Tax Updates: 24 November 2025

Welcome to this week’s review of tax issues where Richard comments on what’s been happening in the world of tax over the past week. If you have a question or would like a second opinion on any national or international tax issues, please contact Richard via email at richard@gilshep.co.nz.

Are you carrying on a business?

Arguably, the question of whether a person is carrying on a business is at least as important as the question of whether a person is carrying on a taxable activity for GST purposes. The latest Interpretation Statement (IS) from the Revenue (IR) in this regard is titled “Income tax – business activity,” and one could suggest that such a comprehensive document on this subject is long overdue, when you consider that the latest of the four previous publications it replaces was issued in November 1995.

IS 25/25 is 51 pages and discusses topics including the meaning of a business, whether a single transaction can be classified as a business, when a business commences and ceases, and the difference between a business and a GST taxable activity.

From my perspective, understanding whether a client is carrying on a business is core to appreciating the potential taxation of receipts under the primary taxing provision of Section CB 1, and whether expenditure incurred is deductible, which could rely on the business having commenced or not being deemed to have ceased. It is also crucial to understand several complex provisions within the Income Tax Act 2007, which are triggered when a business activity is in existence. For example, certain land tax tainting provisions are only switched on when a person or their associate is deemed to be carrying on a land-related business activity.

Many of you will already know that while the legislation defines the term ‘business’ to include certain things, its actual definition stems from the development of case law over the years, the leading New Zealand (NZ) case (since 1984) being Grieve v CIR (1984) 6 NZTC 61,682 (CA). The Court of Appeal judges decided the ‘business’ question involves a two-step inquiry—understanding the nature of the activities being carried on and then considering the taxpayer’s intention in engaging in those activities.

The IS covers the first step in some detail, working its way through each of the six matters that Grieve v CIR determined need to be properly considered, being:

• the nature of the activity;

• the period over which the activity is engaged in;

• the scale of operations and volume of transactions;

• the commitment of time, money and effort;

• the pattern of activity; and,

• financial results.

The second enquiry considers the person’s subjective intention to make a profit, which must be objectively assessed. A few key points to understand without having to read the IS (I’ll do the hard work for you):

• a single transaction does not usually constitute a business, but this factor is not conclusive;

• there is a presumption against a business, where the person has a full-time occupation or is retired or unemployed, and they devote only a modest amount of time to the other activity;

• a company may more readily be found to be in business than an individual (so using a company for your project can make it harder to impress on the Revenue that you are not carrying on a business activity, which triggers tainting issues for other land);

• expenditure is often not deductible if incurred before business commencement (so in establishing a business) or post a business ceasing – so appreciating the stage a business is at is important; and,

• While similar in many ways, carrying on a taxable activity for GST purposes does not automatically correlate to carrying on a business for income tax purposes.

IS 25/25 contains several examples throughout the commentary to illustrate the narrative.  

This article was originally published through the ‘A Week In Review’ newsletter. If you would like to receive Richard’s tax updates every Monday morning, you can subscribe here.