This is the first in a 3 part series designed to assist the Australian hobbyist crafter determine if they need to set up as a business. It aims to provide relevant information to help youset about taking this next step; which can be confusing and a bit daunting! It is also a great time to consider this topic, with the start of the new financial year only a few weeks away.
Hobby to Business
When should I make the move from a hobby to a business?
The question of whether you are conducting a hobby or carrying on a business is an important one, as the answer will determine: whether you are eligible to apply for an ABN; whether or not you have to pay tax on your income (as well as whether you can claim expenses); and whether or not you can register for GST.
The hobby vs business question can often be a grey area. Here is a LINK to the items that the ATO recommend you consider when determining whether you are carrying on a business.
In summary, if you are conducting activities on a regular basis with a view to making a profit, and if you have a business plan and are running your activities in an organised, commercial manner, then chances are that you are running a business.
Often, people try and argue that they are carrying on a business if they are making losses from their activities. That way, they are able to offset their losses against other income they are making, in an attempt to get a tax refund. However, it should be noted that there are special rules which need to be considered if using this strategy.
If you decide that what you are doing is conducting a hobby then you don't need to do any form of registration; just keep doing what you are doing and keep life simple!
What does getting an ABN mean - do I get an ABN when I register as a business?
If you are conducting a business as an individual then you need to be running a business in order to apply for an ABN (different rules apply to companies and superannuation funds).
The ABN is a unique 11 digit number which: helps you claim GST credits; ensures businesses you deal do not withhold tax from payment made to you; and allows businesses to easily confirm your details for ordering and invoicing purposes.
Having an ABN can also assist with obtaining trade discounts as it is proof that you are carrying on a business.
You can register for an ABN online at www.abr.gov.au.
When and how do I register my business name?
There is no legal requirement to register your business name. However, registering a business name ensures that the name is protected in the state that you register it (i.e. nobody else is allowed to trade using the same name in that state). Following that logic, if you are trading under a business name that is registered by someone else in your state, then it is possible that the other party could take action against you.
You can register a business name at Consumer Affairs Victoria.
If you want to protect your business name Australia-wide then you have to register the business name in each state. Alternatively, you can set up a company with the name of your business (e.g. Craft Pty Ltd). A company name is protected Australia wide.
What if I already have an ABN for another business that I currently own; or have run in the past?
If you have an ABN for another business, then you can just add a trading name to that ABN (rather than getting a new ABN). So, if you want to run a craft business under one trading name and a different business under another trading name, you can use the same ABN for both businesses.
You can add trading names to an ABN online at the ABR website.
You can also find out how to add a trading name to an ABN HERE.
What does Sole Trader mean?
A sole trader means that you are running a business as an individual versus running a business through a company or trust structure. If you are a sole trader then you will disclose income and expenses related to your business in your individual income tax return.
Written by Sharon Parker of The Robin Street Market especially for the CHA.
Sharon’s 3 passions in life are travelling, enjoying good food with friends and family and buying unique handmade goodies. An accountant and small business advisor by day, Sharon recently started up the Robin Street Market which blends together her 3 loves. Her unique knowledge of accounting and the craft world makes her the perfect writer to assist CHA members with their small business accounting and taxation questions. Thanks Sharon for taking the time to share your wisdom with us! You can also follow Sharon on Facebook and Twitter.
Look out for the next 2 parts in this series; Taxation and Small Business, and Record Keeping and Business Management.
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