There are many hobbies these days that can generate extra income, and it is important that this income is treated correctly in order to avoid nasty taxation implications.
It's called the 'sharing economy'. If you do odd jobs to earn some extra cash from time to time, rent out a room in your house or even make websites for your friends and then charge them for it, you may be part of the sharing economy.
Generally, this new form of income generation comes about through the connection of 'buyers' and 'sellers' usually via a specific website, or even an app, and you are often able to bid against other providers for the job. Uber is a great example of this. If you occasionally provide ride-sharing services, then you are a part of this new economy.
So, is it a business or a hobby?
If your activity generates income, then you need to consider this questions. Basically, if your activity is something you do in your spare time for your own enjoyment, then it can probably be classed as a hobby. But if you are doing the activity with the specific intention of making money, then you are running a business. Just to be sure though, you should check the guidelines that the ATO provides on their website. They also provide a tool that can help you decide.
A hobby is a spare time activity for enjoyment, a business requires investment and has the intention of making profit.
If you determine that you are carrying on a business, not just engaging in a hobby, then you have taxation obligations.
Let's use ride-sharing as an example. If you only operate infrequently in a non-commercial manner, then you may not be running a business. However, if you are providing these services to the public, in a business-like manner such as providing invoices etc, then you are carrying on a business. In this situation you should have an ABN, and depending on your income, be registered for GST. You will also be required to lodge BASs and perhaps pay GST as well. For more information on ride-sharing services visit the ATO website.
Don't know? Need help?
Business versus hobby can be a particularly confusing area of taxation, so if you have any doubt at all, you should seek the assistance of your accountant. As taxation experts they will be able to guide you as to whether or not your hobby will be classified as business, what the implications of this are and how to manage them.
Stone Accountants & Advisors are small business experts. We have the knowledge to advise you on what should be classed as income and how you need to manage your taxation obligations. Give us a call today on (03) 9870 7247 if you would like to know more about our services or drop us an email at firstname.lastname@example.org.