Is This Just A Hobby Or Are You Really Doing Business?

    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.

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