Hobbies often result in the creation of valuable products, like clothing, food, or furniture. Some hobbies can even give the hobbyist a marketable skill. A person whose hobby is photography may have the opportunity to sell their photographic services for a profit!
When your hobby begins to involve a certain amount commercial activity, it becomes a business. At this stage, you may need an Australian Business Number and you may have to make changes to your taxation arrangements. But how do you know when this point has been reached?
This article will help by explaining how an ABN works. We’ll also help you understand when your hobby has become a business and needs an ABN. Let’s get started!
What is an ABN?
An Australian Business Number (ABN) is a unique registration number for businesses. It is issued by the Australian Business Register (ABR), which is a branch of the Australian Taxation Office.
An ABN number can be issued to many types of business entities including sole traders, corporations, partnerships, unincorporated associations and body corporates.
The ABN registration is a simple process and only takes a few minutes if you include it when register your company with eCompanies.
An ABN number is required for certain business activities like registering a business name, forming a corporation, or obtaining a trademark. There are a couple of advantages from having an ABN, including:
- GST and fuel tax credits
If you have an ABN, you can claim both GST credits and fuel tax credits on your business activity statement (BAS).
- You can use a single ABN across multiple enterprises
If you have multiple commercial hobbies, you can combine them under one ABN, simplifying your tax arrangements.
- You can use a business name
Having an ABN allows you to register a business name with the ABR.
- People paying you won’t have to withhold as much tax
If you don’t have an ABN, if someone employs you to make something or perform a service, they may have to withhold tax. If you have registered your business and obtained an ABN, they won’t have to. While there is a provision in the tax code for getting paid for work relating to hobbies, it is usually simpler to manage your tax affairs if you have an ABN.
How do you know if it is a business or a hobby?
Here are a few signs that your hobby may have turned into a business:
- Is your hobby resulting in a lot of commercial transactions?
If there is a lot of buying and selling of products or services associated with your hobby, it is well on its way to being a business. For example, if your hobby is carpentry and you find yourself selling dozens of pieces each year, your hobby could have become a business.
- Is your main intention to make a profit?
If you set out to make a profit on the products or services associated with your hobby, it may be a business. For example, if it costs you $200 in materials to make a timber table, but you sell that table for $500 to make a profit, you probably have a business on your hands!
- Do you regularly and repeatedly undertake the activity?
Most people perform their hobbies between 1 to 10 hours per week. If you find yourself spending 10 or more hours per week performing your hobby, it is probably turning into a business.
- Do you plan your hobby like it is a business?
If you have started organising your hobby like it is a business, it may be a business! That includes time spent planning jobs, advertising, organising purchases or talking to customers.
If you are still unsure, you can use a tool provided by the Australian government on the business.gov.au website. You can find it at https://start.business.gov.au . It is designed to help artists, creatives, and makers determine if they have a hobby or a business on their hands.