Tax Return:: Online Selling - Is it a Hobby or a Business?

Hello, this is your tax and super specialist, P&C Tax Professionals.

Some of you may be wondering whether or not you would have to report the profit you have made from selling your items. Unfortunately, the answer to this question is somewhat subjective and you would have to exercise your own personal judgment as to whether or not your online selling is a hobby or a business. Luckily, there are a set of questions which may guide you in making your judgement. The more “yes" you answer to the following questions, the more likely you are operating a business.

Q: When setting up your online sales, did you intend it to be a business?

If you have set up a ‘shop’ through an auction site such as eBay or some other online trading platform, there is a high chance that you are carrying on a business, particularly if you incurred fees to manage and operate this online ‘shop’.

Q: Are you paying some sort of a fee in order to have an online-selling presence?

If the online space you have set up exhibits the typical features of a ‘shop’ in the sense that it has a proper brand name, business name or any other characteristics which may signal to people that it is a business, you are most likely carrying on a business, especially if you had to pay fees in the process of establishing your online presence.

Q: Is your main intention to make a profit from your online-selling?

If you are selling items online for the purpose of making a profit, then you would most likely be considered to be carrying on a business.

To elaborate further, if you deliberately purchase and then resell the items online for more money than it cost you to acquire it, you are deemed to be carrying on a business.

On the other hand, if you sell your household goods or your personal possessions that you no longer need anymore, then in this case, despite the fact that you may receive a decent price in exchange for the item, it is unlikely to be a proper business.

Q: Are you making repeated or regular sales?

If you sell your items online regularly, you are likely to be running a business. These sales could either be made to the same customer or to several different customers.

Q: If you happen to make the items which you sell online, are you charging a higher price than the price it cost you to make them?

If you are charging a greater price for the items than what they cost you, you are likely to be running a business.

For example, if you either make or purchase an item at a low price and then later on sell it online for a substantially higher price, as a result of this sale, you have made a profit which you may be required to report as your income on your tax return. The chances that you are carrying on a business will increase if this type of activity is done on a regular basis.

Q: Are you managing your online-selling activity like a business?

If you conduct any of the following, there is a high chance that you are carrying on a business:

> your online-selling practice has organised systems and processes

> you take the time and money to advertise your online practice

> you keep some or all of your activity records

> you hold a business plan

In other words, if you sell items in the same way as a normal business would in the same industry, then you are highly likely to be carrying on a business.

Q: Is the item you are selling online similar or exactly the same as what you might have sold if you were to run a “bricks and mortar” business?

If you can commonly or easily find the items that you are selling online also in a physical store, then you are most likely running a business.

Please note that if your online selling activity is more like a business than a hobby, you must report the profit you have earned as a result of carrying on this business.

Well, that wraps up for today’s blog post on determining whether your online selling activity is a hobby or a business. Any questions can be directed to our Facebook Page (P&C Tax Professionals – Australia) or to our email address at pnctax@naver.com.

Thank you and bye for now!