This is a very grey area of tax law, and the information available on the internet for this topic is limited. If you’re a blogger, or run a small online business for fun, you may be having sleepless nights wondering whether the tax man is going to eventually catch up with you for not declaring income or expenses.
The tax commissioners view on whether a person is carrying on a business is found in Taxation Ruling TR 97/11. This ruling contains the following indicators that need to be considered when determining if your blog is classed as the carrying on of a business:
1. Whether the activity has a significant commercial purpose or character – A commercial business is one that is out there working hard trying to make a profit. They are advertising, selling products, thinking of different ways they can make money, and basically operating on a much larger scale than a small blogger writing a few articles for fun. If your blog has no commercial elements, then it is less likely to be viewed as a business by the ATO.
2. Whether the blogger has more than just an intention to engage in business – You can’t just be sitting around writing an article here or there, having this big vision in your head of how famous you are going to be, and how much money your website will make once the traffic starts coming. If you want to be seen as a business by the ATO, you need to be out there DOING! Taking steps to make things happen!
3. Whether the blogger has a purpose of profit, as well as the prospect of profit from the blog – In other words you need to be able to show that it is possible for a blogger to make a profit, and make a profit running the business exactly how you are NOW. You must prove to the Tax Office from looking at other successful bloggers who are seen to be running a business, that bloggers can make some serious money once they get their name out there.
4. Whether there is repetition and regularity in the blogging – You need to be publishing articles on a regular basis to be seen as a business by the ATO.
5. Whether the activity is of the same kind and carried on in a similar manner to that of the ordinary trade in that line of business – Look at other bloggers that are making money and probably classed as a business. Look at their websites, their Facebook page, their newsletters and their marketing strategies. Are you operating anywhere near this level? If not, then you need to step up your game plan if you want to be considered a business by the Tax Office.
6. Whether you’re blogging is planned, organised and carried on in a businesslike manner such that it is directed at making a profit – Do you have a business plan, a cash flow forecast and clearly defined goals written on paper? What is your volume of sales and who are your customers? The Tax Office doesn’t like people who sell only to relatives and friends. This is often a good indicator of a hobby type business.
7. The size, scale and permanency of the activity – Small isn’t a determinative test, and a person can certainly carry on a business in a small way. However, the larger the scale of the blogging, the more likely it will be classed as the carrying on of a business by the ATO
8. Whether the activity is better described as a hobby or a form of recreation – This last point speaks for itself. If it feels like a hobby it probably is!
When coming to a decision about whether your blog is a hobby or a business, all of the indicators above need to be considered together, and unfortunately the weighting given to each indicator may vary with each bloggers individual circumstances.
Note, that just because you have an ABN number, registered business name and domain name. It doesn’t necessarily mean you will be considered a business.