Do I need an ABN?

Knowing when to register a business can be confusing. Do you need to register a business if a hobby starts making a profit? How do you know when an activity is a hobby or a business?

Understanding the difference between a hobby and business is important when it comes to tax, insurance and legal purposes. However, knowing when your hobby has become a business can be a bit tricky. Here are some tips on how to differentiate between the two and when you should register for an Australian Business Number (ABN).

What is a hobby?

According to the Australian Government, a hobby is defined as a pastime or leisure activity conducted in your spare time for recreation or pleasure.

If your activity is a hobby, you’re not in business, so are not entitled to an ABN. When transacting with a business, you will need to provide evidence that you’re activity is a hobby, or the payer will withhold 49% of your payment for tax purposes.

Hobbies that bring in income can sometimes grow into business though, so it is important that your monitor changes in income or practices, so that you’re aware of your obligations before they happen.

What is a business?

According to the Australian Government, you are in business if your activity is commercial with an aim to make a profit, you regularly undertake your activity and its planned, organised and carried out in a business-like manner.

When a hobby becomes a business, you may need additional licences and permits specific to your type of business. Generally, you will need an ABN, and you will be required to declare your income to the ATO in your annual return.

What is an ABN?

An Australian Business Number (ABN) is an 11 digit number that identifies your business to the government and community. While not everyone needs and ABN, if you are running a business you will. When you register for an ABN you can register for GST and a business name at the same time, get an AUSkey and receive endorsement as a deductible gift recipient or an income tax exempt charity.

If you’re still unsure as to whether your activity is a hobby or business, head to the Australian Government website for more information.

 Originally posted on the InfoTrack Blog.