What is a hobby, side hustle and business?
A hobby is a leisure activity that you enjoy and complete outside of working hours.
A side hustle is work that you complete outside of your primary job to gain additional income.
A business involves completing repeated activities with the intention of making a profit.
How do you know if your side hustle is a business or hobby?
Before you start a side hustle, you will have to determine whether it is a business or solely a hobby for tax, insurance and legal obligations. And if you’re generating income (whether it is through a side hustle or a profitable business), you will need to be aware of when the hobby could turn into a business and, the tax and admin implications that come with it.
Whether you’re running a business can be determined by the following factors:
- You’ve registered a business name with the Australian Securities and Investments Commission (ASIC), and/or obtained an Australian Business Number (ABN) through the Business Registration Service. An ABN helps identify your business in Australia and if you’d like to apply for one, click here.
- You aim to make a profit from your repeated activities.
- You keep business records and accounts.
A hobby is usually something you do for enjoyment outside of working hours and if you make money from it, it is considered a side hustle. It turns into a business when you aim to make a profit, rather than supplement your main income from your primary job.
It is important that you have a conversation with your advisor about the tax implications of starting a hobby, side hustle or business. This area is quite confusing and not clear cut. Often, issues such as declaring income and deductions are up to the ATO’s discretion, so you shouldn’t make these decisions on your own.
To book in a time with your Aintree Group advisor for more assistance, click here.
For more on identifying whether you’re running a business, click here.
What are the benefits of turning a hobby into a business?
The benefits include:
- You can register for an ABN and business name.
- You can register a domain name/website.
- You can claim tax deductions for business expenses.
- You can access government support programs and grants.
What do I do if I want to turn my hobby into a business?
There are a few things to consider when deciding whether your hobby is worth turning into a business. These factors include (but aren’t limited to):
- Whether you will still enjoy the hobby once it becomes a business activity.
- The success of your hobby in generating some income already and a customer base.
You will also need to consider the tax and legal obligations, business insurance and asset protection. You must ensure that your assets, workers and customers are protected if the business goes bust or something bad happens.
By law, all businesses must have worker’s compensation insurance, but you may want to look at other types of insurance such as income protection, public liability or asset insurance. For more on small business insurance, click here.
Many tax and legal obligations come into play when you turn a hobby into a business. These include reporting all your income on your tax return and paying tax on this income, lodging business activity statements, keeping records of activity and expenses and obtaining certain licences.
How to start a business
Conduct market research on your customer, product/service/s and competitors to understand your customer base and industry more. During this step, you can also identify a client profile and outline things such as their age group. interests, location etc.
Write a business plan
A business plan outlines all the elements of your business including your product/service, your customer base and how you’ll generate income. View our guide on how to write a business plan below.
Budget and Forecasting
It is important to create a budget and forecast how much money you’ll need to run (and keep running) the business, if you can afford it and if you’ll make a return in the chosen period of time.
Pricing and finance strategies
Getting your pricing and finances right is crucial to your success as it can affect the sales and profit you gain, as well as if you can afford to keep the business running.
You should consider what business structure is best for you before you start a business. The three main structures are sole trader, partnership and company. A sole trader structure is owned and run by an individual who is responsible for all aspects of the business by law, a partnership is owned by 2 or more people and a company is a seperate legal entity.
There are tax and legal pros and cons associated with the different structures that you should think about.
Learn some accounting and marketing basics
Before you start a business, you should have some basic knowledge around accounting areas such as bookkeeping, tax and record keeping. However, if you don’t want to take care of this yourself, we can help with all these areas and more at Aintree Group.
You should also know how to market your business, products and/or services to your potential and current customers. There are many cost-effective resources and tools available, but a good starting point is creating your own website and social media channels.
For more on marketing tools for small business, read our blog here.
Complete essential admin tasks
When starting a business, you’ll have to complete several administration tasks such as registering your business, creating a website and domain name, applying for any necessary licences and obtaining an ABN.
If you think your business is a long term activity, it may be worthwhile registering for a trademark for your business name. For more information on trademarking, read our blog here.
To ensure your business continues to thrive, you can get support from the following resources and grants:
- Business Australia’s website
- Business Registration Service
- Grants and programs finder
- ATO Small Business Income Calculator
- How to start a home-based business
How to write a business plan
Click below to download our guide to writing a business plan and our business plan template.
For advice on side hustles and hobby businesses, you should always speak to your advisor for individual advice before making any decision. Get in touch with our team at Aintree Group – we are more than happy to help!