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Small business or hobby?

Many individuals who are considering entering the world of small business do so as a way of extending their own hobbies or personal interests. Often it is these people that do so full of enthusiasm and with the best of intentions, but not with a full understanding of the small business accounting taxation and legal implications. It is always best to seek out the advice of a small business accounting specialist before committing yourself and your valuable money and resources to a venture that may not actually be considered to be a business in the eyes of the Australian Tax Office (ATO).

Whilst there is no specific law to determine if you are in a business or a hobby, the ATO has numerous criteria that they will assess your activity by making a decision on whether or not your activity constitutes a business. This decision will then determine if income is treated as assessable income in your hands and hence required to be included in your annual income tax return.

Often individuals try and treat their hobby as a business in order to claim the expenses associated with the activity and utilise the loss to offset taxable income from other sources. Again, a word of warning here. Even if you are deemed to be in business, if you are constantly making a loss or do not have a minimum level of capital invested, there are very specific laws that may well preclude you from being able to claim that loss. Again the message is clear, get advice from a trusted source BEFORE making any sort of financial commitment that may come back to haunt you in the future.