There are key differences between having a hobby and having a business. These include differences in insurance, tax, and legal obligations.
Your obligations, like tax obligations, begin once you start a business.
What Makes A Business
There are many factors which can help you determine if you have a business rather than a hobby.
Some of these factors include:
- You intend to make a profit or believe you will in the future.
- You’ve decided to run it as a business and have registered a business name and gotten an Australian Business Number (ABN).
- Your activity is the size or scope of other businesses selling similar things.
- Your activity is done in a business-like manner.
- Having a business bank account.
- Opening up a shop.
- Keeping books and records.
- Having qualifications or licenses.
- Regularly doing the activity.
It’s important to keep these factors in mind as you grow and change your activities if you are starting out as a hobby. Then you’ll know when to register for tax and other legal obligations.
Hobby
A hobby is a leisure activity done in your spare time.
Hobbies do not have the tax or reporting obligations that businesses do.
A hobby can have many benefits including:
- Gifting or selling your work to cover expenses.
- Getting personal enjoyment and satisfaction.
- Doing it in your spare time.
- No reporting obligations of a business.
Managing Payments
One of the key differences is in how payments are received.
If you supply goods or services to a business, that business may request an ABN to pay you. If you don’t have an ABN and your activity is a hobby you will need to provide a “statement by a supplier” form which supplies evidence that your activity is a hobby. Otherwise, the business that’s receiving your goods and services will have to withhold the top rate of tax from their payment from you.
When It Becomes A Business
A hobby becomes a business once you intend to make a profit from it.
Ask yourself the following to determine if your hobby is actually a business.
- Am I doing this activity for commercial reasons?
- Is my main intention to make a profit?
- Am I regularly doing this activity?
- Is my activity done in a business-like manner?
Once you’ve decided that your hobby is a business there are certain benefits to making the shift.
These include:
- Claiming tax deductions for business expenses.
- Having a business identity to businesses and customers.
- Accessing government services, concessions, and information.
- Ability to apply for an ABN.
- Registry of a .com.au website once your ABN is approved.
If you’re unsure if you have a business or hobby the Australian Government has a tool you can use to figure it out.