Determining if your business is a business or still in its hobby stage is essential for both how you run it and to your tax and legal obligations.
In Queensland, the difference between a business and a hobby is both your intent and your setup.
Let’s look at this; if you have the intent to make a regular income by marketing and selling goods and services with the aim to make a profit you generally will have what’s regarded as a business. Whereas if what you are doing is more something that you do for pleasure and occasionally make money, it will be classed as a hobby.
If you intend to make a profit and conduct yourself in a business-like manner and not just sell to family and friends in an ad hoc manner, you should class yourself as a business. Being a business includes if you are selling something online on social media, another platform like Etsy or eBay or your website. In these cases as far as the ATO and government are concerned, you legally run a business.
Now, it’s a myth that there is a dollar threshold to be in business. Some people can have very expensive hobbies! What matters is whether, as a whole, your activity is commercial with an aim to make a profit. I know we continue to say that over and over however if you are in business, there are dollar thresholds that can affect what you can claim for tax purposes.
Here are some other great tools to determine if you are starting a business or enjoying a hobby for fun.
- Here is a handy quiz created by the Australian Government that gives you an idea about what your obligations are in regards whether or not you are technically running a business and what to do next.
- For more information about Tax Basics for Small Businesses and other informative videos check out the ATO website.
- The ATO also offers a variety of free webinars on many topics that are important to know and understand when thinking of starting a business.
So now you should have decided whether you are in business or just enjoying a hobby. If you have decided that you want to continue enjoying your hobby that’s great, enjoy it, but remember if your intent changes and you now wish to focus on making a profit then it is time to start your business.
If you have decided you are in business not just enjoying a hobby, there are several things you need to decide, and over the next few pages, we are going to look at these topics, starting with our all-important checklist.