If you sell products or services online, you need to understand whether you are doing it as a hobby or carrying on a business.
The questions below can help you understand whether your online selling is a hobby or a business. Every ‘yes’ answer increases the likelihood you are carrying on a business – but you need to consider all of your answers to gain a complete picture of your situation.
Did you set up your online sales with the intention of being a business?
If you set up a ‘shop’ on an online trading or auction site, you are likely to be carrying on a business – especially if you paid fees to operate this ‘shop’.
Do you pay for your online-selling presence?
If the online space looks like a shop, has a brand name, proper business name or any other signs that people would likely to expect from a business, you are likely to be carrying on a business – especially if you paid fees for this to occur.
Is your main intention to make a profit?
If you sell items online because you intend to make a profit, then you are likely to be carrying on a business. For example, if you deliberately buy items to sell online for more money than you paid, then you are likely to be carrying on a business. However if you sell household goods or possessions that you don’t want anymore, although you may get a ‘good’ price it is unlikely to be a business.
Do you make repeated or regular sales?
If you sell items online on a regular basis, you are likely to be carrying on a business. These sales could be to the same customer, or a number of different customers. If you make the items you sell online, do you charge more than they cost you to make? If you charge more for items than they cost you, then you are likely to be carrying on a business. For example, if you make or buy an item cheaply and then sell it online for significantly more than you paid for it, then you have made a profit and might need to declare that income. If you do this regularly, you are more likely to be carrying on a business.
Do you manage your online-selling activity as if it was a business?
If you do any of the following, you are likely to be carrying on a business:
- your online-selling activity is organised and has systems and processes in place
- you advertise your online space
- you keep some or all of your records
- you have a business plan.
If you sell items in the same way and timeframe as a business in the same industry, then you may be carrying on a business.
Is what you are selling online similar or the same as what might be sold in a ‘bricks and mortar’ business?
If the items or services you are selling are commonly available or reasonably easy to find in a physical store, then you are likely to be carrying on a business.
Talk to an accountant or business adviser at Crosby Dalwood who can help you decide whether you are running a business or a hobby.
Source: Australian Taxation Office, Business News Room, 2016