The Legal Steps of Turning a Hobby into a Business
You’ve been giving homemade cookies, candles or crochet bags as gifts to family and friends. Then, as word spread, friends of friends and even strangers online began reaching out to you, asking where they could buy those cookies or bags you only made out of a hobby. Now, you’re considering turning a hobby into a business.
But what does it take to turn your passion into profit? Today, we’ll discuss the legal steps of turning your hobby into a small business. Whether you’re a seasoned artist or a self-taught maker, you must know that no specific dollar amount is required to operate a business in Australia. However, if you decide to turn your hobby into a business, there are several legal considerations you should keep in mind.
How to Turn a Hobby into a Small Business Legally
1. Determine if your hobby is a business.
The first step is to determine whether your hobby qualifies as a business. According to the Australian Taxation Office (ATO), you are likely running a business if you:
intend to make a profit from your activities
undertake the activity in a regular, planned, and businesslike manner
have registered a business name or obtained an Australian Business Number (ABN).
2. Register your business.
Once you’ve determined your hobby is indeed a business or can be one, you need to register it. This process involves:
Choosing a Business Structure: Decide whether you will operate as a sole trader, partnership, company, or trust. Each structure has different legal and tax implications. Learn more about each business structure on our blog titled ‘7 Legal Matters Small Businesses Need to Think About.’
Registering a Business Name: If you plan to trade under a name other than your own, you must register the business name with the Australian Securities and Investments Commission (ASIC).
Obtaining an ABN: An ABN is essential for tax purposes and establishing your business identity. You can apply for an ABN through the Australian Business Register.
3. Comply with tax obligations.
Before taking the leap, you must be aware of the fact that once you turn your hobby into a business, you will have tax obligations, including:
Goods and Services Tax (GST): You need to register for GST if your business has a turnover of $75,000 or more per annum.
Income Tax: You’ll be required to declare your business income and expenses in your annual tax return. The upside is you can also claim deductions for business expenses.
Pay As You Go (PAYG) Withholding: Do you plan to hire employees? You may have to register for PAYG withholding and remit withheld amounts to the ATO.
4. Secure necessary licences and permits.
Do you need a licence to start a small business in Australia? The short answer is yes.
Depending on your business activities, you may need specific licences or permits. This can include local council permits, health and safety certifications, or industry-specific licences. You can turn to the Australian Business Licence and Information Service (ABLIS) to help you identify the required licences and permits.
5. Set up business records.
From the first day you turn a hobby into a small business, you must commit to maintaining accurate business records. This includes keeping track of income, expenses, employee records, and other financial transactions. Good record-keeping practices will help you manage your startup more effectively and comply with tax and legal requirements for running or starting a business in Australia.
Benefits of Turning a Hobby into a Business (Apart from the Profit)
While profit is a significant motivator, there are several other benefits to turning your hobby into a business. Here are some of them:
Personal Fulfilment: Running a business based on your passion can lead to greater personal satisfaction and fulfilment. That’s something you can’t get anywhere else.
Flexibility: As a business owner, you can set your operating hours and work at your own pace. If you’ve been looking for that flexibility, perhaps it’s time to earn from your hobby and transition from an employee to a business owner.
Skill Development: Managing your business helps you develop a wide range of skills, from financial management to marketing.
Networking Opportunities: Engaging in business activities allows you to connect with like-minded individuals and potential customers.
Access to Business Resources: As a registered business, you can access various government resources, grants, and support services that are designed to help small businesses grow.
Should You Consult a Commercial Lawyer to Turn Your Hobby into a Business?
Consulting a commercial lawyer can be highly beneficial when turning a hobby into a business. A business lawyer can help you fully understand your legal obligations and ensure you comply with all relevant laws and regulations. They can help draft necessary legally binding documents, such as partnership agreements & terms of service, and advise you on protecting your business name, logo, and other intellectual property. More importantly, they can help you resolve any existing legal concerns and avoid potential legal issues that can lead to costly proceedings.
Summing It Up
Turning a hobby into a business in Australia involves several legal steps, from determining if your hobby qualifies as a business to registering it and complying with tax obligations. But you don’t have to go through all those steps alone. Bradley & Bray’s experienced commercial lawyers on the Sunshine Coast are here to help.
Contact us if you live on the Sunshine Coast, Sunshine Coast Hinterland, Nambour or Maroochydore and plan to turn your passion into profit. We will guide you through the legal requirements of starting a business in Australia and other related matters.
Disclaimer: This article is general in nature and does not constitute legal advice. If you require legal advice in relation to your personal circumstances, you must formally engage our firm, or another firm to provide legal advice in relation to your matter. Bradley & Bray lawyers take no responsibility for any use of the information provided in this article.
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