To claim GST credits on your purchases, you must be able to demonstrate you’re in business through activities such as:
- aiming to make a profit
- keeping records and account books
- making commercial sales of a product or service
- marketing and advertising to attract clients
- drafting a business plan.
It’s more likely you’re not in business and your activities are a hobby if they’re:
- not aimed at making a profit
- not carried out in a businesslike manner
- done mostly for your own enjoyment and satisfaction.
If your activities are a hobby rather than a business you can’t claim GST credits on purchases associated with your hobby. You should consider if you have to cancel your ABN and GST registrations. You may also need to amend past activity statements if you have claimed GST credits for purchases associated with your hobby.
Characteristics of a Business
There is no single factor that determines if you are in business, but some of the factors you need to consider include:
- You’ve made a decision to start a business and have done something about it to operate in a businesslike manner, such as
- registered a business name, or
- obtained an ABN.
- You intend to make a profit – or genuinely believe you will make a profit from the activity – even if you are unlikely to do so in the short term.
- You repeat similar types of activities.
- The size or scale of your activity is consistent with other businesses in your industry.
- Your activity is planned, organised and carried out in a businesslike manner. This may include
- keeping business records and account books
- having a separate business bank account
- operating from business premises
- having licenses or qualifications
- having a registered business name.
If you aren’t in business yet, it is important to keep these factors in mind as your activities change or grow, so you’ll know when you need to register for tax and other business responsibilities.
If you determine your activities are a hobby then you do not have any additional tax or reporting obligations.
If your activities are a hobby but you supply goods or services to businesses, they may request your ABN when they pay you.
Because you do not have an ABN and your activity is done as a hobby, you should use the ‘Statement by a supplier’ form. This will avoid the business you are supplying having to withhold an amount from their payment to you.
Members read all about GST in our Special GST publication, available in your members area.