Should I turn my hobby into a business?

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Thursday, August 14, 2014

Should I turn my hobby into a business?
As the traditional employment model of previous generations continues to disappear, there are many people who are attempting to supplement dependable, long-term careers with part time businesses that are based on hobbies.

Gone are the days when one could depend on one company or corporation for a career’s worth of gainful employment. The pace of change is simply much too rapid for that scenario to continue.

Whilst turning a hobby into a business is certainly a valid use of one’s time, the tax implications can create some headaches.

The ATO has a rather dim view of people who register for an ABN and claim substantial tax refunds for a business that is, from all objective viewpoints, simply a hobby. You have to have valid justifications for claiming to be an actual business. In some cases, it might not be in your best interests to apply for an ABN and register a business name, even though it is tempting when you realise all the tax benefits just waiting there for the taking. An audit from the tax man is seldom going to result in matters resulting to your advantage.

That aside, there is the issue of how to protect your personal assets to consider. Any time you are selling a product or a service, the risk of litigation from an injury, actual or alleged, could result in a lawsuit that if you do not properly protect against, could put personal assets at risk of seizure.

The bottom line is that you must exercise proper diligence to make sure that turning a hobby that you love into an income producing venture is something that should be approached with eyes wide open in order to prevent your dreams from souring over some unforeseen contingency that rears its ugly head just as you are gaining traction.

You may have to delay launching your venture until tax and legal expertise has been consulted.

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