True or false?

A hobby becomes a business when a certain dollar amount is ‘made’ or ‘spent’?

This is the general rule of thumb thought by many but it is not actually true. What matters is whether, as a whole, your activity is commercial with an aim to make a profit. Here are some points to consider if you are not sure:

Benefits of being a hobby
  • Personal enjoyment and satisfaction
  • You can gift or sell your work for the cost of materials
  • Can be done in your own time or when people contact you
  • There are no reporting obligations that are required by a business
What is a business?

You’re in business, if your activity, as a whole, is commercial with an aim to make a profit.
This applies if you are selling online or traditionally.

When a hobby becomes a business

So the key questions to consider are:

  1. What is the prospect that I will make a profit?
  2. Do I genuinely believe that I will make a profit from my activity even though it may not be immediately?
  3. Is my activity planned, organised and carried out in a business like manner such as
    keeping business records and accounts, having a bank account for transactions, holding licenses or qualifications or perhaps having a registered business name?

If you answered yes to any of these, you may require an Australian Business Number (ABN).

If your activities are a hobby but you supply goods or services to businesses, they may request your ABN when they pay you. Because you do not have an ABN and your activity is done as a hobby, you should use the Statement by a supplier form. This will avoid the business you are supplying having to withhold an amount of tax from their payment to you.

It is understandable that this is a confusing area. To look further into starting a new business get in touch with us.