Has my hobby become a business?

A hobby is an outside interest that you pursue for fun in your spare time. Hobbies are great to have because they give you an outlet to do something of interest outside of your regular occupation and may even be relaxing or therapeutic. There comes a time however, when your hobby may have in fact turned into a business. Now you're probably saying, "How will I know when I've got a business?"

Don't fret - We're going to provide you with some ways that you can quickly assess whether your hobby has morphed into a business and determine if it has all the characteristics of a business.

  1. Ask yourself the following five questions to get a general idea about whether you may be operating a business:

    - Do I have a reputation? People in your industry or region may be taking notice of you and your product/service.
    - Am I getting more orders than I can fill? You get more orders in your down time, that you can schedule in time wise.
    - Am I making a profit or do I expect to make one in the future?
    - Do I have a master plan?
    - You're thinking beyond individual sales and are considering renting a shop, hiring employees, etc.

  2. Know the characteristics of a business

    The following are some factors that can show if your activity is a business (for tax purposes):

    - Your activity has significant commercial character (activity carried out for commercial reasons or in a commercially-viable way, for example advertising your service/product in the newspaper or online)
    - You have more than an intention to engage in business (smart use of online social media for advertising may qualify)
    - Your purpose is profit (for example, getting 4 new clients a month, or increasing sales by 10 per cent)
    - Your activity is repetitive and regular
    - What is the size, scale and permanency of your activity?
    - Is your activity planned, organised and carried out in a business-like manner? (business records, business premises, business bank account, business name, licenses, trademarks etc)

  3. With your new information from steps 1 and 2, visit the ATO website to determine if your activities are a business or hobby, If you think you may be an online business, check this link.

Once you have read the above links, be aware that even if you "think" you are a hobby, you may actually be a small business from a taxation point of view. It is generally considered that if you "earn" under $20,000 and do not claim any expenses on the income, then your hobby is not a business. My advice would also be to check with your accountant if you aren't sure.

By Amanda Hoffman, SavvySME.com.au

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