Am I a running a business or is it Hobby?

The determination of whether you are running a business or a hobby are not set in stone and there are a number of factors to consider. The difference can be significant from a tax perspective. For losses incurred in a hobby there is no ability to offset these losses against other income.

Looking at your business there are four key aspects that should be considered:

• It’s intended that you make a profit or the activity has been undertaken with this in mind.
• Repeat similar types of activities, so it is not a one off transaction.
• Demonstrate consistency of business size and scale with other businesses in the industry, this tests your business against similar businesses and considers whether it has the attributes of a business.
• You carry out an activity that is planned and organised like a business.

For example, Roger buys and sells Lego on eBay, he keeps a running log of what he buys, keeps a level of stock and tracks this via a database. He runs a Xero account for the business and each month takes a stocktake. On this it would be considered that he is running a business trading Lego.

Kylie also buys and sells Lego on eBay, she doesn’t keep a log of what she is trading, doesn’t keep a stocktake and doesn’t have a database. She occasionally will buy large amounts of Lego at garage sales or from Facebook but she has no way of tracking what she hold. On this she would not be considered to be running a business.