Whether you sell products or services online, you need to know whether you’re doing it as a hobby or business. We listed some things to help you determine if what you’re doing is considered a business:
Did you set it up with the intention of being a business?
If you are carrying out business activities on an online trading or auction site, you are likely to be carrying on a business. For example, if you paid to use the site and are selling products and services for a profit, there is a strong chance you are carrying on a business.
Do you pay to strengthen your online presence?
Paying for advertising, buying your website domain name or using a digital marketing agency is generally considered a business activity.
Is your main intention to make a profit?
If you set up your online business with the intention of making a profit, you are most likely running a business.
Have you invested in creating the product or service you sell?
If you’re selling a product or service you’ve developed yourself, you are more likely to be deemed to be running a business. If you’re selling a service you don’t personally create, it’s more likely to be a hobby.
What are your income and expenses?
If your profit exceeds your expenses and you are making a profit then it is likely to be considered a business.
Do you make repeated or regular sales?
If you make regular sales it is likely to be a business.
Do you employ other people to help you?
If you employ other people to help you run your business, you are most likely running a business.
Do you charge more than the cost you make?
If you charge more than the cost you make then you are likely conducting a business. For example, you sell a product for $20 but the cost to produce it is $10.
How much time do you spend on your online business?
If you spend a significant amount of time on your online business, it is likely to be a business.
How to Determine if It's Only a Hobby
If you are only running an online business as a hobby, the tax implications for you can be different. If you are conducting your online business as a hobby and are not making a profit, or you are only making a profit from incidental sales, you should report these amounts as income from your hobby.
You don’t have to file an income tax return for the year, and you don’t have to report any income or expenses. However, for the years you don’t report your income, you can’t deduct any of your expenses either. If you make occasional sales, you can report these sales in the years you do file and claim any expenses.
The Bottomline
As you can see, there are some things to take into consideration when determining whether you're running a business or a hobby.
If you’re still unsure if you’re running a business or hobby, speak with a tax advisor or accountant to determine your best course of action.
Running an online business? Then you need an accountant in Australia. The Ecommerce Accountant has a team of business advisors for online stores and influencers. Get in touch with us.