Hobby or commercial activity?
In order for an activity to be accepted as commercial, it must be carried out on your own account and at your own risk and have a certain scope and duration. Over time, it must be likely to generate a profit.
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 hobbies are tax-free, while commercial activity is taxable. In other words, the difference will determine how you should be taxed and whether you are entitled to deductions for your expenses. It is the Norwegian Tax Administration which decides whether an activity is a hobby or a business, but you should first assess whether you should declare your activity as a taxable activity.
Your activity is 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. Contact the Norwegian Tax Administration if you are unsure what your activity might be considered to be.
An activity which has the characteristics of a hobby or which is simply a one-off event will not be considered to be commercial activity and cannot be registered as a sole proprietorship with the Brønnøysund Register Centre.
Developing a hobby into a business
A hobby can be developed over time into a taxable enterprise. If you decide to turn your hobby into a business, it is important that you document all your expenses and income associated with the activity. You can do this on a separate form, which must be submitted along with your first income statement after you have started up your business.
Unsure whether your business has become a taxable enterprise? The Norwegian Tax Administration has developed a guide to help you decide this.
Your hobby has become a business
Over time, a hobby can develop into commercial activity. Once you have started generating income, all your income attributable to the enterprise will be taxable and all your expenses will be deductible. When you believe that the conditions for taxable activity are fulfilled, you must submit income statement 1 (RF-1175) along with your tax return.
From the first year in which you are considered to be a business, you can have up to the previous five years approved as start-up years for the enterprise. In order to be entitled to deductions for previous years' start-up costs, form RF-1298 must be completed for each of the years concerned. These forms must be submitted along with your first income statement after you started the business.
TIPS: Make sure you retain all your income and expense vouchers linked to your activity from the first day. You will then be able to have your assessment for wealth and income tax amended for the start-up years.