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  • #977994
    Benc
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    Hi all

    I have been on the ATO and business websites and I am more confused than ever!

    I started a very small handyman business (maybe 2 hours a week max) with just an ad in the local paper. Mainly as a way to see if I would want to do it in the future and to gain some experience. I have only made about 2k.

    Coming closer to tax time it occured to me perhaps I need to be registered. I did the ABN test and as I started this mainly as a hobby it said I didn’t need one but as I have made money perhaps I am wrong.

    Any advice welcome I want to do the right thing but have no idea where to start.

    Thanks

    #1103988
    JacquiPryor
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    Hi Benc,

    Have you read this page at the ATO website?

    Looking at the above page, and seeing your post, I would suggest that you are operating as a business rather than a hobby. The fact you describe yourself as a “very small business” and have made some money (with an intention, I assume, to make more profit) and there is repetition to your work (even if only a couple of hours a week) ticks off a few of the questions the ATO puts forward to help determine whether you are a business or hobby.

    At the very least, when trading a business you will need an ABN – and, if you are calling the business something other than your own name, you will also need to register a business name.

    Hope this helps – all the best,

    #1103989
    victorng
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    It would be unusual for someone to advertise their hobby in the local paper.

    #1103990
    Past-Member
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    A friend of mine, works part-time and also has a small business; has advertised their product, has a dedicated website and sells via gift shops. Also did the rounds of markets in the beginning. As they have not turned over $20K the ATO won’t recognise any of the deductions until they reach that amount. The accountant is holding them over for the 3 years hopefully being able to deduct in the future. The ATO still classes it as a hobby for now.

    It is very frustrating when there is so much evidence that it is being taken seriously.

    There’s been a few threads on this. The most recent being …

    http://www.flyingsolo.com.au/forums/money-matters/19210-tax-question.html

    Always good to have a chat with the ATO and your accountant.

    .

    #1103991
    victorng
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    KarenC, post: 115289 wrote:
    As they have not turned over $20K the ATO won’t recognise any of the deductions until they reach that amount. The accountant is holding them over for the 3 years hopefully being able to deduct in the future. The ATO still classes it as a hobby for now.

    Are you talking about deductions or losses? There’s no turnover threshold for claiming deductions as far as I know. But I’m no accountant …

    #1103992
    Past-Member
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    The tax links I have added on the other thread go to the ATO pages that discuss the threshold of $20K. It’s so frustrating for many people. I don’t know when it began to be that way. Years ago I thought it was $5K but I probably don’t remember correctly.

    #1103993
    Past-Member
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    I have repeated the info links below from the other thread.

    Here are some links to read at the ATO.

    By having a good accountant, if you are below the threshold, they will be able to hold over expenses up to 3 years I think to be deducted then as the business improves.

    Of course, keeping careful records is essential.

    Cheers.

    ATO LINKS
    Income and deductions for small business

    the assessable income from your business is at least $20,000 in the income year
    http://www.ato.gov.au/businesses/con…tm&page=41&H41

    Guide to non-commercial losses
    Income requirement and business tests
    You can offset a loss from your business against your other income if you meet the income requirement (broadly, that your income for non-commercial loss purposes is less than $250,000) and your business passes one of these tests:
    It produces assessable income of at least $20,000.
    It has produced a profit in three of the past five years (including the current year).
    It uses real property or an interest in real property worth at least $500,000 on a continuing basis.
    It uses other assets worth at least $100,000 on a continuing basis.
    When you calculate your business income or loss, combine all income and deductions from foreign and Australian sources that are attributable to the same or similar business activity.
    http://www.ato.gov.au/content/00268103.htm

    Also read

    Non-commercial losses – home page

    http://www.ato.gov.au/businesses/pat…pc=001/003/068

    Note: This is not tax advice. Please check all tax matters with your accountant or the ATO.

    .

    #1103994
    Benc
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    Thanks everyone for your helpful imput.

    I do have an ABN I registered for 11 years ago and it is still active so when I called the ATO they said to use that. They told me I could add the additional income under the ETAX tab for income derived from an ABN and also claim deductions. Yet some of these links would seem to say I cannot claim deductions as there is no chance of it turning over 20k

    #1103995
    victorng
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    Hopefully an accountant will chime in soon but I’m pretty sure the $20k threshold is only relevant to business losses not deductions – they are different concepts…

    #1103996
    marketingweb
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    I’m ALSO not an accountant, but I do have recent experience as I made less than 20K revenue and also less than 20K profit in my first year of business (doing it as a part time thing), although I’m over that figure now of course.

    Victor is correct as I understand it. If your small business makes a LOSS and you also have personal income or other income from investments etc, you cannot claim these small business losses against your non-business income. So in simplified terms say wages/investments makes you 50k for the year taxable income. You also run a part time business then makes a loss of say 2k, your taxable income will still be 50k, not 48k, as you can’t deduct the loss from your wages/investments income unrelated to the business.

    To think of it another way, what is a loss? It’s when your revenue (amount you charge) less your expenses (materials etc) comes to less than zero. So you charge customers $2000, but use $2500 in materials, stationary, office expenses, advertising etc, you have made a loss of $500.

    Re is it a hobby etc, doing home repair would be something that would be pushing the line as a hobby, even though you enjoy it. Where the concept comes from is say you are an artist who does paintings for a hobby. The primary reason for doing it is literally that – personal enjoyment. If you then sell the paintings the ATO accepts that you aren’t actually running a business, it’s just a hobby.

    Now if you are a hobby, the ATO says this:

    Common areas where people carry out activities which may be a hobby rather than a business include hobby farming, motor car/bike racing, and hobby ceramics.

    If your activity constitutes a hobby or recreation:
    any money you earn from this activity is generally not assessable income
    you are not entitled to claim tax deductions for any expenses you incur in carrying out this activity, and
    if your activity results in a loss, you are not entitled to offset this loss against other income or carry the loss forward.

    This can actually be a good thing to be a hobby as the money you get is basically “free money” and is not taxable. But you also can’t claim anything against it expenses wise, they all just come out of your personal money.

    Now here is where it can get complicated and I don’t have the answer….. you will have to do more research as relevant. Businesses technically are supposed to withhold 48.5% of payments to anyone if they don’t have an ABN, and pass this onto the tax department. I’m not sure if there is an exemption possible by registering as a hobby business – definitely not if you just say you are and the tax man doesn’t know about it. In reality most won’t withold the money – they will either just not hire you, OR they will be super confused and get annoyed when you can’t produce an ABN.

    Personally – i would just do it. I got an ABN and set up properly as soon as I was ready to do my first bit of work for someone who wasn’t a relative! Yes it’s more work, but there are all sorts of new business tax offsets that your accountant will claim if they know what they are doing, so in reality you are unlikely to pay any tax on your business income anyway at that level. But you will at least be registered and doing it properly.

    Matt

    **I AM NOT AN ACCOUNTANT. DO NOT TAKE THE ABOVE AS GOSPEL, SEEK PROFESSIONAL ADVICE**

    #1103997
    Paul Wineberg
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    Hi,

    I am an accountant, and the $20K turnover relates to claiming losses, not deductions. You can claim deductions against the income, but any losses will need to be carried forward to offset any future losses from the same business. You can not make a loss on a business (turning over under $20K) and offset the loss against your salary and wage income for example. You can however claim deductions and carry forward the loss. I would not recommend carrying expenses into future years, because you are only entitled to a deduction when you incur the expenditure. By carrying forward the loss, you are effectively claiming those expenses in future years.

    Without knowing the full extent of carrying forward the expenses you are talking about I don’t want to make too much comment.

    These are what are know as the Non-Commercial Loss Provisions.

    Thanks

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