Are you in Business or is it just a Hobby?
This tax-time it is important to understand the differences between a hobby and a business. Your tax and other obligations start once you are in business.
Characteristics of a Business
There is no single factor that determines if you are in business, but some of the factors you need to consider include:
You've made a decision to start a business and have done something about it to operate in a businesslike manner, such as:
registered a business name, or
obtained an ABN
You intend to make a profit – or genuinely believe you will make a profit from the activity – even if you are unlikely to do so in the short term.
You repeat similar types of activities.
The size or scale of your activity is consistent with other businesses in your industry.
Your activity is planned, organised and carried out in a businesslike manner. This may include:
keeping business records and account books
having a separate business bank account
operating from business premises
having licenses or qualifications
having a registered business name
Characteristics of a Hobby
If you determine your activities are a hobby then you do not have any additional tax or reporting obligations.
If your activities are a hobby but you supply goods or services to businesses, they may request your ABN when they pay you.
Because you do not have an ABN and your activity is done as a hobby, you should use the 'Statement by a supplier' form. This will avoid the business you are supplying having to withhold an amount from their payment to you. You can locate the form here
Please note: If you have an ABN and are GST registered, but you now believe you are conducting a hobby and not a business you must cancel any GST registrations and amend any past Activity Statements if you have claimed GST credits for purchases associated with your hobby.
Online Selling Hobby or Business
If you sell products or services online, you need to understand whether you are doing it as a hobby or carrying on a business.
The questions below can help you understand whether your online selling is a hobby or a business. Every 'yes' answer increases the likelihood you are carrying on a business - but you need to consider all of your answers to gain a complete picture of your situation.
Did you set up your online sales with the intention of being a business?
If you set up a 'shop' on an online trading or auction site, you are likely to be carrying on a business - especially if you paid fees to operate this 'shop'.
Do you pay for your online-selling presence?
If the online space looks like a shop, has a brand name, proper business name or any other signs that people would likely to expect from a business, you are likely to be carrying on a business - especially if you paid fees for this to occur.
Is your main intention to make a profit?
If you sell items online because you intend to make a profit, then you are likely to be carrying on a business. For example, if you deliberately buy items to sell online for more money than you paid, then you are likely to be carrying on a business.
However if you sell household goods or possessions that you don't want anymore, although you may get a 'good' price it is unlikely to be a business.
Do you make repeated or regular sales?
If you sell items online on a regular basis, you are likely to be carrying on a business.
These sales could be to the same customer, or a number of different customers.
If you make the items you sell online, do you charge more than they cost you to make?
If you charge more for items than they cost you, then you are likely to be carrying on a business.
For example, if you make or buy an item cheaply and then sell it online for significantly more than you paid for it, then you have made a profit and might need to declare that income. If you do this regularly, you are more likely to be carrying on a business.
Do you manage your online-selling activity as if it was a business?
If you do any of the following, you are likely to be carrying on a business:
your online-selling activity is organised and has systems and processes in place
you advertise your online space
you keep some or all of your records
you have a business plan
If you sell items in the same way and timeframe as a business in the same industry, then you may be carrying on a business
Is what you are selling online similar or the same as what might be sold in a 'bricks and mortar' business?
If the items or services you are selling are commonly available or reasonably easy to find in a physical store, then you are likely to be carrying on a business.
If you're an artist, creative or maker and receiving or plan to receive money from creating things such as jewellery, paintings or baked goods, you can use the Hobby or Business tool on business.gov.au to work it out. Locate the tool here
Information obtained via www.ato.gov.au and www.business.gov.au