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Money Magazine Australia - - NEWS & VIEWS | THIS MONTH -

When a hobby means busi­ness

Ev­ery­body dreams of mak­ing money out of the thing they re­ally en­joy do­ing. But what if your dream comes true? What are the tax con­se­quences?

If you bake a few cakes and sell them at a lo­cal mar­ket on a Satur­day morn­ing, or knit quilts that you sell to friends, you might think it can’t pos­si­bly be tax­able.

Sadly, you’d prob­a­bly be wrong. Ev­ery year, the ATO pur­sues thou­sands of tax­pay­ers who thought they had a hobby but it con­sid­ered they had a busi­ness and taxed them ac­cord­ingly.

So if you an­swer yes to any of these ques­tions, your hobby might well have tipped over into be­ing a small busi­ness:

Is your ac­tiv­ity be­ing un­der­taken for com­mer­cial rea­sons?

Do you un­der­take it to make a profit? Do you reg­u­larly and re­peat­edly un­der­take your ac­tiv­ity?

Is it planned, or­gan­ised and car­ried out in a busi­ness-like man­ner?

The up­side of be­ing treated as a busi­ness, of course, is that as well as declar­ing your in­come you can also claim de­duc­tions for all your busi­ness-re­lated costs.

Some peo­ple make a loss from their hobby-busi­ness. Sadly, the ATO typ­i­cally doesn’t al­low you to off­set such losses against your other in­come. These “non-com­mer­cial losses” can nor­mally only be off­set against fu­ture prof­its from your hobby-busi­ness. MARK CHAP­MAN, DI­REC­TOR OF TAX COM­MU­NI­CA­TIONS AT H&R BLOCK. MCHAPMAN@HRBLOCK.COM.AU

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