How does IR distinguish between a business and a hobby in New Zealand?

Whether your activity is a business or a hobby affects your tax obligations significantly. In New Zealand, Inland Revenue uses several factors to determine this distinction: **Signs of a business:** - You intend to make a profit - You operate in a business-like manner (invoices, records, bank account) - You spend significant time on the activity - You have clients or customers (not just personal enjoyment) - The activity is systematic and ongoing **If it's a business:** - All income is taxable - All relevant expenses are deductible - You must file an IR3 if income exceeds the threshold - GST may apply if turnover exceeds NZ$60,000 **If it's a hobby:** - Income is generally not taxable (it's not from a profit-making activity) - Expenses are NOT deductible - No GST obligation **The grey area:** If you start a side activity and it's unclear whether it's a business or hobby, consider whether you're actively trying to make profit, have invested significant resources, or have genuine commercial prospects. Growing income and business-like operations generally indicate a business. IR can reclassify a hobby as a business (and vice versa) based on the facts — which could result in back taxes and penalties if income was not declared.

• Business: intent to profit, systematic, business-like manner
• Hobby: personal enjoyment, not profit-focused
• Business income: taxable; Hobby income: generally not
• Business expenses: deductible; Hobby expenses: not deductible
• IR can reclassify based on facts — keep good records