Hobby or commercial activity?

🔗Why separate hobby and commercial activity?

Some activities can be characterised more as a hobby than as a commercial activity. The boundary between the two is not defined in the legislation, but income from hobbies are tax-free, while business income is taxable. The  distinction is therefore crucial for how you will be taxed and whether you are entitled to deductions for your expenses. It is the Norwegian Tax Administration that decides whether an activity is a hobby or a business, but you must assess whether you should declare your activity as a taxable activity.

🔗When is the activity considered as a hobby?

If the scope of your activity is limited and your expenses are about the same as your income, it may count in favour of you pursuing a hobby. Profits from hobbies are not taxable income. 

An activity that has the characteristics of a hobby or which is simply a one-off event will not be considered  a commercial activity and cannot be registered as a sole proprietorship in the Brønnøysund Register Centre.

🔗Your hobby has become a business

Over time, a hobby can develop into commercial activity.  Once the income-generating activity has commenced, all income becomes taxable and expenses are deductible. When you are recognised as self-employed, you are subject to bookkeeping obligations and must submit a tax return for the self-employed. If you have registered a sole proprietorship but receive a tax return intended for employees, you must add the business income specification yourself in the tax return (this can be found by searching in the tax return's search field).

The Norwegian Tax Administration has prepared an overview of four conditions that must be met for an activity to be considered a business activity. You must assess yourself whether all the conditions are fulfilled.

🔗Startup period

From the first year in which you meet the requirements to be self-employed, you can have up to the previous five years approved as start-up years for the enterprise. This only applies to  sole proprietorships. To claim deductions for startup costs from previous years, you must submit a new tax return with business information for each of the last three years. If there's a need to amend years four and five retrospectively, you can request this by submitting an appeal.

If your tax settlements are changed for the startup period, you will receive deductions for actual expenses incurred. It is therefore important to retain all your income and expense vouchers linked to your activity from the first day.

Once you have been approved as a sole proprietor, you will be subject to the bookkeeping obligation and you must submit the tax return for self-employed persons. 

If you consider your activity to be a hobby but still generate income from it, this income may be taxable and must be reported in your tax return. If you are unsure whether to declare this income, contact the Norwegian Tax Administration for guidance.