Are you conducting a hobby, or running a business?

Many people start off making items such as jewellery, clothing or art for the fun of it, and either give them away as gifts or sell them occasionally to friends or relatives. This kind of activity is generally regarded as purely a hobby, conducted for enjoyment, rather than profit. If however, your products start to become popular and prove to be in demand, you might start thinking about turning your hobby into a business. So when does a hobby start to become a business, and how does this change things? Read on to find out!

The differences between hobbies and running a business

The main differences between having a hobby and running a business come down to your intentions and the way in which you conduct your operations.

If you sell or gift items or services purely for enjoyment and pleasure, in a sporadic, ad hoc manner, in your spare time, then you are most likely participating in a hobby. If however, you start intending to make a profit from your activities, begin advertising, or list items on a site like eBay in an organised manner, on a regular basis – then this is where it starts looking more like a business.

Contrary to popular belief, your activities do not need to meet any monetary turnover or income thresholds for it to become a business. It generally comes down to intent and methods of operation.

If you are not sure which category your activities fall under, it’s always a good idea to contact the Australian Taxation Office (ATO) directly or you can book a consultation with one of our advisors at Hart Partners.

What are my obligations when running a business?

If you decide you want to turn your hobby into a profitable business, there are certain obligations you will need to meet. Your exact legal, reporting and tax obligations will differ depending on the business structure you decide to use (sole trader, partnership etc.) and your personal circumstances.

However, as a business you may need:

* An ABN (plus GST registration if you expect your income to reach $75,000 or more)

* A separate business bank account

* A registered business name

* Records of all income, expenses and associated business transactions

* To report your business income to the ATO at the end of each financial year.

If you are considering turning your hobby into a small business, and are unsure how to go about it, it pays to get the right advice upfront. This will help to ensure you meet all legal and tax obligations and will set your business on a path to success.

Hart Partners are experts at helping new small businesses thrive, so turn your business dream into reality, and contact us today on (03) 9600 3220.