Many people start various types of small home businesses
without really understanding or considering the implications this may have on
their tax position, insurance or other legal obligations. Problems can arise
that may not have been considered and yet become very expensive for the
"hobbyist / business owner". For this reason, it is important to
understand the differences between a hobby and a business. According to the Australian taxoffice, the main questions to consider are:
Is the activity undertaken for commercial reasons?
Is your primary intention, goal or prospect to make a
profit?
Do you do your activity regularly and repeatedly?
Is your activity being planned, organized and executed in a
businesslike manner?
If you answered YES to most of these questions, you probably
have a business, although it depends on your individual circumstances. What if
it is a hobby? If your activity is a hobby, you must complete a “Supplier
Declaration” as proof to anyone with whom you transact that the service you
provide is a hobby, and therefore you do not need to have an ABN. Normally,
without an ABN, the company should withhold 49% of the payment for tax
purposes. As long as you provide your customers with a "Declaration by
Supplier" form to inform them that the service you provide is a hobby,
there is no need to withhold this payment. Keep in mind that while your
activity may have started as a hobby, the nature of your activities may change
and your hobby may have grown into a business over time. It is important that
you keep an eye out for any change in income or practices so that you are aware
of your obligations before they arise. If you are in business? You will have
to:
State your income to the ATO in your annual tax return
Register for an ABN
Determine your requirement to be registered for GST
(thresholds apply)
Claim deductions on your expenses.
Keep records of your business for tax and other liabilities.
Check for other licenses or permits specific to your type of
business that may be needed (i.e. if you have a home business, you may need
council approval to work from your home).
What about income from my hobby?
You do not have to declare the amounts you earn with your
hobby to the ATO. You cannot claim a loss of your activity if it is a hobby.
There is NO dollar threshold that determines whether you are
in fact a business. Some people can have very expensive hobbies! The point is whether
your activity as a whole is commercial with the aim of making a profit.
For more information visit website https://www.numberspro.com.au/
