Am I a hobby or a business?
Thought this might be better off in a thread of its own. This info is from ATO site, but as always please see your accountant or talk to the ATO if you need further clarfication.
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Am I in business?
How do I tell whether I am in business?
There is no simple answer to whether you are in business or not, it depends upon the facts in each case. However, you can use the following questions to help you determine whether your activity is actually a business:
- Does your activity have a significant commercial purpose or character?
- Do you have more than just an intention to engage in business?
- Do you have a purpose of profit as well as a prospect of profit?
- Is there is repetition and regularity to your activity?
- Is your activity carried on in a similar manner to other businesses in your industry?
- Is your activity is planned, organised and carried on in a business-like manner?
- Does your activity have characteristics of size, scale and permanency?
- Would it be true to say your activity is really better described as a hobby, recreation or sporting activity?
Each time you answered ‘yes’ to the questions above, it increases the probability that you are in business.
Why does it matter whether my activity is a business?
It matters because it may affect whether:
- any money you receive from the activity is assessable income
- you are entitled to an Australian business number (ABN), and
- you can or must register for goods and services tax (GST).
- How does the question of whether my activity is a business affect my tax?
- There are numerous areas in which people carry out activities, often in a small way, which may constitute a business. These include, for example, gardeners, tradesmen, and couriers.
If you are carrying on a business:
- any money you earn from this activity is generally assessable for income tax
- you are generally entitled to claim tax deductions for any allowable expenses you incur in earning this income, and
- if your activity results in a loss, you may be entitled to offset this loss against other income or carry it forward to offset against future income, and therefore reduce the income tax you might have to pay in the future.
- Common areas where people carry out activities which may be a hobby rather than a business include hobby farming, motor car/bike racing, and hobby ceramics.
- If your activity constitutes a hobby or recreation:
- any money you earn from this activity is generally not assessable income
- you are not entitled to claim tax deductions for any expenses you incur in carrying out this activity, and
- if your activity results in a loss, you are not entitled to offset this loss against other income or carry the loss forward.
Apportionment of expenses
It may be necessary to consider whether your expenses were incurred solely for business purposes, or for a `dual purpose' (for example, partly for business purposes and partly for private purposes).
Generally, if your expenses were not incurred purely for business purposes, it is necessary to apportion your expenses between the different purposes.
What evidence might I have to show that my activity is a business?
These are examples of questions that the Tax Office may consider in determining whether your activity constitutes a business:
- Do you have a business plan?
- Do you use specialised knowledge or skills?
- Have you had prior experience in this area?
- How much capital have you invested in the activity?
- Have you done market research?
- How much time do you spend on the activity?
- Is the activity a part-time `side-line' or your main income earning activity?
- Do you give quotes and supply invoices?
- Do you advertise?
What to read/do next
If you are still unsure whether or not you are in business, please phone the Small Business Infoline on 13 28 66.
