From the ATO website:

29 November 2010

A recent court case has highlighted the importance of being sure that an activity that you might think is a hobby, actually is. It’s important because if an activity constitutes a business, rather than a hobby, it means any money received from the activity is assessable income for tax purposes.

In Liverpool Local Court on 11 November, a person who raised and sold over 1200 turtles was found to be in business rather than, as the person claimed, simply enjoying a pastime. The turtles were sold in New South Wales after purchasing them from an interstate supplier, advertised via the internet and payments were received in both cash and direct deposit to a bank account. Gross sales were in excess of $100,000 over a three year period and were not reported on the income tax returns.

The person was convicted and fined, including a penalty of $1,500, costs of $122 and an order to pay an additional tax penalty in excess of $9,000. So, if you fail to correctly declare when you are in business, you may have additional costs and penalties on top of the tax you would have paid.

Of course, being in business doesn’t just mean the money you receive from the activity being assessable income for tax purposes. It also means that any loss you make can be offset against other income you earn in that year or in future years. Also, if you are carrying on a business you are entitled to an ABN and you may choose to register for GST. You must be registered for GST if your annual turnover is $75,000 or more.

How to tell if you are in business…

You would normally be considered to be in business for tax purposes if you enter into an activity with the intention of running it as a profit-making business, and if the activity is carried out in a way that shows it has a significant commercial purpose and viability.

While tax law does not provide a detailed definition of a business, the following ‘business indicators’ have been used by various Courts and Tribunals to determine whether a business exists for tax purposes:
• Does your activity have a significant commercial purpose or character?
• Do you have more than just an intention to engage in business?
• Do you have a purpose of profit as well as a prospect of profit?
• Is there repetition and regularity to your activity?
• Is your activity of the same kind and carried on in a similar manner to businesses in your industry?
• Is your activity planned, organised and carried on in a business-like manner?
• Does your activity have characteristics of size, scale and permanency?
• Would it be true to say your activity is really better described as a business, rather than a hobby, recreation or sporting activity?

These indicators give general guidance as to whether your activity is a business. If your activity does not satisfy all of the indicators it does not automatically mean that it is not a business. However, it is likely that, if you answer ‘no’ to all these questions, your activity would be considered a hobby.

Warning: This information may not apply to the current year. Check the content carefully to ensure it is applicable to your circumstances.

Shared with you by – Maureen Millar

Jim’s Bookkeeping Northern Gold Coast (Helensvale QLD 4121)

Maureen Millar is the owner of Jim’s Bookkeeping Northern Gold Coast and she supports small business’ in Helensvale and across the Northside of the Gold Coast. To find out more about Maureen, visit her profile page at http://www.jimsbookkeepingbrisbane.com/maureen-millar.html or request her free report to discover “How to Stabilise & Grow Your Business in 7 Easy Steps“