A hobby is an outside interest that you pursue for fun in your spare time.
Hobbies are fantastic to have because they give you an outlet to do something of interest to you outside of your regular occupation and may even be relaxing or therapeutic. There comes a time however, when your hobby may have in fact turned into a business.
Now you’re probably saying “How will I know when I’ve got a business?”
Don’t fret! We’re going to provide you with some ways that you can quickly assess whether your hobby has morphed into a business and determine if it has all the characteristics of a business.
Ask yourself the following 5 questions to get a general idea about whether you may be operating a business:
- Do I have a reputation? People in your industry or region may be taking notice of you and your product/service.
- Am I getting more orders than I can fill? You get more orders in your down time, that you can schedule in time wise.
- Am I making a profit or do I expect to make one in the future?
- Do I have a master plan?
- You’re thinking beyond individual sales and are considering renting a shop, hiring employees, etc.
Know the characteristics of a business.
The following are some factors that can show if your activity is a business (for tax purposes):
- Your activity has significant commercial character. (activity carried out for commercial reasons/in a commercially viable way. ie advertise your service/product in the paper or online?)
- You have more than an intention to engage in business. (Smart use of online social media for advertising may qualify)
- You have the purpose and prospect of profit. (Goal orientated with getting 4 new clients a month, or 10% more in sales)
- Your activity is repetitious and regular.
- What is the size, scale and permanency of your activity?
- Is your activity planned, organized and carried out in a businesslike manner? (business records, business premises, business bank account, business name, licenses, trademarks etc)
With your new information from steps 1 & 2, go to the ATO website and check whether you have a business or a hobby.
If you sell products or services online, check whether it's a hobby or a business.
Once you have read the above links, be aware that even if you "think" you are a hobby, you may actually be a small business from a taxation point of view?
It is generally considered that if you "earn" under 20k and do not claim ANY expenses on the income that you are a hobby.
My advice would be to check with your accountant!
There you have it, a simple 4 step process to help you make a decision.
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