Nearly everyone knows someone with a side hustle. Just to name a few examples, this may include backyard sale of plants, sale of home-made crafts via Facebook Marketplace, online sale of photographic prints or sale of cakes from a home-based kitchen.
Initially, it might have been an extension of your hobby. You made a few cuttings from plants in your backyard, grew them into decent-sized plants, then sold them for a small profit which then funded expansion of your plant collections. Or you baked a themed cake for a gathering and your friends said, ‘This is so good! You should sell them!’. So you set-up a Facebook page which attracted a few thousand likes and resulted in daily sales of cakes from your home-based kitchen.
So when does your hobby become a business?
According to ATO, there is no single factor that determines if you are in business. There are a few factors, which include:
- Intention to make a profit, or if you genuinely believe that you will make a profit from the activity, even if you are unlikely to do so in the short term.
- You repeat similar types of activities.
- The size or scale of your activity is consistent with other businesses in your industry.
- Your activity is planned, organised and carried out in a businesslike manner.
You may be deemed to be running a business even if you have not registered a business name or do not have an ABN, especially if you have a website which generates income, a Facebook business page or Instagram account which has a good number of followers.
There is a “Hobby or business?” decision tool which is hosted on the business.gov.au site. It is not a tax-specific tool as it mentions other criteria such as consumer law. However, it is a useful tool to help you to determine your situation.
If you’re in doubt, it is always wise to seek the advice of an accountant. And if it turns out that you are deemed to be running a business, it is probably time to work out the business structure for yourself, your tax obligations and other responsibilities of a business operator.
Disclaimer: This blog post has been simplified to cover some key points of whether you are carrying on a business or not. This should not be construed as advice from Glint Accountants. There are many other factors to be considered and each person’s situation is unique. Therefore, we encourage readers of this blog post to contact Glint Accountants for assistance with their specific circumstances.
Geraldine Lee is a Fellow of CPA Australia and successful business owner, who is currently in a new phase of life where she mentors and helps to incubate online start-up businesses. Contact us at Glint Accountants for assistance if you believe that your hobby is now turning into a business and would like advice on the nex steps.