Working out whether you are operating a business or hobby is important as a business is subject to tax, insurance, employment laws, and other legal obligations.
When you are running a business you need to apply for an Australian Business Number (ABN), keep proper records, and include the income and deductions in your tax return. You will be taxed on the profits (like any other taxable income).
Whether you are operating a business or hobby is a question of the facts in each situation. For example, two people could be both buying and selling rare coins on EBay, and for tax purposes one could be operating a business and the other a hobby.
Businesses have the following characteristics:
• The activity is planned, organised and carried on in a businesslike manner. This may include keeping business records, operating a separate business bank account, having licences or qualifications, having a registered business name, operating from business premises, etc.
• The size or scale of the activity is consistent with other businesses in the industry.
• The activities are repeated. For example, the taxpayer constantly buys and sells coins.
• Your objective is to make a profit, even if they are unlikely to do so in the short term.
• The taxpayer made a decision to start a business and has registered an ABN or applied for a business name.