Understanding What Constitutes a Business for Income Tax in New Zealand

Are you running a business—or just a hobby?
Understanding the difference is essential when it comes to tax deductions, GST, and your obligations under the Income Tax Act 2007.

IRD's new interpretation statement (PUB00478) clarifies when an activity is considered a “business” for income tax purposes.

✅ Why It Matters

• If you're carrying on a business, income you earn is taxable under section CB 1, and you may be able to claim deductions for related expenses under section DA 1.

• If it’s not a business (e.g. a hobby or one-off project), different rules apply.

• Understanding this distinction affects GST, land tax rules, depreciation, Working for Families, and more.

  ⚖️ How IRD Defines a Business

  A business is more than just making money — it must be:

  • Organised and coherent

  • Carried on for pecuniary profit

  • Evaluated based on the Grieve case test (a key NZ tax case)

  Two key factors are assessed:

  1. Nature of the activity: its scale, regularity, time/money commitment, and financial performance

  2. Taxpayer’s intention: a genuine, realistic profit motive (not just a vague hope)

  Even if your activity is enjoyable or part-time, it can still be a business — or not — depending on the above factors.

🧾 Examples of Activities That Might Be a Business

• Share trading: Only if it’s systematic and large-scale

• Renting out property: Likely a business if multiple properties or commercial scale

• Online sales or content creation: Depends on regularity, profit motive, and structure

• One-off developments: Not usually a business, unless significant and planned for profit

⚠️ Common Misunderstandings

• “I made a profit, so it must be a business” ❌
  → Not always. Profit alone doesn't prove it's a business.

• “It’s just a hobby” ❌
  → If it's structured and intended to make money, IRD may still view it as a business.

• “I’ve got a full-time job, this is just side income” ❌
  → You can still be in business on the side.

🧠 Key Takeaway

If you're earning income outside your job — even just selling online, investing, or renting property — you should consider whether IRD may view it as a business. That determines how you declare income and whether you can claim deductions.

📌 Need help deciding if you're in business?

Contact us today to discuss your tax position and business obligations.