When carrying on a business, earnings must be declared as income, and tax deductions are available for associated 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).
- Article: Hobby or business? What’s the difference?
- Article: ATO clarifies meaning of ‘carrying on a business’
- Article: When does your hobby become your business?
- Ruling TR 2019/1 provides ATO commentary and clarification of when a company is considered to be “carrying on a business”
- Determination TD 2019/D4 – a company whose only activity is renting out an investment property cannot claim the CGT small business concessions in relation to that investment property.
- TR 2005/1 – whether a professional artist is considered to be carrying on a business
- TR 97/11 – what is meant by the phrase ‘business of primary production’ for tax purposes and applies to individuals
- TR 2008/2 – parts A and B of this ruling consider whether racing, training and breeding activities (i.e. the horse industry) amount to the carrying on of a business for tax purposes
- TR 2004/4 Income tax: deductions for interest incurred prior to the commencement of, or following the cessation of, relevant income earning activities
- TR 2021/D5 Income tax: expenses associated with holding vacant land – section 26.102 limitation of deductions from 1 July 2019, and a number of exclusions
- Tax Return lodgement dates
- Year end tax planning
This page was last modified 2021-08-06