent, accountant or any other type of tax professional, or contact us.
Quinn is a primary school teacher who makes quilts in her spare time. She gives away most quilts to her family and friends.
Sometimes people getting a quilt will give Quinn money to help her pay for the fabric, thread, and other materials.
Quilt-making can be expensive.
Quinn is not out to make a profit. She enjoys making patterns out of squares of material and giving gifts to the people she cares about.
Quinn’s quilt-making activity is a hobby, not a business. She does not need to pay tax on the money she gets to help with costs.
Will is a builder who used to work as an employee for ABC Construction Limited. Now retired, he enjoys working for himself doing building work for friends and homeowners in his local area.
Recently, he built a deck for a friend, and a gate for a family with a new puppy.
Will usually has several jobs on the go at once. Outside jobs for good weather and inside jobs he can do if the weather turns bad.
Although Will sometimes charges ‘mates rates’ for his friends, mostly he charges customers using the scale of prices he used in his days with ABC. He has an exercise book to work out the total price he’ll quote to customers, based on materials used and the estimated time taken.
In that way, he knows he will cover costs and make a profit. He needs extra money to live more comfortably now he’s retired and on NZ Super.
Will’s building activity is considered to be a business, not a hobby. That’s because:
- he intends to make a profit
- he’s keeping financial records of his activity
- he's providing services on a regular basis
- he's spending time and effort on his business
- he's running his activity in an organised way
- he’s relying on the income for his living expenses.
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