Are you a Hobby or a Business?
Whether or not a person is running a business or a hobby is dependent on the individual circumstances.
There is no simple answer to whether you are in business or not - it depends upon the facts in each case.
However, the ATO offer the following questions to help you work out if 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 repetition and regularity to your activity?
- Is your activity carried on in a similar manner to other businesses in your industry?
- Is your activity 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 business, rather than a hobby, recreation or sporting activity?
Each time you answered yes to the questions above, it increases the probability that you are in business though no one indicator is decisive, they must be considered in combination and as a whole.
On the other hand, your activity is a hobby if:
- 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
- If your activity results in a loss, you are not entitled to offset this loss against other income or carry the loss forward.
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. Once hobbies start generating large incomes, it's important to assess whether or not it has become a business. Although there's no specific income marker for when hobbies turn into businesses, you need to look at the structure and intention of what you're currently doing.
There's detailed information on www.ato.gov.au, but if in doubt people are encouraged to contact the Australian Tax Office on 13 28 61. If you're carrying out a business rather than a hobby then the tax implications change significantly, so be sure to check.
More information about hobbies or businesses are available from the Australian Taxation Office website.