When carrying on a business, earnings must be declared as income, and tax deductions are available for expenditure (subject to rules covering the claiming of losses).

By contrast the income from a hobby is tax free, and associated deductions cannot be claimed.

What is carrying on a business?

Whether a business or hobby exists for tax purposes is determined from factual circumstances.

No single fact or circumstance is conclusive; it is rather the combination of facts and circumstance which can lead to a conclusion that an entity or individual is carrying on business for tax purposes.

“Business-like” indicators include:

  • Obtaining registrations as a company or other entity, and/or a business name, ABN, tax withholdings (etc.)
  • Having relevant industry licences and permissions and qualifications
  • Establishment of a separate business bank account owned by the relevant business entity
  • Mind-set of the owners: the genuine belief and intention to (eventually) make a profit
  • Repetition of business activities
  • Realistic size and scale of activity and investment compared to other industry operators
  • Activities are planned and organised
  • Having and maintaining business records

The Tax Office has provided information here (including a list of relevant indicators).

See also

Business Tax Links

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This page was last modified 2019-04-26