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Are You in Business?

Determine your business status and when it starts for tax purposes.

Definition of Business

Broadly speaking, a business comprises a series of ongoing and repetitive activities conducted to generate a profit. While profit can be in monetary form, it can also be earned through alternative means, such as being paid in goods or services (like a barter transaction).

Even a singular transaction can be classified as a business if it is either:

  • Intended for repetition

  • The first step in establishing a business

You can operate one or multiple businesses concurrently.

When You’re Not in Business

Not every income-generating activity qualifies as a business. It is not deemed a business when they involve:

  • A one-time transaction (unless it serves as the first step in starting or intending to repeat a business)

  • Employment activities

  • Hobbies or recreational activities that don’t seek to profit

  • Straightforward investments, such as passively holding shares that yield dividends or renting out property through an agent.

Even if you aren’t formally engaged in business, certain received payments may still need declaration as assessable income in your tax return. For instance:

  • Rental income or proceeds from service provision

  • Payments from a singular transaction

  • The fair market value of goods or services acquired through a barter exchange

  • Dividends from owned shares

When a Company is Not in Business While most companies are considered in business if they intend to and are likely to make a profit, exceptions exist. For instance, a company is not engaged in business if it:

  • Holds assets exclusively for private use by its shareholders, with running costs entirely covered by said shareholders

  • Provides social and recreational activities for members without pursuing profit.

Steps to Work Out if You are in Business

Step 1: identify all relevant, related activities This includes activities like record-keeping, obtaining licenses and permits, and, if applicable, the processes related to renting out premises or goods. Step 2: Evaluate the nature of the activities Answering yes to more of the following questions means it is more likely that your activities are a business:

  • Do you intend to engage in business?

  • Do you envision and have a prospect of profitability?

  • Is the scale of your activity sufficient for profit generation?

  • Are the activities continuous and repetitive?

  • Are your activities conducted in a planned, organized, and business-like manner, including maintaining business records and having a separate business bank account?

If uncertainty persists regarding your activities’ business status, further examination of indicators, as outlined in relevant tax rulings, may be necessary.

Determining When Business Starts

It’s crucial to pinpoint when your business officially starts, influencing necessary registrations and their timing. This may impact:

  • The application of tax laws to your operations and the assets you use in them

  • The availability of tax concessions or deduction.

Your business starts once you move beyond mere intention, having:

  • Decided to start the business

  • Acquired the essential assets for business operations

  • Initiated business activities.

Monitoring Activity Changes

If your business undergoes significant changes, it’s essential to reassess its status. This could include scenarios such as:

  • Transitioning to a profitable state or intending to do so

  • Transforming a hobby into a revenue-generating venture, like monetizing online content

  • Modifying, pausing, or discontinuing business activities.

For more information regarding this post, feel free to email the Lynden Group at: or give us a call at (03) 8548 1843.

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