The key differences between having a hobby and a business are your tax, insurance and legal obligations.
It's important to understand the characteristics of businesses and hobbies to ensure you
correctly determine what your activities are.
Business
There is no single factor that determines if you are in business, but some of the factors you need to
consider include:
- You intend to make a profit – or genuinely believe you will make a profit from the activity – even
if you are unlikely to do so in the short term.
- You've made a decision to start a business and have done something about it to operate in a
businesslike manner, such as:
- registered a business name
- obtained an ABN.
- 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. This may include:
- keeping business records and account books
- having a separate business bank account
- operating from business premises
- having licenses or qualifications
- having a registered business name.
Benefits of running a business
If you run a business you can:
- apply for an ABN to use in your business transactions
- have the flexibility to manage your time and work your own hours
- register a .com.au website once you have an ABN
- access to government information, services and concessions for business
- establish a business identity when selling to customers and other businesses
- claim tax deductions for business expenses against your taxable income.
Hobby
A hobby is a pastime or leisure activity conducted in your spare time for recreation or pleasure.
Benefits of having a hobby
Having a hobby allows you to:
- gain personal enjoyment and satisfaction from the activity
- gift or sell your work for the cost of materials
- do it in your own time or when people contact you
- have no reporting obligations of a business.
What to do if you aren't sure
If you aren't sure whether your activity is a business or hobby, you can:
- learn more on the difference between a hobby and a business and whether the income
you've earned from your activity is taxable on ATO website
- seek professional advice from an accountant, legal expert or business adviser who can
help you decide whether you’re running a business or a hobby
- get a private ruling from the ATO. This will provide an answer that protects you from
penalties and interest.