If you’re making or selling something on the side, it’s natural to ask yourself – is this a hobby or a business? You’re not alone. Many Kiwis start with a passion project and find it begins to grow – a few extra orders, some income, and before long it’s more than just a pastime.

Knowing whether what you’re doing counts as a hobby or business matters, especially when it comes to tax, legal obligations, and planning for the future.

What the IRD Looks At

The Inland Revenue Department (IRD) doesn’t use one single test to decide whether something is a business. Instead, they look at the overall picture. Some of the things they consider include:

• Are you intending to make a profit?
• Are you repeating the activity regularly?
• Have you invested in equipment or advertising?
• Do you keep records or track income and expenses?
• Are you operating in a business-like way – for example, through a website or social media?

You don’t have to tick every box, but the more your setup looks like a business, the more likely it is to be treated as one.

Why the Difference Matters

If it’s a hobby, you don’t usually need to worry about tax – but you also can’t claim expenses or losses. Once it’s considered a business, you’ll need to declare the income and might be required to register for GST if you hit the $60,000 threshold. You can also deduct business-related expenses – things like supplies, tools, or hosting fees.

The consequences of getting it wrong? You could end up with a surprise tax bill or miss out on claiming valid deductions.

Thinking of Growing Your Hobby?

If you’re planning to grow your hobby into something bigger, it’s worth treating it like a business early on. That doesn’t mean going all-in – it means getting your systems sorted, pricing properly, and keeping good records. These steps can save you headaches later and make the transition smoother.

And even if you want to keep it part-time, setting things up properly helps protect your time and energy. It’s easy for a side hustle to start running your life if you don’t have boundaries in place.

Want Help Figuring It Out?

If you’re unsure how to structure things or what’s required from a tax or business point of view, you can book a time here for a quick chat.

NZ Business Coach – helping small business owners across New Zealand make smart, simple decisions from the very start.