As the enormous growth in technology platform such as Uber, Airbnb and Esty has made the sharing economy a hot topic, the ATO has announced recently that it will focus its attention on those receiving income from the sharing economy.
This business opportunity not only involves a new perspective of running a business, it also requires prudent consideration in order to stay on top of the tax compliance. Hence before entering into this technology platform, it is important to understand the differences between a hobby and a business for tax, insurance and legal purposes.
What is a hobby?
A hobby is a pastime or leisure activity conducted in your spare time for recreation or pleasure.
What is a business?
You’re in business, if your activity, as a whole, is commercial with an intention to make a profit.
How do I know if it’s a business or a hobby?
Key questions to consider:
- Is the activity being undertaken for commercial reasons?
- Is your main intention, purpose or prospect to make a profit?
- Do you regularly and repeatedly undertake your activity?
- Is your activity planned, organised and carried out in a businesslike manner?
If you answered yes to most of these questions, you’re likely to be running a business, although it depends on your individual circumstances.
For example: – Can those occasional drivers e.g Uber services treated as hobby?
According to the ATO, if you provide ride-sourcing services you are likely to be running a business, as you are providing your services:
- for a commercial reason
- with an intention of making a profit
- in a regular and repeated manner
- in a business-like manner including, for example, by issuing invoices to customers or engaging a facilitator to issue invoices on your behalf.
The guidance above would apply to Uber driver due to the following factors:-
- The intention or purpose of making a profit.
By choosing to be an Uber driver, you elected to use their specific pricing and payment model e.g. Uber web-based and mobile app, which is built to allow driver to make a profit.
- The profit was made in carrying out a business operation or commercial transaction
The driver-rider transaction deems to be commercial because:-
- Driver make a car available for public hire;
- The operation is maintained by a third party, for example a website or smart phone app provided by Uber (facilitator) to request a ride;
- The passenger providing fares to receive a service;
- The driver will make a profit through the services; and
- Both driver and passenger are conducted the same transaction repeatedly.
As a result, it can be concluded that driving for Uber meets the definition of a profit-making undertaking even if occasional or infrequent, thus this activity cannot be treated as hobby.
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