Business or Hobby? The ATO's 2026 Test for Australian Tax Purposes
Author
Emmanuel Sarris
Date Published
Whether an activity is a "business" or a "hobby" has significant tax implications in Australia. Businesses can deduct expenses against income and claim business tax concessions; hobbies cannot deduct losses against other income, but hobby income is also generally not assessable. In 2026, the ATO applies a multi-factor test to determine business vs hobby status — and getting this wrong can result in back-taxes, penalties, or missed deductions. Here is how to determine which category applies to your activity.
The ATO's Business vs Hobby Test
The ATO considers multiple factors — no single factor is decisive. Key indicators that an activity is a business (rather than a hobby):
- Profit intention: You intend to make a profit — even if you are currently making losses
- Repetition and regularity: Your activities are repeated, systematic, and not just occasional
- Commercial manner: You operate in a businesslike manner — with a business plan, separate bank account, business records, and marketing
- Size and scale: Large-scale operations are more likely to be a business
- Business registration: Having an ABN, being registered for GST, and using business contracts suggests business activity
- Similar activities in others: If other people conduct the same activity as a business, that is a factor
Tax Treatment of Businesses
- All business income is assessable
- All legitimate business expenses are deductible
- Net losses can be offset against other income (subject to the non-commercial losses rules)
- Small business concessions may apply (instant asset write-off, simplified depreciation, SBE concessions)
- GST obligations apply if turnover exceeds $75,000
Tax Treatment of Hobbies
- Hobby income is generally not assessable (no income tax on proceeds from hobby sales)
- Hobby expenses are not deductible
- Hobby losses cannot be offset against other income
- No GST obligation (no ABN required)
Non-Commercial Losses Rule for Small Businesses
Even if your activity qualifies as a business, the non-commercial losses rules may prevent you from deducting losses against other income if your primary income exceeds $250,000 adjusted taxable income, or if you fail one of four tests: the $20,000 assessable income test, the profits test, the real property test, or the 25% assets test. Losses that cannot be offset are deferred to be offset against future profits from the same activity.
Frequently Asked Questions
You do not need an ABN for hobby income, and hobby income is generally not assessable income. However, if your activity has grown to the point where it meets the ATO's business indicators — regular sales, profit intention, commercial operation — you should register for an ABN and treat it as a business. Operating a business without an ABN is not illegal, but it means payers must withhold 47% of any payments to you.
It depends on the scale and nature of your activity. Occasional sales at cost price or slightly above is more likely a hobby. Regular, systematic selling with the intention to profit — particularly if you invest in materials, tools, and marketing — is more likely a business. The ATO receives data from Etsy and other platforms, and matching this against returns is straightforward. If in doubt, treat it as a business from the outset to ensure compliance.
Unsure whether your activity is a business or hobby? Contact AWTS — we provide a clear assessment and help you structure your activity to comply with ATO rules and minimise tax.
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