Whether you are driving for a rideshare app, selling crafts online, doing freelance design work, or tutoring on the side, any money you earn from a side hustle is taxable income in New Zealand. The good news is that the rules are fairly straightforward once you understand them. The bad news is that ignoring them can lead to unexpected tax bills, penalties, and interest.
In this guide, we will explain how side hustle income is taxed, what tax codes to use, when you need to register for GST, and what expenses you can deduct.
All Income Is Taxable
Let us start with the basic principle: in New Zealand, all income is taxable unless there is a specific exemption. This includes income from side hustles, freelancing, casual work, selling goods online, and any other activity where you receive money for goods or services.
There is no minimum threshold below which side income is tax-free. Even if you only earn $500 from a weekend market stall, that $500 is technically taxable income. In practice, very small amounts may not trigger IRD's attention, but legally you are required to declare all income.
Employee vs Self-Employed: Which Are You?
How your side hustle income is taxed depends on whether you are an employee or self-employed. This distinction matters because it determines how tax is collected and what expenses you can deduct.
Employee: If your side hustle involves working for someone else (for example, a second part-time job at a cafe), you are an employee. Your employer will deduct PAYE from your pay using a secondary tax code.
Self-employed: If you are working for yourself — finding your own clients, setting your own prices, using your own tools — you are likely self-employed (a sole trader or contractor). You are responsible for managing your own tax, which means filing a tax return and potentially paying provisional tax.
The distinction is not always clear-cut. IRD looks at several factors including control over how the work is done, provision of tools and equipment, financial risk, and the ability to subcontract. If you are unsure, check IRD's guidelines or seek professional advice.
Tax Codes for Secondary Employment
If your side hustle is a second job (where you are an employee), you need to use the correct secondary tax code. Your primary job uses the M code, and your secondary job uses one of the S codes based on your expected total annual income from all jobs:
- SB — total income $15,600 or less (10.5%)
- S — total income $15,601 to $53,500 (17.5%)
- SH — total income $53,501 to $78,100 (30%)
- ST — total income $78,101 to $180,000 (33%)
- SA — total income over $180,000 (39%)
The secondary tax code ensures that the combined tax deducted from both jobs approximates the correct total tax on your combined income. If you use the wrong code, you will either overpay or underpay during the year, and IRD will adjust at year end.
Tax for Self-Employed Side Hustles
If your side hustle is self-employment (freelancing, contracting, selling goods), no one deducts tax for you. You need to:
- Keep records of all income received and expenses paid.
- File an individual tax return (IR3) at the end of the tax year, declaring your employment income and self-employment income.
- Pay any tax owed — if your total tax bill (including PAYE from your main job) results in residual income tax over $5,000, you will need to pay provisional tax the following year.
Your self-employment income is added on top of your employment income and taxed at your marginal rate. If you earn $65,000 from your day job and $15,000 from your side hustle, the side hustle income is effectively taxed at the 33% rate (since it sits in the $78,100 to $180,000 bracket when added to your salary).
Deductible Expenses
One advantage of being self-employed is that you can deduct legitimate business expenses from your side hustle income. This reduces your taxable profit. Common deductible expenses include:
- Materials and supplies — raw materials, packaging, inventory.
- Tools and equipment — if you buy a laptop, camera, or tools for your side hustle, you can either deduct the cost immediately (if under $1,000) or depreciate it over its useful life.
- Software and subscriptions — website hosting, design software, accounting tools.
- Vehicle expenses — if you use your car for business, you can claim a portion of the running costs or use IRD's kilometre rate (currently 97 cents per kilometre for the first 14,000 km).
- Home office — if you work from home, you can claim a proportion of your rent or mortgage interest, power, internet, and other household costs based on the area used and time spent.
- Phone and internet — the business portion of your phone and internet bills.
- Marketing and advertising — social media ads, business cards, website costs.
- Professional fees — accountant fees, legal advice.
The key rule is that expenses must be incurred in earning your business income. Personal expenses cannot be claimed, and mixed-use expenses must be apportioned between business and personal use.
When Do You Need to Register for GST?
If your total business turnover (from all self-employed activities, not including your employment salary) exceeds $60,000 in any 12-month period, you must register for GST. Once registered, you charge 15% GST on your sales and file regular GST returns.
If your turnover is under $60,000, GST registration is optional. Some side hustlers choose to register voluntarily because it allows them to claim back GST on business purchases, but it also adds compliance work.
If your side hustle income is modest (say, under $20,000), GST is unlikely to be a concern. But if your side hustle is growing quickly, keep an eye on the rolling 12-month turnover figure.
ACC Levies on Self-Employment Income
Self-employment income is subject to ACC levies. You will pay the earner's levy (1.60% for 2025-26) and a work levy based on your industry classification. These are calculated as part of your annual tax assessment and added to your tax bill.
In return, you are covered by ACC if you are injured during your self-employment activities (or any other time — the earner's levy covers non-work injuries too).
Keeping Good Records
Good record keeping is not optional — it is a legal requirement. You need to keep records of all income and expenses for at least seven years. This includes:
- Invoices issued to clients or customers.
- Receipts for all business expenses.
- Bank statements showing income received and expenses paid.
- A record of business kilometres driven (if claiming vehicle expenses).
- A log of home office hours or area used (if claiming home office expenses).
Using accounting software (even a simple spreadsheet) makes this much easier. If IRD audits you, they will ask for supporting documentation. Without it, they can disallow deductions and apply penalties.
Common Mistakes to Avoid
- Not declaring side income at all. IRD receives data from platforms, banks, and other sources. They can match your bank deposits against your declared income. It is not worth the risk.
- Using the wrong tax code for a second job. This leads to over- or under-payment of tax during the year.
- Not setting money aside for tax. If you are self-employed, no one is withholding tax for you. Set aside at least 30-33% of your side hustle income in a separate account for tax.
- Overclaiming expenses. Only claim genuine business expenses. Claiming personal costs as business expenses is tax fraud.
How Side Income Affects Your Overall Tax
Because New Zealand has a progressive tax system, side hustle income is taxed at your marginal rate — the rate that applies to your last dollars of income. For many people with a full-time job, that means their side hustle income is taxed at 30% or 33%, not the lower rates that apply to their first dollars of employment income.
Use our New Zealand salary calculator to see how additional income affects your overall tax position. You can enter your primary salary and then see what happens when you add side hustle income on top.
Final Thoughts
Side hustles are a great way to earn extra money, build skills, and explore business ideas. But the tax obligations are real and ignoring them can lead to problems down the track. Declare your income, claim your legitimate expenses, use the right tax codes, and set money aside for tax. If your side hustle is growing into something bigger, consider getting professional advice on structure, GST, and provisional tax.