Is my Hobby becoming a Business?

Start up a side hustle during lockdown? Not sure if you need to declare your income from your hobby? Read on for more information on whether your activities would be classified as a business or hobby, and your obligations for either.

There are many hobbies these days that can generate extra income, and it is important that this income is treated correctly in order to avoid nasty taxation implications. But sometimes it can be hard to tell whether what you are doing is a hobby or a business.

So, is it a business or a hobby?

What sometimes starts out as a hobby, like making jewellery for your friends, or doing your neighbours’ gardening, could very well turn into a business. A hobby would be something you do in your downtime for your enjoyment. But, a hobby can become a business if you start planning to make a profit from your activities.

There is no single factor that will determine if you are running a business, but some that you should consider are:

  • that you intend to make a profit from your activities;
  • you have decided to start a business and have taken steps to begin operating as one, like registering a business name or applying for an Australian Business Number (ABN);
  • that you repeat similar types of activities;
  • that your activity is planned and organised in a businesslike manner, including keeping business records and accounts, having a separate bank account, and having licenses or qualifications.

You can check the guidelines that the ATO provides on their website.

So it is a business – what now?

If you determine that you are carrying on a business, not just engaging in a hobby, then you have taxation obligations.

You will usually need to declare any income derived from your business on your annual tax return. However you will be able to claim tax deductions for any expenses related to your activity. You will also need to keep records for your business.

And you will probably need to register for an ABN. You will need to have your ABN on any invoices you produce. Without an ABN, other businesses must withhold 47% from payments made to you for tax purposes, so it’s best to have an ABN.

Don’t know? Need help?

Business versus hobby can be a particularly confusing area of taxation. If you have any doubt at all, you should seek the assistance of your accountant. As taxation experts they will be able to guide you as to whether or not your hobby will be classified as business, what the implications of this are and how to manage them.

Stone Accountants & Advisors are small business experts. We can advise you on what should be classed as income and how you need to manage your taxation obligations. If you have any questions about this article please feel free to contact us.