But its just a hobby, not a business..
This is something we hear a LOT! Along with the old myth about only paying tax once you earn more than $5,000…
It’s important to understand the differences between a hobby and a business. A small side hustle you’ve been doing for years could actually be a business for tax purposes, and you may be accumulating tax debt without realising it.
A hobby is generally something you do in your spare time for fun. A business is something commercial, where you aim to make a profit.
So there are some questions to consider here about your situation. Do you:
- charge others for the goods/services you provide? (Payment doesn’t have to be in cash)
- supply goods/services on a regular basis?
- intend to make a profit from providing goods/services?
- plan, organise and carry out your activities in a business like manner, eg keep receipts and records, or have a separate bank account for your business activities?
If you answered yes to some or all of those questions, you probably need to declare your income.
If you occasionally sell your stuff to friends, at local markets, or on sites like Trade Me and eBay, you’re OK. There are no tax implications for private one-off sales.
But if you’re making money from regularly selling your goods or services, including online, or you’re selling things with the intention of making a profit, you’re actually in business. Being in business means you have to fulfil your tax obligations, which includes filing income tax returns, potentially GST too if your income is over $60,000 in a 12 month period, and you’re also required to follow consumer laws.
Being considered “in business” isn’t dependent on a minimum income level – The deciding factor is how often you sell your product or services.
Any income derived from business activities is subject to tax and must be returned to the Inland Revenue via filing a tax return and paying any tax owing.
If you’re uncertain whether you’re in business, you need to speak to a business advisor or an accountant and get some advice.
Business Information can be found here on the Inland Revenue site
Information on Online trading tax implications.