Business or Hobby? The ATO's 2026 Test for Australian Tax Purposes

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 stop you deducting a loss against your other income. To deduct it, your adjusted taxable income must be less than $250,000 and the activity must pass at least one of four tests: the assessable income test (at least $20,000), the profits test (a profit in 3 of the last 5 years), the real property test (at least $500,000) or the other assets test (at least $100,000). Losses you can't deduct are deferred and can be used against future profits from the same activity.