The Internet has certainly grown exponentially since it emerged a few decades ago. It's now an integral part of most Australian lives. A huge portion of the population has a Facebook account and is actively involved in social media, while an increasing number of people have opted to use the World Wide Web to develop their business interests. Many people have grown a hobby into a commercial enterprise and some without even knowing it. From a tax perspective, how careful do you need to be if you are expanding your virtual presence in this way?
Business or Hobby
Certainly, the Internet is a treasure trove of information, and you can learn a variety of different skills from the comfort of your home. This means that you may be able to expand on an existing body of knowledge or a talent so that what you produce may be of interest to other Internet users. This can make the line between a pure hobby and a business operation difficult to determine, but it's something that each Australian engaged in this way needs to be wary of.
Questions to Ask
Essentially, you need to ask yourself a number of questions so that you can satisfy the tax authorities one way or the other about your enterprise. A hobby, by definition, is something that you engage in purely for personal enjoyment, even though there may be some monetary transactions along the way. When this occurs it should only be a question of paying for the cost of your raw materials and not a situation whereby you intended to make a profit. It's also important to gauge the amount of time that you spend on your hobby and not be so engaged that you have a predetermined schedule. If you end up advertising online to promote what you're doing and, importantly, make a profit over and above your expenditure, then this has now crossed the line into the realm of the business world.
You may not need to be too worried if you occasionally strike a slight profit when considering revenue versus expenditure and if you did not set out to achieve this outcome. However, if you are regularly returning such a profit and you have set your prices with this aim in mind, then you will need to register your activities with the ATO.
Obligations
When you get to this point, you need to consider whether to set yourself up as a sole trader, a partnership or a company, and there are a variety of different tax implications associated. In fact, you will also have to fill in a number of forms to satisfy reporting obligations and will need to look a lot more closely at your business plans.
Have a word with taxation preparation professionals to differentiate between a hobby and a business in your case so that you are always on the right side of the law.
Share23 May 2018
Hi, everyone. Nancy here. I am currently studying for my degree in mathematics. As part of the “maths in the workplace” component of my degree, I am doing an internship with an auditing firm. Of course, getting to apply maths in a practical setting has been an absolute joy, but there have been a number of frustrations too. It has been a real eye-opener to see how many businesses have a haphazard approach to accounting and book-keeping. One of the jobs the auditing firm undertakes is to recommend improved accounting practices. A number of businesses which have hired professional accountants since the last audit have definitely thrived! I hope this blog captures the beauty of applying mathematical principles to business and using tried and true accounting methods. I trust my entries add up properly to give you an equal share of information and inspiration. Thank you.