Plenty of Australians run a side hustle: an online shop, a craft stall, some weekend design work. The tax question is whether that activity is a business or a hobby, and the ATO has just put out a draft ruling on exactly that. Comments on it close on 27 November 2026.

What the ATO has released

On 16 October the ATO published draft ruling TR 2026/D2, which sets out how it will decide whether an individual is carrying on a business, making an investment, or simply pursuing a hobby. It is a draft, so the final position may change after consultation.

What the draft says

The draft describes a hobby as an activity pursued for pleasure or recreation that is not of a commercial nature. Two points stand out:

  • Enjoying what you do does not, on its own, stop an activity from being a business.
  • Spending a lot of time or money on a hobby does not turn it into a business.

The indicators include whether you have a profit purpose, whether you operate in an organised, business-like way, whether you keep records, the size and scale of the activity, and how often and regularly you do it. No single factor decides the question, and a business can be small.

Why it matters for your tax

If it is a hobby, you generally cannot claim the costs against other income. If it is a business that makes a loss, the ATO's non-commercial loss rules may still apply. Under those rules, a loss from a side business that costs more than it earns generally cannot be offset against your other income unless you meet certain tests. If it does not meet them, the loss is deferred to a later year rather than lost.

What to do

  • Read the draft on the ATO website if your side activity has made a loss or only a small profit.
  • Test yourself against the indicators. Do you have a business plan, a separate bank account, an ABN and proper invoices?
  • Start keeping records now if you do not already: sales, expenses and the time you spend.
  • Check your losses. Ask your accountant whether the non-commercial loss rules apply before you claim a loss in your return.
  • Have your say by 27 November if the draft affects you. The ATO lists the consultation details with the draft.

Acting like a business, with records, a plan and a profit purpose, is the best way to show the ATO that you are one.

This article is general information only and does not take your circumstances into account. Check the ATO website or speak to a registered tax professional about your situation.