Most businesses stem from a passion, and many passions show themselves in our recreational and hobby activities. The lines begin to blur when we start making money from what we love, whether it be a full time or ‘spare time’ pursuit.
Hobbies are just that, you might recoup some of your costs to pursue your hobby but at the end of the day there is no intention to make a profit, whether in the short or longer term. As such hobbies don’t require any tax reporting – this means that whilst you don’t have to declare any income, you also cannot deduct any expenses incurred.
Businesses on the other hand are run with an intent to produce a profit – and therefore have some basic reporting requirements, such as declaring income in your tax return.
Whilst there’s no single rule to determine whether your activity is a business or hobby, some factors to consider include:
- Making a decision to start a business and acting on it – e.g. registering a business name or ABN
- Genuinely setting out to make a profit even if you believe that it may take some time to get there
- Repeating similar activities
- Scale of activity is consistent with others in your industry
- Carrying out activities in a business-like manner; being planned and organised. For example:
- Keeping records and account books
- Maintaining a separate bank account for business activities
- Operating from premises
- Having licenses or qualifications
- Registering a Business Name
You should revisit the above factors regularly to identify whether your hobby has evolved into a business.
The ATO has produced a decision tool for creative hobbies.
If your activities are a hobby and you supply goods and services to businesses, they may request your ABN to pay you. Generally, there is a requirement to withhold an amount from suppliers that do not have an ABN, however you can use the following statement to avoid this.
Advice here is general advice only. Please ensure you seek advice from your taxation professional to ensure that you are claiming correctly based on your individual circumstances.