If the tax office assesses your activities to be a business, you can claim expenses as allowable deductions and claim depreciation on your equipment, on the other hand, you would pay tax on income earned.
If you are classed as a hobbyist you can not claim anything as a tax deductible expense or claim depreciation on your equipment and materials, but any income you generate will not be taxed either.
Obviously the tax office can't have it both ways, and deny you the opportunity to claim expenses as a business deduction while still taxing you on income, but they do try to figure out if something is a business or a hobby.
Obviously people in a profitable occupation would like to be classified as hobbyists, and people with an expensive loss making hobby would like to claim they are in business so other tax payers can subsidise their hobby. The Australian Tax Office would like to avoid these sorts of rorts if it can.
A typical example is the wealthy businessman that competes in sports car races in his expensive Porsche on the weekends. Although there may well be cash prizes for race winners, the level at which the businessman competes and the total expense and likelihood of actually making a profit will be taken into account. In most cases the tax office would regard weekend racing to be a hobby, and would disallow claims for deductions.
On the other hand if the businessman does win the season and gets a prize, the money would not be taxable.
Obviously these criterion are not black and white, and if the tax payer wishes to argue with a determination this sort of thing does often end up before the courts.