Warning for hobbies claiming GST credits
An entity cannot be registered for GST unless it is carrying on an enterprise (GST Act s 23-5; 23-10). The term “carrying on an enterprise” is defined in s 9-20 as an activity, or series of activities done in the form of a business.
This is the general concept for being registered for GST. And, specifically, under the GST Act an “enterprise” does not include an activity done as a private recreational pursuit or hobby (GST Act s 9-20 (2)(b)).
The term “business” is statutorily defined in the GST Act as including any profession, trade, employment, vocation or calling, but does not include occupation as an employee.
However, the term “hobby” is not defined by the GST Act and must take its ordinary meaning.
Various ATO rulings over the years (MT 2006/1; GSTD 2006/6) have used “hobby” interchangeably with income tax laws interpreted by courts and regulators.
With this in mind, it is clear that the ATO determines that the same rules apply to hobbies from both an income tax perspective and a GST perspective. A recent media release issued by the ATO has specifically dealt with this similarity.
The ATO has warned of GST reviews in situations where an entity has irregular activities which generate little income and no profits. Clearly, their first group of taxpayers to review would be businesses who have deferred non-commercial losses by not meeting the assessable income test ($20,000).
Even though there is a GST turnover threshold of $75,000, an entity may choose to register for GST as long as they are carrying on an enterprise (or in this case, a business)
If you are currently operating at a loss but claiming GST credits, this may bring an ATO review for GST. You may need to show the ATO that you are operating a business and the following documents may be necessary to present to continue claiming GST credits:
- business plan
- repetition of activity
- marketing/advertising materials, and
- evidence to show size and scale of the business and its commerciality
If you have any questions on any of the above issues raised, please do not hesitate to contact us.
Norman Ruan
Accountant
T: 02 9984 7774
E: normanr@northadvisory.com.au
“Under the GST Act, an ‘enterprise’ does not include an activity done as a private recreational pursuit or hobby.”
About the author
Cayle Petritsch - Director & Wealth Advisor
Cayle Petritsch, Director and Wealth Advisor, works with our existing clients who have recognised the importance of business owners making strategic financial choices not only for their company, but for their personal finances too.
Cayle saw a great opportunity to expand North Advisory’s services into SMSF/superannuation, personal wealth management, asset protection services and other crucial personal finance facets that business owners need to consider.
His approach to wealth management allows you to receive highly personalised wealth advice. Working closely with Marius, Cayle understands the unique needs of every client, from their lifestyle and business goals to their retirement plans.
Key Takeaways
Hobbies — even if generating some income — do not qualify for GST credits.
The legislation defines “enterprise” as a business-type activity; private recreational or hobby-type activities are excluded.
Claiming GST credits for a hobby puts you at risk of ATO audit and disallowance.
Especially where income is low, activity irregular, or there are no signs of a commercial intent — the ATO may challenge GST-credit claims and demand repayment.
Clear evidence of commerciality is needed before GST credits can be claimed legitimately.
Regular activity, marketing, records, turnover, profit-potential — these are the sorts of indicators the ATO expects to see for a business, not a hobby.
Driven by our values
Effortless and Seamless
On-Boarding Process
Intuitive and Knowledgeable
Direct Expert
Access
Useful and Articulate
Financial
Reporting
Forward
Thinking
Compliance Solutions
Streamlined
Tech
Integrated and Automated
Frequently Asked Questions
What does the ATO consider a ‘hobby’ versus a ‘business’ for GST purposes?
A hobby is treated as a private recreational pursuit — not a business. As per the GST Act, only an “enterprise” qualifies for GST registration and claiming input tax credits; a hobby does not.
Can someone registered for GST claim GST credits if their activity is actually a hobby?
No — if the ATO determines the activity is a hobby rather than a genuine business enterprise, GST credits claimed on purchases may be disallowed, even if the person is registered.
What indicators or evidence might the ATO look at when checking if something is a hobby or a business?
They may check for business-type features: regularity and repetition of the activity, marketing or advertising efforts, a business plan, commercial scale or intent, and whether there is a realistic expectation of profit.
What risks do hobbyists face if they wrongly claim GST credits?
They may be subject to ATO review or audit, required to amend past Business Activity Statements (BAS), repay improperly claimed credits, and potentially face penalties for non-compliance.
If I start with a hobby but want it to become a business, what should I do to be able to claim GST credits legitimately?
You should take steps to document and demonstrate that the activity is a genuine enterprise: register for GST (if turnover exceeds threshold), keep a business plan, invoices, marketing materials, records of revenue and expenses, and show you are operating on a commercial, profit-oriented basis.
Can a hobby be registered for GST?
No. Under the GST Act, an entity cannot be registered for GST unless it is carrying on an “enterprise”. A private recreational pursuit or hobby is not considered an enterprise for GST purposes.
North Advisory’s Reviews 
On 
Flo Mitchell
4 weeks ago
Changed to this company in 2019 from former accountant and love their approach of organizing everything for me face to face with Xero set up plus being able to call as much as I need for set annual fee. They also picked up on something that was not done correctly by my former accountant and saved me $4k for this.
Timothy Cummins
A month ago
They the truly the best, Martin and Judy are so experienced, knowledgeable & professonal, also quite like speaking with Rose : ) all people are so lovely!
Michael Iera
2 months ago
Positive, Responsiveness, Quality, Professionalism, Value
Michael Iera
2 months ago
Excellent company in regards to service and professionalism. Very experienced in dealing with complex matters. Highly recommended.
Reach out we are here to help
Recognising the uniqueness of each business, we specialise in customised accounting services crafted to meet your specific needs and drive business growth.
Don’t hesitate to contact us if you’re ready to streamline your financial management with tailored solutions. Your business’s success is our primary focus. Fill in the contact form or call us to book an initial 30-minute chat.
Suite 6, 11 Oaks Avenue
Dee Why, Northern Beaches
NSW 2099
Australia