Business or hobby?

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This is very grey area of knowledge.

You may be unsure whether you're in business, or your activity is just a hobby. A hobby is a spare-time activity or pastime activity for recreation. Whereas business is run with the intention of making money.

This is very grey area of knowledge.

You may be unsure whether you're in business, or your activity is just a hobby. A hobby is a spare-time activity or pastime activity for recreation. Whereas business is run with the intention of making money.

Characteristics of a business

There are some indicators that you may be running a business.

1.You've made a decision to start a business and have done something about it, such as registered a business name or got an ABN.

2.Your intention is to make a profit or you believe you will make money from the activity, even if you're unlikely to do so in the short term.

3.You repeat similar types of activities.

4.The size or scale of your activity is consistent with other businesses in your industry.

5.Your activity is planned, organised and carried out in a businesslike manner.

 

If you run a small online business for fun, you may be worried whether the tax office is going to catch up with you for not declaring income or expenses. 

The above indicators are discussed in detail

1.    Activity has a commercial purpose or character

A business will work hard to make a profit.  An advertising activity, selling products, thinking of different ways they can make money, and operating on a commercial scale than a hobby activity just creating things for fun.  

2.    Activity has more than just an intention to engage in business 

You can’t just be sitting around and conducting your activity here or there, you must have this big vision in your head of how large your business can get and how much money your activity will make once the traffic starts coming.  If you want to be seen as a business by the ATO, you need to be out there DOING!  Taking steps to make things happen!

3.    Activity has a purpose of profit

In other words you need to be able to show that it is possible for your activity to make a profit, and make a profit running the business exactly how you are NOW.  You must prove to the Tax Office from looking at other successful similar activities who are seen to be running a business.  

4.    There is repetition and regularity

You need to be repeating your activity on a regular basis to be seen as a business by the ATO.

5.    Activity is of the same kind and carried on in a similar manner to that of the ordinary trade in that line of business

Look at other businesses that are making money and probably classed as a business.  Look at their websites, their Facebook page, their newsletters and their marketing strategies.  Are you operating anywhere near this level?  If not, then you need to step up your game plan if you want to be considered a business by the Tax Office.

6.    Activity is planned, organised and carried on in a businesslike manner such that it is directed at making a profit

Do you have a business plan, a cash flow forecast and clearly defined goals written on paper?  What is your volume of sales and who are your customers?  The Tax Office doesn’t like people who sell only to relatives and friends.  This is often a good indicator of a hobby type business.

7.    The size, scale and permanency of the activity

Small isn’t a determinative test, and a person can certainly carry on a business in a small way.  However, the larger the scale of the activity, the more likely it will be classed as the carrying on of a business by the ATO

When coming to a decision about whether your activity is a hobby or a business, all of the indicators above need to be considered together, and unfortunately the weighting given to each indicator may vary with each individual circumstance.

Just because you have an ABN number, registered business name and domain name. It doesn’t necessarily mean you will be considered a business.

To find out more if you are running a business or your activity is just a hobby go to Australian Government business website at https://start.business.gov.au/ to work out if your activity is a hobby or business.

Share it now!
This is very grey area of knowledge.

You may be unsure whether you're in business, or your activity is just a hobby. A hobby is a spare-time activity or pastime activity for recreation. Whereas business is run with the intention of making money.