Hobby v Business

In today’s freelance economy, more and more individuals with part-time and full-time jobs may be encouraged to commercialise their hobbies that provide a source of side income. It is relatively simple to setup an account on websites such as freelancer.com or fiverr.com, or even start your own Youtube channel and advertise your hobby to earn money. In a way, these hobbies operate as mini-businesses, taking up a few hours of extra work every week and also providing you with another source of revenue.

But where do the categorical constraints of a “hobby” end, and where does a “business” begin? And, once you recognise it, how can you change things to turn your hobby into a full-fledged business? It is this distinction between the two that is very important from a tax perspective, because according to the Australian Taxation Office, a business has reporting requirements such as declaring income earned and claiming expenses.

There is not really a single rule to determine the exact point when your hobby turns into a business, however the ATO does provide some guidance. You will need to consider things like:

• Have you registered a business name;
• Have you applied for and received an Australia Business Number (“ABN”);
• Is your dominant purpose to make profit;
• Are you repeatedly carrying out the activity in a way that’s taking up all your time or at least on a full-time basis; or
• Have you opened a bank account for the activity.

If you are have answered yes to the majority of these questions, then you may well be running a business instead of a hobby. If you are unsure or thinking about turning your hobby into a business, perhaps it is time to see an accountant to assist you with all the hurdles that come with starting a business. Here at Venture Private Advisory, we can assist with start-up businesses and provide you with all the necessary support that you need to succeed.

By Damir Turkanovic. Senior Accountant – Venture Private Advisory.

You might also want to read this article Is it just a hobby, or are you in business?.