If you are accepting money in the form of a sale for a product or service, it is important you determine whether you are running a business or if it is simply a hobby. We’ve listed below the important details to help you understand them.
Running a Business
The below characteristics generally indicate you are running a business
- You made a decision to start a business and have taken action to commence your business such as applying for an ABN and registered a business name
- Your intentions are to make a profit and not just covering your costs
- Your business actions are repetitive
- The size or scale of your business are similar to that of other businesses in your industry
- You plan, organise and report your business activity
- You advertise your product or services
The below characteristics generally indicate you are pursuing a hobby
- You sell or gift your products or services for the cost of the materials used or time taken
- You sell your product or services to family & friends when they make contact with you
- You do not sell the products or services with the intention to make a profit
A few important things to remember, when running a business, you can claim the expenses incurred in running your business. If you are pursuing a hobby, no expenses can be claimed in your tax return in relation to this hobby.
There is always the possibility your hobby can turn into a business. You may start off by selling to a few people you know and your client base starts to grow. You can see there is a potential to make money from your hobby. At this point, you must consider applying for an ABN and start reporting your income & expenses.