Hobby

Overview

In some cases, an individual might not need to establish a definitive business structure to continue their actions. The general rule for this is the intent of the action was to gain profit or for personal enjoyment. If an individual is accruing capital from an activity that would not typically be defined as a business, they may be able to continue this in the form of a hobby.

The Hobbyist

As a hobby does not constitute a business, there are no key individuals other than the hobbyist themselves.

Formal Requirements

The things to consider when determining if an individual’s activities constitute a hobby or a business are centred around if the person intend to carry on the activity for commercial reasons. If their main intention is to make a profit or if their activity is organised and carried on in a business-like manner, then they are likely conducting a business. If not, then the actions constitute a hobby and no formal requirements exist. In the event that the individual decides to transform their hobby into a business, the requirements for that structure will need to be followed.

Example Scenarios of a Hobby

Example 1:

In his spare time, Martin collects and constructs model trains. Martin works as an engineer, so he has the knowledge and skill to design his own trains, in some cases going as far as to create entire sets from scratch. To offset the costs of Martin’s hobby, he occasionally sells his train parts to hobbyists. Martin makes approximately $3,000 a year from selling his train parts. As Martin’s main objective is for entertainment or leisure and not to make money from his train parts, his activities constitute as a hobby. This means that he does not need to disclose his earnings from his actions and can continue without needing to take any formal steps.

Example 2:

Vicky collects trading cards. In order to expand her collection, she buys, trades, and sells her cards. Vicky makes $1,500 a year from her transaction with other collectors, which she usually reinvests in further expanding her collection. As Vicky is clearly not making these transactions in a business-like manner, and her intentions are not commercial in nature, Vicky’s actions constitute a hobby. She does not need to disclose the money she earns through her hobby and can continue without taking formal steps.