Hobby or business?

Sometimes it’s difficult to determine whether your activities constitute a hobby or a business. It’s important to understand and know the difference between the two because of the various tax, insurance, and legal implications.

What is the difference between a hobby and a business?

The easiest way to find out if you are running a business or a hobby is to ask yourself a few simple questions. Here’s a quick test:

  • Is the activity being undertaken for commercial reasons?
  • Do you have the purpose and prospect of making a profit?
  • Are you regularly and repetitively undertaking the activities?
  • Is your activity planned, organised and carried on in a business-like manner?

If you answer yes to more than two of these questions, it would be reasonable to assume that you are operating a business. If you are running a business it has some significant taxation implications and if you fail to correctly declare when you are in business, you may have additional costs and penalties on top of your ATO tax bill.

 

 

So I think I’m running a business ...now what?

If you are operating a business, you will need to apply for an Australian Business Number (ABN), and you may also need to register for Goods and Services Tax (GST).

All revenue generated by your business activity forms part of your assessable income and consequently may incur tax. On the up-side, any expenses incurred in earning this income are deductible, and any losses can be offset against other income.

In addition to the taxation implications you may also need to consider which business structure is most appropriate to your needs. You should also consider if you need to register a business name and whether you need to organise business insurance.

What's next...

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Related Information

Checklist to view:
Business Starters Checklist


Business guides to view:
Process Strategy
People Strategy

Workshops

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