What's the difference between a hobby and a business?

Starting a Business

A common question that the business advisors at The Polaris Centre are asked is, “what’s the difference between a hobby and a business?”  Well, there’s no one thing that says you’re doing one or the other, but rather a range of indicators that suggest you’ve moved from a hobby to a business.    According to the Australian Tax Office website these can include:

  • You’re starting to operate in a business-like manner.  Perhaps you’re keeping financial records, or operating out of a separate bank account, or you’ve printed up business cards or flyers, or even started to operate from dedicated premises to run your business.
  • You’ve registered a business name.
  • Your activities are becoming repetitive. For example, you regularly package up mail and send it out, you spend time each day answering customer enquiries, or you have to set aside time each day to deal with your activities.
  • Your actions are clearly intended to generate an immediate or later profit rather than for personal enjoyment. 

You might notice that there’s no turnover test mentioned in that list, for example, if my hobby turns over more than $25,000 then is it a business?  The reason that’s not covered is that there’s no such ruling made by the Australian Tax Office.

If you’re happy that you’re still running a hobby you do not need to declare your income.  On the flip-side you cannot claim your hobby expenses either.  There is one obligation that you do have though, if in the course of your hobby you supply goods or services to a business you may be asked to supply your ABN (Australian Business Number) to them.  As you’re running a hobby you will not have an ABN and will need to provide the business with a “Statement by a Supplier” form.  The Australian Tax Office has a template form you can use.

If reading this article has made you realise that you’ve actually transitioned from a hobby to a business then you need to think about what steps to take next.  This might be registering an ABN or a business name, or registering with the ATO for GST.  To learn more head over to our Starting a Business page.

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