A lot of family businesses use discretionary trust structures.  These have been popular because they provide both a level of risk management, separating the business from your personal assets, and are also quite tax efficient.

If you’re planning your Christmas budget for your team and your clients there are a couple of things you need to know to keep the Christmas tax scrooge from ruining your Christmas celebrations.  We take a look at what you can and can’t deduct and what is and isn’t likely to incur Fringe Benefits Tax (FBT).

Turtle tax a reminder to know when you're in business

A recent court case has highlighted the importance of being sure that an activity that you might think is a hobby, actually is. It's important because if an activity constitutes a business, rather than a hobby, it means any money received from the activity is assessable income for tax purposes.

In Liverpool Local Court on 11 November, a person who raised and sold over 1200 turtles was found to be in business rather than, as the person claimed, simply enjoying a pastime. The turtles were sold in New South Wales after purchasing them from an interstate supplier, advertised via the internet and payments were received in both cash and direct deposit to a bank account. Gross sales were in excess of $100,000 over a three year period and were not reported on the income tax returns.

The person was convicted and fined, including a penalty of $1,500, costs of $122 and an order to pay an additional tax penalty in excess of $9,000. So, if you fail to correctly declare when you are in business, you may have additional costs and penalties on top of the tax you would have paid.

Of course, being in business doesn't just mean the money you receive from the activity being assessable income for tax purposes. It also means that any loss you make can be offset against other income you earn in that year or in future years.

Also, if you are carrying on a business you are entitled to an ABN and you may choose to register for GST. You must be registered for GST if your annual turnover is $75,000 or more.

How to tell if you are in business

You would normally be considered to be in business for tax purposes if you enter into an activity with the intention of running it as a profit-making business, and if the activity is carried out in a way that shows it has a significant commercial purpose and viability.

While tax law does not provide a detailed definition of a business, the following 'business indicators' have been used by various Courts and Tribunals to determine whether a business exists for tax purposes:

• Does your activity have a significant commercial purpose or character?
• Do you have more than just an intention to engage in business?
• Do you have a purpose of profit as well as a prospect of profit?
• Is there repetition and regularity to your activity?
• Is your activity of the same kind and carried on in a similar manner to businesses in your industry?
• Is your activity planned, organised and carried on in a business-like manner?
• Does your activity have characteristics of size, scale and permanency?
• Would it be true to say your activity is really better described as a business, rather than a hobby, recreation or sporting activity?

These indicators give general guidance as to whether your activity is a business. If your activity does not satisfy all of the indicators it does not automatically mean that it is not a business. However, it is likely that, if you answer 'no' to all these questions, your activity would be considered a hobby.

More information

For more information go to www.ato.gov.au. If you are still unsure whether or not you are in business, phone the ATO's Small Business Infoline on 13 28 66.

Last Modified: Monday, 29 November 2010

Our commitment to you

We are committed to providing you with accurate, consistent and clear information to help you understand your rights and entitlements and meet your obligations.

If you follow our information and it turns out to be incorrect, or it is misleading and you make a mistake as a result, we will take that into account when determining what action, if any, we should take.

Some of the information on this website applies to a specific financial year. This is clearly marked. Make sure you have the information for the right year before making decisions based on that information.

If you feel that our information does not fully cover your circumstances, or you are unsure how it applies to you, contact us or seek professional advice.

Small businesses thinking about not declaring some or all of their cash earnings to the ATO should think again. The ATO recently announced in its 2010 compliance program that they have increased their ability to detect and deal with cash economy cheats.

Are you an employee or contractor