With the recent rise of online market stalls like Etsy and Ebay and the resurging popularity of community market days, the lines between what constitutes a business and a hobby are becoming increasingly blurred.
Whilst attending the occasional market stall on an ad hoc basis to sell your homemade jewellery or jam may not be considered a business, the more formal and regular your selling activities become, the more likely you are to be considered a business and subject to the legal and tax obligations that accompany that status.
For this reason, it is very important that you are clear on your legal status and know your obligations. If you are gaining a stream of income, you must declare this in your tax returns to the ATO and with any other government bodies that you have reporting obligations with, like Centrelink. Should you fail to report this income, you may be liable for penalties and fines in addition to payment of backdated tax to the ATO. Similarly, there may be legal consequences for not declaring received payments to Centrelink if you receive any form of pension, subsidy or payment from them.
If you are unsure as to whether your selling activities amount to a business or hobby, you might like to consider the following questions:
Is the activity being undertaken for commercial reasons?
Is your main intention, purpose or prospect to make a profit?
Do you regularly and repeatedly undertake your activity?
Is your activity planned, organised and carried out in a business-like manner?
The Federal government’s online business resource business.gov.au suggests that if you answered yes to most of these questions, you are likely to be running a business.
If you are thinking of transforming your hobby into a business, or starting a business that involves your hobby, there are certain legal requirements that you must meet. For the purposes of tax and supply or purchase of goods, you will need to register for an Australian Business Number (ABN). Your ABN is your business’ unique identification number which you provide to suppliers for trade purposes and to the ATO for tax payment and expenses claims. You may also need to seek business insurance and be aware of employment-related legal obligations if you choose to take on staff.
Your legal status and accompanying obligations are specific to your individual case. If you are considering starting up any new business, it is recommended that you seek specialised advice from qualified taxation and legal practitioners.
For more guidance on whether your activities may amount to a business, the Australian Tax Office provides further information at: