Income tax Dates
When you receive an amount of money, it can be hard to know if it is income and how to account for it. Many amounts you receive will be easy to identify as income because specific rules apply. Examples include interest and dividends and amounts that come under the bright-line rules.
If you receive an amount that does not have a specific rule, it may be income under the general income rules.
An amount can be income under more than 1 rule, but it is only taxed once.
The amount that is taxable is the sale price less the cost of the item sold.
Ordinary income
The ordinary concept of income includes that:
- income is something that comes in
- income amounts repeat or are regular
- an amount is income depending on factors like the relationship you have with the payer, why you got the payment, and how much you rely on the payment.
When we assess income this way it is sometimes called ‘income under ordinary concepts’.
Read about income under ordinary concepts in IS 23/11 Income tax: Income – when gifts are assessable income
IS 23/11 Income tax: Income – when gifts are assessable income
Income from a business
Amounts earned from a business are income.
When you are thinking about whether or not a business exists you need to look at 2 issues.
- The nature of the activity
- The intentions of the person doing the activity, which includes looking to see if there is an intention to make a profit.
When looking to see whether the activity is a business we consider:
- the intent to make a profit
- the time, money and effort you have put into the activity
- the nature of the activity, for example selling or providing goods or services on a regular basis
- whether records are kept to monitor the financial status of the activity
- the amount of money earned from the activity
- the scale of operations, the volume of transactions, and the pattern of activity
- if the activity is run in a similar way to most businesses in the same trade
- the length of time that has been spent on doing the activity.
Income from a business of dealing in personal property
Amounts earned from a business of dealing in personal property are also income. When a person earns an amount from selling an asset, the amount is income if they deal in similar items as part of the trading stock of their business.
Income from a profit-making scheme
Amounts earned from carrying on or carrying out a profit-making scheme is income.
A scheme is a course of action, a series of steps, or an enterprise directed to a result. The words suggest activities that are co-ordinated by plan or purpose.
The plan or purpose must be clear and have some agreement of ideas but does not need to be precise - a generalised plan is all that is needed.
Also, any intent of making a profit must be the dominant or main intent. If it applies, any profits are only taxable from the time you start the scheme.
Personal property you acquired for disposal
An amount earned from selling personal property, such as shares, gold, and crypto assets is income if that property was bought with the main or dominant purpose of selling it.
You do not have to be in business for the profit to be income. If the main reason you bought the asset was to sell it, then the profit is taxable.
You may need to prove to us what your purpose(s) for getting the asset was.
When we look at the main or dominant purpose for buying an asset, we’ll look at what you say your purpose was and also the supporting facts. We may take into account factors including:
- the type of asset sold
- other work that is ordinarily undertaken
- reasons for buying and then selling the asset
- the number of similar transactions
- the length of time the asset was held
- the circumstances of the use and sale of the asset.
Get tax advice
Most of the time you’ll know if an amount you receive is income under 1 of the general rules. If you’re unsure we recommend you speak to a tax professional.
General tax rules in certain situations
Read about how the general rules apply in certain situations
Amateur and professional sportspeople
Tax Technical information
Read more on our Tax Technical website about whether an amount you’ve received is income.
IS 24/10 Income Tax – Share Investments
IS 23/11 – Income – when gifts are assessable income
IS 21/08 Content Creators – tax issues