Home – New Forums Starting your journey Hobby Or Business?

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  • #968740
    aussiematthew
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    Hi everyone,

    My sister wants to make children’s clothing herself and has asked me information that I am not too sure about, so I thought I might ask here if that is ok?

    She wants to make one offs or individual children’s clothing from scratch and sell them online through sites like facebook groups or eBay etc.

    Can anyone please give me some advise as to when does a hobby become a business. She is basically wanting to do this as a hobby as such, and earn a few dollars, but if it takes off, it may become more than a hobby….

    Is she better off registering as a business now and doing everything as a business or seeing how it goes first? Is there a dollar value or sales value as to where a hobby becomes a business?

    If it is run as a hobby, does she have to add clothing care labels, size labels etc, or can she just advise the people that she sells to the requirements?

    I am not sure where to direct her to, as she is trying to fulfill her dream of making her own kids clothes. I hope this forum may shed some light or direct me in the right place to guide her.

    The tax office says that she needs to determine whether it was a hobby or not and gave the example of someone making ceramics and selling them was a hobby as such but didn’t elaborate more on clothing?

    Consumer affairs stated that clothing made by a business by law requires labels, but there was nothing about a hobby.

    I am in Adelaide, South Australia.

    Please help.
    Thank you in advance.
    Matthew

    #1034899
    trakka
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    Hi Matthew

    Have a look at this link from the ATO

    http://www.ato.gov.au/corporate/content.asp?doc=/content/00199712.htm

    I am sure that it used to be if it was under $10k income and met the above criteria than it would be considered a hobby.

    Hopefully one of our helpful accountants will come along and give you some more clarification.

    Tracy

    #1034900
    MattR
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    The issue of whether or not something is a hobby or a business is a question of fact, not necessarily turnover. There are links in the ATO site that detail more on this, but at the end of the day it’s basically a judgement call.

    One thing to consider is “losses”, where a “hobby” incurs a loss and the taxpayer tries to offset that loss against other income, such as wages income to reduce their tax bill. This tends to upset the taxman – hence there are now “Non-commercial loss” provisions in place to stop this – or at least quarrantine any losses until the business is profitable. So if it’s a hobby don’t bother with the taxman, it’s not worth the agravation. If its a business the provisions still apply but there are exceptions that will allow you to apply that loss against other income.

    If it’s a business then do all you can up front, within reason, in getting ready. As for clothing labels I really have no idea – I would presume their are standards for the clothing and textiles industry.

    #1034901
    SewSpunky
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    The question is not one that can be answered simply. She needs to look at the same question from many different perspectives.

    In the ATO sense – while effectively as soon as she sells she is making taxable income, when running at such a small level it is unlikely she would be making any actual profit once running costs were factored in. Her best bet from a taxation/accounting perspective is to talk with her accountant BEFORE she does anything.

    Business registration – this is state dependant. In Qld yes she would need to register her business if she is going to sell under any name other than her actual name. If she sells as Jane Bloggs that is fine. If she sells as Jane Bloggs’ Clothing it needs to be registered. Other states have different rules so she’ll need to look up what is appropriate for her.

    Unless she is only selling 2nd hand products, she will need to have appropriate care labels permanently affixed to her clothing. This is covered under Australian Standards so it is worth her doing some research into this to ensure she is including all the required info in the correct format. This is an easy to read brochure on the topic – the actual Standards cost a fair bit to buy so it’s unlikely she’ll find a free copy anywhere.

    Hope that helps a bit :)

    #1034902
    Melinda B
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    She’s also going to need a fair bit of PLI – what happens if a thread or a button comes loose and chokes a kid? Someone reacts to the fabric content or dye used?

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