Thread: Tax man

If it is a hobby you can earn up to some where like 40K+ pa without paying tax or GST on it, but you can not claim anything.

If you pay tax and GST you will need to be registered and then you can claim cost and depreciation.

Keep it as an artistic hobby.

$40k per annum selling pens.

Yeah everyone got on this boat a few years ago, claiming all the stuff for their hobbies and claiming a loss for the "business". They shut that down pretty quick. Last time I checked you also had to have a business proposal/plan all done up and a tonne of other stuff.

BJ

I think you have to be able to prove it is just a hobby and not a commercial thing to avoid paying tax if the need arises.

Originally Posted by DavidG

If it is a hobby you can earn up to some where like 40K+ pa without paying tax or GST on it, .

That figure seems way out. Might be in relation to registering for GST but not for paying no income tax.

Peter.

Could not find any figure ob the ATO website - wanted to know out of curiosity. The following is stated wrt. hobbies:


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.

Les

Quite correct Les, but if anyone thinks that the tax office will accept that earning up to $ 800 per week is still a hobby they are sadly mistaken.

There are a number of criteria that the ATO uses to determine whether it's a hobby or a business and one of the main ones is that the activity is a part-time `side-line' to your main income earning activity. No way in the world will 40K+ pa be accepted as a 'side-line'.


Peter.

Peter,
I did not see any figure quoted, but you are correct. $40k seems pretty high for a hobby income. I remember a tax consultant say to me a few years back, that a figure of $20k turnover (not profit) seemed to be acceptable. This may have however changed.
Les

The $40K figure is what they have used to stop people doing "hobbies" from claiming tax losses.

Basically, if you register and are willing to do your returns, you can pretty much claim anything that is elligible to be claimed, so yes, kits, tools etc can be claimed, and if registered for GST, you can get the GST back.

BUT, and this is the catch. The business is separate income to your normal salary or other business income. You can make a loss on your pens, but you will not be able to offset that against other income, unless your total income from all those other sources is less than $40K. If you total income from other sources IS less than $40K, OR your pen business grosses over $20K, THEN you can offset losses from that pen business against your other income tax liabilities. If you don't meet that criteria, you carry the losses forward to future years, until you are able to make a claim by going over those thresholds.

There's a bit more to it than that, but that's the general idea.

PS - I'm not a Tax Accountant. This is just what I've gleaned from starting up two part-time businesses in the last 12 months, both of which are making losses, none of which I've been able to get a refund for.

Russell.

Its quite simple, the $40k is not right, well not for pens anyway. If you earn under $40K in your real job and have a primary production business you can claim the farm loss against employment income.

If you are making a loss and turnover is under $20K you cannot claim the loss but can carry it forward to later years, there are some exceptions but that is pretty much it. If you carry it forward it can be used in any year you make a profit from the pens.

So if you take in more than $20K a year in pen sales and are making a loss you can claim it against taxable income. However you may also qualify as the idiot of the year, as anyone turning over that much on pen sales would have to be pretty hopless not to come out in front.

If you are making a profit the ATO will tax it, there is no $40 threshold, but it will look at scale. If you made a few hundred on pens, from occasional sales to friends and were not particularly organised in regard to marketing its a hobby. If you set up a stall, or retail through commercial outlets selling a number of pens you will be taxed. To give you an idea, if you turned over $39k and produced a profit of $20k from that and relied on the $40k mentioned you can expect and deserve to be done for fraud and will cop a penalty of the tax ommitted plus a fine of 20% to 200% plus interest depending on level of culpability and the period of time the offence covered.

I think the short answer is, no forget it, wont happen, unless you can link the tools to your regular work.

Originally Posted by johnc

Its quite simple, the $40k is not right, well not for pens anyway. If you earn under $40K in your real job and have a primary production business you can claim the farm loss against employment income.

Oops, my bad, you're right. My business is primary production, I just forgot that it only applies to that.

And yes you're also right. if you're turnover is $20K+, you'd have to have some big expansion planned to make a loss.

Russell.