Q: How do you know if I'm operating a business or a hobby?

A: A hobby is an activity you conduct in your spare time, for your own personal enjoyment.

A business is an activity you undertake in a business-like manner, with the goal of making money.

If you want to turn your hobby into a business, it's important that you understand your tax, insurance and legal obligations.

Check out our Business or a hobby? page to find out how to turn your hobby into a business in 2015.

A business or a hobby?

A hobby is a pastime or leisure activity conducted in your spare time for recreation or pleasure. It's important to understand the differences between a hobby and a business for tax , insurance and legal purposes. If you're working from home or selling handmade goods online for example, you need to decide whether you are doing so as a business or a hobby.

If you develop your hobby into a business, you need to establish your status early as it will affect your tax and deductions. Failing to declare your business activities and income could lead to fines and penalties on top of the tax you may otherwise pay to the ATO.

How do I know if it's a business or a hobby?

Some key questions to consider:

If you answered yes to most of these questions, you're likely to be running a business. The ATO website provides further questions, information and examples to help you understand the differences between a hobby and a business.

What do I need to do if it's a business?

When running a business you pay tax on the money you earn, can claim for deductions on your expenses and generally need an Australian Business Number (ABN). These do not apply if your activities are just a hobby.

Once your hobby becomes a business, you will also need additional licences and permits specific to your type of business. If you're running a home-based business for example, you may need council approval depending on the type of business.

What to do...

  • Is the activity being undertaken for commercial reasons?

  • Is your main intention, purpose or prospect to make a profit?

  • Do you regularly and repeatedly undertake your activity?

  • Is your activity planned, organised and carried out in a business-like manner?

  • Read Business or hobby- why does it matter? on the ATO website or call the ATO on 13 28 66 to determine whether you are running a business or a hobby.

  • Doing business online? Read through the ATO info on Online Selling - hobby or business? for examples of each.

  • Read our Registration and licences topic for more info on registering for an ABN and a business name.

  • Read through our Business structures and types section to help decide on your structure or type.

  • Register for free tax webinars on the ATO website to stay up to date with a variety of tax topics.

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