What is a Hobby

      From an Income Tax point of view it is anything you do or have other than run a legitimate business or an employee of a legitimate, business entity. 

      You are limited to a total of $50,000 per year “Turnover”. You must distinguish income from your Hobby(s) from that income from investments, salary and or wages. 

      A Hobby is anything someone likes to do to occupy him/herself outside normal paid employment in which PAYG tax is involved. A Company, for instance, could not have a Hobby.

Which are Hobbies?

      It is usual that Amway and other MLM (multi level marketing) salespersons only have a Hobby. Their masters, on the other hand, might have a Small Business where Income Tax must be considered. The ATO makes Private and Public Tax Rulings on this form of Income from time to time.

       A Sport like ProAm Croquet is considered a Hobby even though they play for a Sponsored Prize money or other but within the $50,000/Year value. Whereas, a Professional Football player on a weekly or yearly contracted salary over that amount would not be considered to have his sport as a Hobby. (He/she could, at the same time no doubt, have ProAm Croquet as a Hobby and the same arrangement would exist on that prize money.

      A housewife who charges her children for “board and lodging” has a Hobby. This is probably the biggest “Cash Economy” legitimate tax evasion in Australia. It is estimated that it runs to about $5,000,000,000 (Five Billion Dollars) per year. 

     Consider

       A Prime Minister once considered it appropriate to tax these housewives. It was pointed out too soon, that it would turn the family home into a commercial Boarding House. Everything then, would be tax deductible. Estimated loss of Income Tax to that Prime Minister – about $10,000,000,000 (Ten Billion Dollars) per year. 

       On the other hand, that PM would have had every housewife, with boarding children, vote for his party for turning her into a tax loss business..

      A retired professional person who plays ProAm Croquet might, for instance, make himself available to Coach ProAm Croquet as a Hobby. 

      He might also lecture ProAm Croquet players as a Hobby. If he were to lecture so at a Tax Deductible Seminar on Tax Planning Tactics and Strategy, or Business Tactics and Strategy at Wanaka Country Club, New Zealand, his remuneration and reimbursement would cover his fare, accommodation, meals and travel. If he did this through the whole summer it would be unlikely that the maximum Turnover of  $50,000/year would be exceeded.

     Turnover is not profit. Consider the above ProAm  Croquet Coach. Most of his Turnover would be gross profit. When his expences are taken out he has little profit. But $50,000 Turnover takes a long time to accumulate.

     Consider then a Hobbyist who buys old or veteran cars to do up to sell. If he sells two vehicles for $25,000 each in July that's his turnover ($50,000) - end of the Hobby for the year and his profit could have been negitive. That is, he is out of pocket - but has had a lot of fun. 

      Perhaps he should lecture others on how to restore veteran cars instead where his input costs are much lower.

  When are you considered to have a Hobby rather than a Business?

       You can consider yourself in a Hobby if the total "Turnover" of your Hobby does not exceed $50,000/year. However, you might be in a situation where a legitimate business would buy your goods or services with cost to them of over $50. 

       In which case you should avail yourself of the ABN and GST Registration (free for ProAm Croquet players) from the ATO. 

      Otherwise, your client would have to "withhold" almost 50% of the value for tax. 

      Added to that is the prospect of loosing the sale because of the paperwork hassle your business client incurs. Which is a put off.

       Basically, you can identify yourself as a Hobbyist when you:

1.      Have no planned or reasonable expectations of a profit from your enterprise or activities.

2.      You have no system, tactics or strategy in carrying on your activities. (i.e. un-business like. Unfortunately most businesses that fail, fall into this category, unknowingly).

3.      Your Hobby activities do not have a commercial character about them. That is, you are not competing unfairly against someone set up to do the same thing as a viable business. But of course, within reason.

Why be a money making Hobbyist?

Well, there are some gains and some losses therein.

  The gains:  

1.      You do not have to pay Income Tax on your Hobby income.

2.      You don’t need to keep books of account (but should anyway)

3.      You don’t need to keep an eye out for the Feds (unless you’re into selling drugs)

4.      You don’t need to comply with workplace safety (but should work safe anyway)

5.      You don’t pay Workers Compensation Insurance (should have Public Risk Insurance)

6.      You don’t worry about Unions.

7.      No Sickness Benefits payments, paid holidays, maternity leave, Superannuation.

8.      You don’t worry about GST, CGT, BAS, IAS, SGC, VAT or MBL, possibly no even TFN.

9.      The whole family can have a Hobby like ProAm Croquet (at $50,000/year/person) Wow!

10.  You and members of your family can be Sponsored to play and compete at ProAm Croquet. If Sponsored by a legitimate business entity, it would be as a tax deduction for their business.

11.  You can win a Sponsored (Tax Deductible) prize at a ProAm Croquet Tournament that would be Tax-free for you and yours.

12.  You can register for GST and ABN (free to ProAm Croquet Players) and save the problem of “Withholding Tax”

13.  You can, with an ABN, GST Registration, sell your wares (goods or services) to a legitimate business, the general public or other Hobbyists, with no big Tax problems for them - or you.

14.  With the ABN Registration you can give a legitimate Tax Invoice. This, with the proscribed ATO required information for the sale to a business.

15.  With the proper Tax Invoice and Receipt your Business clients might claim a tax deduction upon that Receipt. This would make your wares more attractive than otherwise.

16.  You could own your own Small Business like making widgets. But you could also have a Hobby coaching ProAm Croquet and selling your students Vampire Croquet Equipment or ProAm Croquet Seminars at the Wanaka Country Club, New Zealand.

17.   You have the necessary input for the Vampire Program if you also own a small Family Business

      These are the losses in having just a Hobby rather than a Small Family Business on the Simplified Tax System.

1. You can’t tell your friends you own a Business (the Hobby)
2. You can’t claim any ATO ITAA97 s8(1) tax deductions for the Hobby.
3. You can’t claim any asset Depreciation on Hobby stuff.
4. If you use any business depreciable asset for the Hobby you must proportion the value accordingly.
5. You don’t have all the facilities of the Vampire Banking Program
6. You can’t claim any of the GST back on the Goods and Services you use in the Hobby.
7. The “Withholding Tax” drama on G&S over $50 if no ABN will catch you.
8. You will be a tad unwelcome to do business with business without that Tax Invoice.
9. If the legitimate business does not get the proper Tax invoice for goods or services over $50 they will have to withhold almost 50% of the value as Tax
10. You can reclaim withheld amounts at the end of the financial year but that is more book work and you are out of pocket for up to and possible longer than a year.
11. You can’t income split. Which is a moot point if the whole family has the same Hobby.
12. You don't get the full use of the *Z-Tax

 *Z-Tax: Zero Tax: Avoidance by Exchange; Exchange taxable income for non-taxable income.

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