Hi, I'm trying to find out if my site is considered a business or a hobby for tax reasons. Now the ATO can't give me a straight answer, they keep telling me it's up to me to review what I do & declare myself a hobby or a business. The site wasn't started with a view to make money, if Adsense dried up tomorrow the site would continue. There is no routine to my work other than updating the homepage once a week. I add the odd article here & there. I put in the Adsense code & collect the cheques. If I'm a hobby, I don't have to pay tax, if I'm a business I do. I make several hundred dollars a month. What are the rest of you doing, business or hobby? If you don't mind me asking I'm 99% sure I'm going to declare myself a business, I'd rather pay the tax than have them audit me in 5 years & decide I am in fact a business & they want back taxes.
If I remember correctly, I think it's somewhere around 12K+ a year, where your obligated to declare the income.
I think the tax free threshold is $6k, but don't quote me on that. I have a "proper" job so am way above the threashold. The ATO can't tell me if I'm a hobby though, and it's not assessed on income. For example, you can own a racehorse as a hobby & if it wins the Melbourne Cup the earnings are tax free. I don't like the fact that you have to decide yourself if you are a hobby. Technically I am a hobby, the site has always been a hobby & I do work on it as I see fit. The goal isn't to make money but to have a popular site. The Adsense was put in to cover my costs, but I didn't anticipate it doing as well as it has. It's such a grey area.
LOL I'm in the same delema at the moment in regards to the whole tax thing. My sites have just started earning above teh tax thershold some I'm left wondering should I start declaring or continue to just pocket it. I personally haven't contacted the ATO yet but I'm thinking next month I might have to - I personally do plan to tell them - though if there are any Aussie accountants out there...
Well, I went out on my own about 10 years ago (not web based but hopefully will start to expand a bit that way over the next 2 years). I had a day job and I had the little bit extra on the side. The little bit extra on the side started to earn me big money, and the ATO was all over me. I ended up paying 96% taxes per annum! This was under the old system before the GST system came in and, yes, that could happen. It was a bloody nightmare. So, I got myself a very very good accountant. Big time expensive but boy has he helped. I went to see him with a $50,000 tax bill and no way to pay it and ten minutes later and $3,000 in accountancy and legal bills later that $50,000 tax bill had vanished. I'd go business, but I'd go the whole hog and do the entire company deal. I become a private company with an employee of just one, and my tax has gone down from 96% to 2.64%. That's a heck of a saving! LOL People often just go business, but you'd do better to go company if you think you're going to make any money at all. The advantages are significant. (But it will cost a couple of grand to set up and you have to keep Australian Securities and Investments people happy each year by submitting minutes of board meetings and so on - your accountant should do that for you.) Keep it legal and above board, don't try to hide anything and all will be well. I am audited generally once a year by the ATO and, touch wood, they haven't found anything wrong yet. I am forever grateful to that accountant (but not quite to the point of having his child ...). OMG - just realised who it was who asked this Q! hi Julia! LOL PS - going to business or to company level means that this is not your income at all, so will have no effect on your current tax levels unless you start to pay yourself a wage.
Hi Sara, Gee we get around don't we? Shouldn't you be busy working! I spoke to the ATO about becoming a fully fledged business (I believe you HAVE to become a business when your turnover is over $50K) and they advised me not to do that as it is very expensive. As you say, you have to set it up & then pay ASIC lodgement fees. The company I work for (in my proper job) pays $212 at least two times a year. I've been told if I am a business (not a registered one) I can just tack the income onto my private income tax return. My accountant says to declare the income, the ATO say it sounds like a hobby, nobody can give me a definite answer. But I am more prone to declaring the income & if it's a hobby then they have a nice little windfall from me. But still, it would be nice to not declare it, however I don't want headaches down the track. Especially as the site is growing & I hope it will continue to grow. There will be more ads on the site in the next week as somebody else has contacted me in regards to a very nice proposition, don't worry Sara, the forums should stay ad free for you I guess I'm just interested in what other Adsense publishers are doing. I didn't know anybody paid 97% tax Sara. I thought the highest rate was 50%in Australia. Ouchey. I hope you sent your accountant a nice bottle of something.
My philosphy is that it is always better to declare it rather than have a nightmare descend on you in 4-5 years time. The 975%-ish tax rtae came in the aays of provisional tax when, for someone already on a wage who was getting external income, they could demand provisional tax on what they _thought_ you would earn up to 5 or 6 years in advance. I lost a vast amount of money that way. Just check with a good accountant on what the implications are for you as an individual having extra income. The problem is that once you're earning a wage, and then you have money coming in on the side, the ATO can came knocking with some little known (to most people) tax laws regarding taxing that extra income at phenomenal rates. My surburban accountant just couldn't handle it - so I had to get the super duper one. Provisional tax still exists - it has just been renamed something else, so do be careful with the ATO, that is another reason I went down the company route to escape the provisional tax nightmare. Another consideration if you want to go for business is that, as a business, you probably should also register with the American IRS and pay American tax. I pay tax in all foreign countries I earn in (minimal amounts) but that is then claimed back against my Aussie income, which is now why I pay such low rates here. I have no idea what will happen with adsense - guess I should have to give them my IRS numbers etc. Of course, I am still waiting for my damned PIN. LOL
Julia, just wanted to note the difference between a company and a business. What you're talking about there (ASIC lodgement etc) is a company. To operate a business in Australia all you need is an ABN which you can apply for online for free. This will let you trade under your own name. If the business is part time, any income you earn from your business is basically "tacked on" to your taxable income. If you want to trade under a different name you have to register it with the Department of Fair Trading (at least that's who we go through in NSW). There is a fee associated but it's very small (not much over $100 here for 2 yrs but varies state-to-state). A company on the other hand needs to be registered with ASIC and has a lot more fees involved. Things start to get very complicated very quickly if you start a company as you then have to pay yourself as an employee, have a share structure etc.. But you do get the advantage of a company tax rate (30% last I checked) Oh, and regarding the $50K turnover issue - if your turnover is more than $50K you have to register for GST - but this shouldn't impact your Adsense payments as they're coming from a foreign source.
Sara, are you trying to scare the socks off everyone who wants to start a business? It really isn't that complex. All it takes is a little bit of reading - everything you need to know is on the ATO web site and if it isn't you can get a surprising amount of help by simply calling them up. You can even select to calculate your PAYG instalments by using a percentage of earnings method, so you should never end up paying crazy amounts of tax. And if you do pay too much, you get it back at the end of the year anyway. Disclaimer for my posts in this thread: these are my personal observations and understanding and don't represent professional advice in any way! Have a nice day..
Hi All, Another Aussie here... Very interesting reading.... I have been wondering the same thing myself for a few months, since my Adsense income overtook my 'real job'. I went to 3 suburban accountants and the first 2 didnt have a clue what to advise me, and the 3rd one suggested setting up overseas bank accounts! So I am still in the dark.... I still consider it a hobby, but I am not sure that the ATO will agree with me though, and I am quite certain that the banks have to report my monthly deposits to the ATO. Would love to hear if anybody get a ruling from the ATO. Sara
Why don't you just ask the ATO themselves to assess your situation? Saying "my accountant said it was ok" won't hold up if you are deemed to be running a business. And if your income from Adsense surpasses your 'real job', I think it's safe to assume you're running a business. Unless your real job is voluntary.. This checklist might help: http://www.ato.gov.au/businesses/content.asp?doc=/content/66952.htm&page=2&H2:
I'm Australian, but I'm fairly new to this (adsense) and don't know much about the tax system. I guess I'd always play it safe. I wouldn't describe it as a hobby, in case I get audited...
i am another aussie, I am also concern wether to declare tax aswell. At the moment i am still at uni and do websites as a hobby, but know since i have adsense on my sites i'm earning income around the high X,XXX mark. I am not sure what to do,if i should open another overseas account or declare it but i wouldn't want to pay the huge tax which is 40%+ p.a. Do you guys have any suggestions in what i should do? thanks
I have received advice from my tax accountant that payments received from Google is considered as an export of services. Therefore, it is tax exempt. Col
Export of services are tax emempt? Nice!! Julia's monthly income is too low for a business. It's really a hobby at the moment. When it gets bigger, she should switch it over to a business. Didn't Joe Hachem declare his $10 mil poker win as a hobby?
Well, I'm not an Aussie but I do live here. I hate the tax office and pay far too much tax as it is, so I'm definitely NOT giving them any more. Somebody mentioned opening an overseas bank account. That may not be as onerous as it seems! Let's face it; the tax office wants to know the ins and outs of a cat's ass, so let's not make it easy for them. In NZ you only pay 10% on interest earned as a non-resident and can get some stonking returns for your cash, no questions. When Australia has a fair tax system I'll play fair, until then I'll continue my tax avoidance measures.
Col can I ask who your accountant is - I want to hire them to do my finances! Tax exempt is what I'm talking about!
Oh, this thread has come back to life I see. I ended up declaring my income to the ATO. All up, I earned about $3000, but that included a few bits & bobs from elsewhere. It will be more next financial year, I know some people will probably think I'm daft, but my accountant advised to just declare it incase the ATO ask G for records of payments made to Australians in the future, and I figured I'd be less stressed if I just paid tax on the money from the word go. So that's what I ended up doing. The income was declared as a separate attachment on my private tax return.
Smart work Julia. Remember, you can claim lots of deductions when you claim income, so your accountant was doing the right thing. I doubt you paid much or any tax on that income. The tax office could be on to Google for a list of money paid to Australians but it shows up in direct debit accounts as well, so G income is traceable. BTW I think Col's accountant is wrong in saying Adsense income is an export of services. It's actually income earned overseas and that is taxable. Advertising income is not a service. And services exported (ie work done for overseas clients) is only GST exempt, not income tax exempt.