Business or Hobby?

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By Michael Craig

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.

Want to know more?

If you would like to know more about the issues raised in this article, please contact Michael Craig our Business Advisory Senior Manager for assistance.

An Important Message

While every effort has been made to provide valuable, useful information in this publication, this firm and any related suppliers or associated companies accept no responsibility or any form of liability from reliance upon or use of its contents.  Any suggestions should be considered carefully within your own particular circumstances, as they are intended as general information only.

 

 

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