Are You in Business?

Work out whether you’re in business and when your business starts for tax purposes.

What is a business?

Generally, a business involves a set of continuous and repeated activities you do for the purpose of making a profit. Profit can be in money, but it can also be made through other means, like being paid with goods or services (such as a barter deal).

A one-off transaction can also be a business if it is either:

• intended to be repeated
• the first step in starting a business.

You can run one business or multiple businesses at the same time.

You can follow the steps below to help you work out if your activities are a business.

When you’re not in business

Not everything you do to make money is a business.

Your activities are not a business when they are:

• a one-off transaction (unless it is the first step in carrying on a business or intended to be repeated)
• done as an employee
• a hobby or recreation from which you don’t seek to profit
• a simple investment, such as passively holding shares on which you receive dividends or a rental property you let through an agent.

Even if you’re not in business, you may still need to declare certain payments you receive as assessable income in your income tax return. For example:

• rent or income from providing services
• the market value of goods or services you receive in a barter deal
• dividends from shares you own
• payments from a one-off transaction.

If you enter into a one-off transaction, such as one that involves the sale of small-scale land subdivisions, you need to consider whether your profit from the transaction is assessable as ordinary income or a capital gain. For more information, see Taxation Ruling TR 92/3 Income tax: whether profits on isolated transactions are income.

When a company is not in business

Most companies are in business if they intend to and are likely to make a profit.

However, some companies are not in business. For example, a company is not in business if it:

• holds assets solely for its shareholders’ private use, and its running costs are funded solely by its shareholders
• provides social and recreational activities for members without seeking to make a profit.

Steps to work out if you are in business

Step 1: Identify all relevant, related activities

Examples of relevant, related activities include:

• keeping records
• obtaining and maintaining licences and permits
• if you rent out premises or goods, everything you do to rent out those premises or goods
• if your activity is providing goods or services, everything you do in providing them.

Step 2: Are the activities a business?

The more of the following questions you answer yes to, the more likely it is your activities are a business:

• Do you intend to be in business?
• Do you intend to and have a prospect of making a profit from your activities?
• Is the size or scale of your activity enough to make a profit?
• Are the activities repeated and continuous?
• Are your activities planned, organised and carried out in a business-like manner? For example, do you
  • keep business records and have a separate business bank account?
  • advertise and sell your goods and services to the public, rather than just to family or friends?
  • operate from business premises?
  • maintain required licences or qualifications?
  • have a formal business plan or budget?
  • have a business name or an ABN?

If you’re still not sure whether your activities constitute a business, you may need to consider the indicators that a business is being carried on in more detail, including relevant court decisions. These are discussed in the following tax rulings:

• For an individual, partnership or trust, see Taxation Ruling TR 97/11: Income tax: am I carrying on a business of primary production? While this ruling is about primary production, the principles it explains can be applied more broadly.
• For a company, see Taxation Ruling TR 2019/1 Income tax: when does a company carry on a business?

Example: assessing if you are in business

Angela is employed as a mechanic at a local garage. She helps her employer upload a few how-to videos on a video sharing platform to create awareness and drive business to the garage.

Angela discovers she can monetise popular content and creates her own video sharing channel with the intention of making a profit. She uploads videos of how to fix machinery.

When Angela’s channel starts to grow, she:

• sets up a production schedule that sets out the type of content she will produce on a weekly basis
• buys lighting and sound equipment to improve her production quality
• asks a friend to help her advertise her channel on social media
• paints her channel logo on the side of her truck to advertise
• joins the video sharing platform’s Partner Program and starts earning money
• records all expenses from her content creation activity.

Angela wants to know if her ‘side hustle’ activities are a business.

Step 1: Identify all relevant, related activities

• Angela identifies all the activities involved in her video sharing activity, including the continuous and repeated production schedule and filming, purchasing of equipment to generate more revenue, advertising, and monetisation partnership.
• She does not include the work she does as an employee at the garage.

Step 2: Are her video sharing activities a business?

Angela looks at all her activities together. She determines that she is in business because she:

• intends to run a business
• intends to make a profit to supplement her salary and wage income
• sets up a regular schedule for these activities
• operates in a businesslike way, has a plan and system for making a profit, keeps records, and promotes and advertises her activity.

End of example

When does your business start?

It is important to know when your business starts. This will affect the registrations you must have and when you need to apply for them.

It may also affect:

• how tax laws apply to your activity and the assets you use in that activity
• the tax concessions or deductions available to you.

Your business starts when you have more than an intention to be in business and have:

• made the decision to start the business
• acquired the minimum level of assets to start running your business
• started your business activities.

Have your activities changed?

If your activity changes in a major way you must reassess whether you are in business. For example, this could be if:

• you are now making a profit or have an intention to do so
• your activity was originally a hobby, but you make arrangements to make money from it, such as monetising online content you created
• you are in business but change, pause or stop your activities.

Source: ATO