Online Selling and Share Traders - Hobby or Business

More and more people are building online businesses. While some become highly successful, generating significant income over time, others may just meander along generating a small amount of income. In either case many online operations would start life as a hobby and may, over time, transition into a gernuine business.

Online selling activities are being scrutinised more and more by the ATO. So how would an operator determine whether their online activities is a hobby or a business? The ATO provies the following guidlines in determining the status of your online selling activities.

If you sell products or services online, you need to understand whether you are doing it as a hobby or carrying on a business.

Definitions:  
  • A hobby is a spare-time activity or pastime pursued for pleasure or recreation. 
  • A business requires some form of investment and enough customers to whom its goods or services can be sold on a consistent basis with the intention of making a profit. 

 When selling online becomes a business, the income you earn from it is subject to tax. If this is the case, you may also be eligible for tax deductions.

Quick checklist:

There are questions you can ask yourself to work out if you are undertaking a hobby, or carrying on a business that should be declaring income:
  • Did you set up your online sales with the intention of being a business? 
  • Do you pay for your online-selling presence?
  • Is your main intention to make a profit? 
  • Do you make repeated or regular sales? 
  • Do you sell your online items for more than cost price?
  • Do you manage your online selling as if it were a business? 
  • Is what you are selling online similar or the same as what might be sold in a 'bricks and mortar' business? 
Each time you answer 'yes' to a question the likelihood that you are carrying on a business increases. However, all of the questions need to be considered together to get an accurate picture of your personal situation.

What about share traders?

Do you sell or trade shares online? A share trader is someone who carries out business activities for the purpose of earning income from buying and selling shares. A share investor, on the other hand, is someone who holds shares for the purpose of earning income from dividends and similar receipts. See this post for details and checklist on Share Investor or Trader?

See these posts with tips, calculators and checklists to help you prepare your eTax Return (and get a better refund) with less hassle - checklist of eTax and Assessable Income and deductions and checklist of eTax and Allowable Deductions.

 For help with your eTax return see our eTax Return Checklist.

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Our Web Based Tax Return App will step you through all the necessary questions to increase your 2014 tax refund estimate and take into account all relevant tax deductions and tax offsets. Try it now. Its FREE to get started! 

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