Do you know if you are running a Business or Hobby?
You might be making handcrafted children’s wear at home and selling at the local market. You could be buying beauty or nutritional products for yourself and your family and selling to your friends and family for health benefits or to make a little cash.
So when does your hobby become a business for tax purposes?
There are many considerations taken into account by the Australian Tax Office (ATO) in deciding whether you are running a business or just conducting a hobby:
There are a number of factors that indicate to third parties that you are conducting a business.
- a) If you have registered a business trading name
- b) If your intention is to make a profit from the activity
- c) If you expect your operations to grow in size and scale
- d) If you are systematically organising your operations and conducting yourself in a businesslike manner
- e) If you have a separate business bank account
- f) If you are retaining business records such as invoices and receipts
Please note that there is not one factor on its own which indicates you are undertaking a business.
It is our view that you are conducting a business (which then needs to be disclosed to the Tax Office if:
- you aspire to build a business
- you are (at least in part) driven by an expectation of earnings.
If you think that you are in business, then income tax will apply to earnings, net of allowable deductions.
Good advice can help business people, especially those starting in business. Record keeping, tax planning and helping get the best tax result, can all be achieved by good advice from a reputable accountant.
Please contact us if you or someone you know is looking to turn your hobby into a profitable business and needs tax & business support. We can help you.