Sometimes it’s hard to tell if what you’re doing for fun is just a hobby or if it’s actually a business — especially if you start making money from it. This difference really matters because it changes whether you have to pay tax, keep records, or file returns.
What Is a Hobby?
A hobby is something you do just because you enjoy it — not because you’re trying to make a profit.
According to IRD, a hobby:
Is something you do in your spare time for fun or relaxation.
Might make a bit of money now and then (like selling things at a local market).
Isn’t something you plan to turn into a business.
Doesn’t take a lot of time, money, or effort.
Isn’t run like a business (no advertising, records, or business plans).
If it is a hobby, you don’t pay tax on what you earn, and you can’t claim expenses like materials or travel costs.
Examples of hobbies include:
Selling crafts occasionally at local markets.
Selling furniture you have upcycled for enjoyment.
Children or young people earning less than $2,340 annually from casual activities.
What Is a Business?
If your activity becomes more serious — you’re making regular money and treating it like work — it’s probably a business.
IRD looks for signs like:
You’re trying to make a profit.
You’re regularly selling goods or services.
You’ve put in real time, effort, or money.
You keep track of your income and expenses.
You advertise or promote what you do.
You depend on the money for your living costs.
You’re committed to doing it long-term.
If these sound like you, then IRD will likely see it as a business — even if you still call it your “side hobby.”
What Happens if it is a Business?
If IRD decides your activity is a business, you’ll need to:
Pay income tax on your profit.
Keep financial records (like receipts and sales).
Claim business expenses to reduce your taxable income.
Register for GST if you earn more than $60,000 a year.
When a Hobby Becomes a Business
Your hobby might turn into a business if:
You start earning money regularly.
You advertise or sell more often.
You invest in better tools or equipment.
You plan to grow or make it your main job.
In such cases, you should register your business and meet all tax obligations.
If you're unsure whether your activity is a hobby or a business, or you think you might have a business please don’t hesitate to contact us for further advice.
