As tax professionals we have been reminded by the ATO of a misconception that some taxpayers continue to make each income year regarding their eligibility to make claims for GST credits.
The reminder, issued in the middle of the third quarter of the 2017-18 income year, seeks to enlist the help of tax agents at more of a “frontline” point — before an audit or ATO review uncovers these type of client errors.
The type of taxpayer practitioners need to keep an eye on, says the ATO, are those who conduct irregular activity that brings in occasional income but no profit. These taxpayers may not be aware that they may be engaged in a hobby, rather than a business. As such, they are unable to claim GST credits on any purchases made in relation to that activity.
To claim GST credits, the ATO reminds practitioners that client must be able to demonstrate they are in business with an intention to make a profit. It says there are factors it will look out for to support this, including:
- having a current business plan
- repetition of the income producing activity
- the size and scale of the activity being consistent with other businesses in that industry
- commercial sales
- marketing and advertising their activity to attract clients.
For clients who are actually performing a hobby, and not a business, the ATO advice is to seek a cancellation of GST registration. It may also be necessary to look at amending past activity statements if the client has claimed GST credits for purchases associated with their activity.
If you are confused about whether you are in business or not, we can definitely help!
Sophia Sun is a trusted Manager with over 14 years of experience, ensuring high-quality control in accounting, tax, and superannuation with creative problem-solving.
