Hobby or business?

We explain the differences

It is of vital importance that you understand the differences between a hobby and running a business, as your tax and other obligations kick in if you’re considered to be in business. 

In Business

You are in business if your activity as a whole is commercial and you sell items with the aim of making a profit. 

The Australian Taxation Office (ATO) website highlights the characteristics they use to determine a business:

• Activity you’ve generated which implies you’ve started a business:
   
  • registering a business name
  • obtaining an ABN
• The intention to make a profit even if this is some time in the future
• Your activity is repetitive
• The size and scale of your activity is similar to other businesses in your industry
• You operate in a business-like manner, i.e.:
   
  • you are keeping business records and account books
  • you have a separate business bank account
  • you operate from business premises
  • you have a license or qualifications
  • you have a registered business name

A hobby

A hobby is a leisure activity carried out in your spare time for recreation or pleasure. You are able to gift or sell your work for the cost of the materials.

If you're an artist or maker and you are receiving or plan to receive money from making things such as jewellery, paintings or baked goods, you can use the Hobby or Business tool on business.gov.au to work out which you are.

If you decide that your activities constitute a hobby rather than a business, then the ATO advise that there are no additional tax or reporting obligations. You may find that if you supply goods or services to businesses, you may get requests for your ABN when it comes to payment. In this scenario, because you do not have an ABN and your activity is a hobby, then you need to use the ‘Statement by a supplier’ form to proceed with payment.

If you decide to sell unwanted household goods or posessions that you don't want anymore, this is unlikely to be classified as a business. 

Keep these pointers in mind if you progress from hobby to business, so you know when you need to register for tax and other businesses responsibilities. Further information and some case study examples are available on the ATO website here.

Call in at your local TaxAssist Accountants if you require clarification or assistance on any of the above.

Date published 4 Sep 2019

This article is intended to inform rather than advise and is based on legislation and practice at the time. Taxpayer’s circumstances do vary and if you feel that the information provided is beneficial it is important that you contact us before implementation. If you take, or do not take action as a result of reading this article, before receiving our written endorsement, we will accept no responsibility for any financial loss incurred.