HOBBY or BUSINESS
The ATO has recently released an article on their website titled “Turning a hobby into income? You might be in business”. The article goes on to say “you might not think you’re running a business from your hobby or side hustle activities.
If you’re starting to earn money from doing these activities regularly, you may be carrying on a business without realizing it”. The article states that generally carrying on a business involves ongoing and reoeated activities with the intention of making a profit. These activities can include :
- Keeping records of your work
- Obtaining and maintaining any necessary permits and licenses
- Regularly providing goods or services
On the other hand your activities may indicate that you’re not operating a business where:
- Your transactions are one-off
- You don’t intend to make a profit
- You work solely as an employee rather than independently
In a recent Administrative Review Tribunal hearing a dog breeder found that his activities amounted to the carrying on of an enterprise for GST purposes and also carrying on a business for tax purposes. He was also levied with a 50% penalty on his amended BAS. The tribunal found that the taxpayer:
1 was engaged in marketing
2 had a distinct email address
3 entered into contractual arrangements with customers
4 registered as a breeder and maintained that registration and sought pedigree certificates
5 sold puppies and made a profit.
The tribunal also found that there was a repetition and regularity of activities and it did not matter that the operations were small. The tribunal further found that while the taxpayer did not maintain accounts, did not have a business plan, did not carrying on the breeding operations in an organized business like fashion, the operations did have the badges of a trade and was in the form of an adventure or concern in the nature of a trade. The tribunal found that the breeding operation was not a private recreational pursuit or hobby.
If the pursuit is a business and a loss is made taxpayers still need to get over the non-commercial loss legislation to be able to claim the loss against other income.
Basically to claim the loss the taxpayers need to pass one of the following tests:
1 Assessable income must be greater than $20,000
2 Make a profit in 3 of the last 5 years
3 Have real property greater than $500,000
4 Have other business assets (excluding real property and cars) greater than $100,000.
The provisions do not apply to primary producers or professional arts business provided their other income is less than $250,000.
