Is your activity a Business or Hobby?

Is your activity a Business or Hobby?

Ever wondered if what you are doing constitutes a business or a hobby?  You are not alone. A lot of small businesses start off as a hobby.  Doing something your passionate about and enjoy as a side hobby can very…

A lot of small businesses start off as a hobby.  Doing something your passionate about and enjoy as a side hobby can very easily turn into a successful profitable business.

Why is it important to differentiate you may ask?  Well, that is because running a business has important legal and tax obligations.

Below is a summary of some of the characteristics to help you determine if the activity you are undertaking is deemed to be a business or a hobby.

REMEMBER: Even if it’s a hobby to start, you may need to keep these factors in mind if your activities change and grow.  It is important to review your activities on a regular basis and consult an Accountant if anything changes.

Characteristics of a Business:

  • You’ve made the decision to start a business and operate it in a business-like manner. For example, registered a business name, obtained an ABN, opened separate bank account, obtained licenses/qualifications
  • You intend to make a profit
  • You repeat similar activities
  • The size and scale of your activity is consistent with other businesses in the industry you operate

As mentioned above, businesses have several legal and tax obligations.  If you believe you are, in fact, running a business, or are still unsure please get in touch with us for further clarification and advice.

Characteristics of a Hobby:

A hobby is defined as an ‘activity done regularly in one’s leisure time for pleasure’.  The important distinctions here are:

  • gain personal enjoyment from the activity
  • have the flexibility to do it in your own time
  • choose to gift or sell your work for the cost of materials. There is no intention to make a profit.

If your activity is a hobby, you do not have any reporting obligations.  Because no income is reported, you also cannot claim any expenses relating to the hobby and hence can’t claim any losses.

Sometimes, its beneficial to set your hobby up as a business, especially if you are looking at claiming losses.  It is recommended to get an Accountants advice if you believe that this may apply to you.

Online selling

If you are engaging in on-line selling, the same characteristics apply as above.  See below a list of questions.  The more you answer yes, the more likely your are carrying on an on-line business.

  • Did you set up your online sales with the intention of being a business?
  • Do you pay for your online-selling presence?
  • Is your main intention to make a profit?
  • Do you make repeated or regular sales?
  • If you make the items, you sell online, do you charge more than they cost you to make?
  • Do you manage your online-selling activity as if it was a business?
  • Is what you are selling online similar or the same as what might be sold in a ‘bricks and mortar’ business?

The Next Steps:

Please contact us immediately if you are unsure or if you believe you are carrying on a business based on the information above.  We can help guide you with setting up your business properly as well as providing training on how to run your business.


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