Hobby or Business? The ATO Test (and When You Must Declare Income)

You're carrying on a business — not a hobby — when you intend to make a profit, repeat the activity, and run it in an organised, business-like way. There is no dollar threshold that flips the switch. Get the call wrong and you either declare income you never had to, or leave income off your return that a platform has already reported to the ATO.

There is no magic dollar figure

Ask around and someone will tell you that you can earn $18,200, or $10,000, or "a few grand" from a hobby before it becomes taxable. None of that is in the law. A genuine hobby that turns over $40,000 is still a hobby. A business that turns over $600 in its first year is still a business, and that $600 goes on your tax return.

The $18,200 tax-free threshold is about how much tax you pay on your total income for the year. It says nothing about whether a particular activity is a business.

What the ATO actually applies is a set of indicators drawn from decades of court decisions and set out in its ruling on carrying on a business. No single indicator decides it. They get weighed together and the overall picture is what counts.

The indicators the ATO weighs

Do you intend to make a profit, and is there a realistic prospect of one? Not "would be nice one day" — an actual expectation, backed by pricing that covers your costs. This is the heaviest indicator of the lot.

Have you done something about starting? Registering a business name, opening a business bank account, setting up a website or a socials account, buying stock, getting quotes printed. Intent plus action.

Do you repeat the activity? One-off sales point away from business. A weekly market stall, monthly client work or a steady stream of orders points towards it.

Is it planned, organised and run in a business-like manner? Records, invoices, a separate account, quotes and terms, insurance, a licence if your trade needs one.

Is the size and scale consistent with others in that line of work? Compared to other people doing the same thing commercially, are you operating at a comparable level?

Do you operate the way that trade normally operates? Advertising to the public rather than selling to friends and family, standard pricing, standard payment terms.

Is the activity better described as recreation? If you'd keep doing it identically with no money involved, and the income is incidental, that leans hobby.

Signs you're probably still a hobby

Your sales are one-offs, or only to friends and family
You charge material cost or less, with no margin built in
You have no plan or expectation of profit
You do the work only as an employee of someone else, not independently
Everything runs through your personal account, with no records kept

Two people can sell the same thing and land on opposite sides. Someone selling three paintings a year to friends at cost is a hobbyist. Someone with a website, a market stall roster, an Instagram shop and priced-for-profit stock is in business, even at modest turnover.

Why the answer matters

	Hobby	Business
Declare the income	No	Yes, every year
Claim expenses	No	Yes, where deductible
ABN	Not entitled to one	Entitled, and free
GST	Can't register	Must register at $75,000 turnover (as at September 2026)
Records	Not required by the ATO	Keep for 5 years, in English
Losses	Can't be used at all	May reduce other income if you pass the non-commercial loss tests
Being paid by a business	They withhold 47% unless you give them a supplier statement	Quote your ABN, nothing withheld

That withholding line catches people out. Because a hobby isn't an enterprise, you can't get an ABN for it — and when a business pays a supplier who hasn't quoted an ABN, it must withhold 47% of the payment. The fix is the ATO's "Statement by a supplier not quoting an ABN" form, on which you tick the private recreational pursuit or hobby reason. Hand that over and the payer keeps the lot in your pocket.

The reverse also bites. Applying for an ABN for something that isn't an enterprise can trigger an entitlement review, where you're asked for evidence you started or took steps to start a business from the date you nominated. No evidence, and the ABN gets cancelled. If you're genuinely in business, registering an ABN is free and straightforward.

Side hustles and gig platforms: the ATO already has the numbers

If your income comes through a platform, assume the ATO sees it before you file.

Under the sharing economy reporting regime, electronic distribution platforms must report their sellers' transactions to the ATO twice a year — by 31 January for the July–December half, and by 31 July for the January–June half. Taxi travel, ride-sourcing and short-term accommodation platforms have reported since 1 July 2023. All other reportable services followed from 1 July 2024, which sweeps in food delivery, task and odd-job platforms, asset hire and digital services.

Reports include your name and contact details, your ABN and GST status if you have one, the account the money went to, and the gross amount paid to you — gross, meaning before the platform's commission comes out. Separately, the ATO's online selling data-matching program collects marketplace seller data, targeting accounts with annual trading activity of $12,000 or more.

The practical upshot: whether income is assessable is decided by the hobby-or-business test, not by whether the ATO can see it. But if it's assessable and you leave it off, a mismatch is close to automatic. Base penalties for a false or misleading statement run at 25% of the shortfall for failing to take reasonable care, 50% for recklessness and 75% for intentional disregard, plus interest.

What it actually costs once you're in business

Sam has a $95,000 salary and runs a weekend market stall. Over 2026-27 the stall takes $14,000 and Sam spends $5,200 on stock, stall fees and packaging, so the net profit is $8,800. That profit stacks on top of the salary, so it's taxed at Sam's marginal rate of 30% plus the 2% Medicare levy (as at September 2026).

Step	Amount
Stall income	$14,000
Less deductible expenses	−$5,200
Net profit added to Sam's return	$8,800
Income tax at 30%	$2,640
Medicare levy at 2%	$176
Less small business income tax offset (16% of $2,640, capped at $1,000)	−$422
Extra tax for the year	$2,394

That's about 27% of the profit — the reason people who don't set anything aside get a nasty surprise at lodgement. Note also that Sam only got to subtract that $5,200 because the stall is a business. A hobbyist declares nothing and deducts nothing. If you're in business, the deductions you can claim as a sole trader are worth knowing properly, and the sole trader guide covers the rest of the obligations.

Once the ATO sees business profit on your return, it will usually put you onto quarterly PAYG instalments the following year, and you must register for GST within 21 days of hitting $75,000 turnover in a 12-month period.

If the side business loses money

Being in business doesn't automatically let you offset a loss against your salary. The non-commercial loss rules exist to stop lifestyle activities being subsidised by wages.

To use a loss in the year you make it, your income for the year — taxable income plus reportable fringe benefits, reportable super contributions and total net investment losses — must be under $250,000, and the activity must pass one of four tests (as at September 2026):

Assessable income test — the activity earned at least $20,000
Profit test — it made a profit in three of the past five years
Real property test — you continuously use real property worth $500,000 or more in it
Other assets test — other assets used in it are worth $100,000 or more

Primary production and professional arts businesses are excepted: if your assessable income from other sources is under $40,000 (ignoring net capital gains), you can offset the loss without passing a test.

Priya, on an $88,000 salary, starts a pottery business. Year one it takes $9,000 and costs $17,000, an $8,000 loss. Year two it takes $11,000 and costs $14,000, a $3,000 loss. Neither year reaches $20,000 of income and no other test is met, so $11,000 sits deferred — not lost.

Year three the business takes $26,000 and costs $19,000, a $7,000 profit, and $26,000 clears the assessable income test. The $11,000 deferred amount comes in as a deduction: $7,000 wipes out the profit and the remaining $4,000 reduces her salary income, saving $1,280 in tax at 32%. There is no time limit on how long a deferred loss can wait.

When to formalise

If two or three indicators already point to business, stop hedging. Formalising costs almost nothing and removes the risk:

Apply for an ABN and register your business name with ASIC if you're trading under anything other than your own name
Open a separate bank account and keep every receipt — records must be kept five years
Check whether your activity needs a licence or permit
Set aside 25–30% of profit for tax from the first dollar
Watch turnover against the $75,000 GST threshold on a rolling 12-month basis
Get insurance appropriate to what you're doing

One thing that isn't business income: selling your own used possessions. Capital gains on a personal use asset you acquired for $10,000 or less, or a collectable acquired for $500 or less, are disregarded. Clearing out the garage on a marketplace isn't a business, even if the ATO's data-matching flags the account.

If it's genuinely borderline and real money hangs on it, you can ask the ATO for a private ruling on your specific facts. That's binding on them, unlike a phone call.

Key takeaways

There is no dollar threshold — the ATO looks at profit intent, repetition, business-like operation and scale, weighed together
A hobby declares nothing and deducts nothing; a business declares from the first dollar and keeps records for five years
A hobby can't hold an ABN, so give business customers a "Statement by a supplier" form or they must withhold 47%
Platforms have reported ride-sourcing and short-term accommodation to the ATO since 1 July 2023 and all other reportable services since 1 July 2024
Losses from a small side business are usually deferred unless it earns $20,000 or passes another non-commercial loss test
Once you're clearly in business, formalise early — ABN, separate account, records, and 25–30% of profit set aside

Where to get help

ATO — Are you in business? and the "Hobby or business?" guidance, plus Taxation Ruling TR 97/11 for the full indicator list: ato.gov.au
business.gov.au — Difference between a business and a hobby, which includes a short self-assessment tool
Australian Business Register for ABN entitlement and to apply: abr.gov.au
ATO private rulings for a binding answer on your own facts, applied for through the ATO website
A registered tax agent or accountant if there's a loss to claim, a platform reporting income you dispute, or several years of undeclared income to fix up — voluntary disclosure before the ATO contacts you generally reduces penalties