Is it a Hobby or a Business?

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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

Hobbies

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.

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Warren Kruger

Specialist Tax Consultant - “Helping YOU Pay The Correct Tax And Not A Penny More”. My story starts on Christmas Eve, back in 1983 in South Africa.

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