Your income doesn’t determine whether you are considered to be running a business for tax purposes.Prior to the introduction of the non-commercial loss rules a tax payer had to prove that they were running a business to be able to claim a loss they made against other income, such as salaries and wages. Under the current system there are a number of tests that must be passed before a person can offset a business loss against other income. Q. I’ve been making jewellery for years as a hobby and this year decided that I wanted to start selling the items I’ve made. So now I am making items with the intention of selling them.At what point does my hobby become a business? I’ve been told that it is in the intention and I should go and register for GST and all the usual things that go with a fully-fledged business. I’ve also been told that I don’t need to bother until my income is over $5000. I’ve had a look at registering for GST and setting up a business and it is very expensive for someone starting out with pretty much nothing except a pile of pretties to sell. What is the best way to sort this out without falling foul of the tax laws or making myself bankrupt in the process?A. As to whether you will be regarded as running a business by the ATO does not depend on your turnover, it however depends on other factors that have been developed over time as a result of various legal cases.The only time that turnover is taken into account is:for GST registration purposes you must register if the income is more than $75,000,to be able to claim a business loss by an individual against other income where the turnover must be $20,000 or more a year, andto be classed as a small business entity the turnover of the business must be less than $2 million in a year.The main thing that determines whether you are running a business is whether you are going about your activities in a businesslike manner. Some of the things that contribute to this are registering a business name, whether you have the intention of making a profit rather than just earning some income, have set up a separate bank account for the business, do you keep accounting records for the activities of the business, and whether you operate from business premises.This means if you are only selling the jewellery you make on an ad hoc basis, to friends and acquaintances, you would more than likely not be regarded as running a business and therefore do not have to include you activities on your tax return.If however you are selling your jewellery in an organised manner on websites such as eBay, are selling at markets on a regular basis, and you are generally setting about maximising your income from the jewellery sales, you would more than likely be regarded as running a business and by the ATO.
The original release of this article first appeared on the website of Hangzhou Night Net.