Got a side hustle? Don’t forget your tax
With the ongoing cost-of-living squeeze, record numbers of Aussies are supplementing their income with side hustles.
But before you dive into a new gig, it’s important to understand some of the tax essentials that come with running a small business.
Whether you’re monetising online content creations, running bootcamp sessions alongside your 9-to-5 job or regularly selling handmade goods at markets, the ATO may consider that you’re running a business and expect you meet your tax obligations.
Are you running a business?
Under the current tax rules, if you earn money through continuous and repeated activities to make a profit, it’s likely you are considered to be carrying on a business.i
Income from genuine hobbies is non-assessable, but income from a business must be declared in your tax return.ii
Business operators face a range of obligations including applying for an Australian Business Number (ABN) and registering for pay as you go (PAYG) withholding if you hire any employees.iii
There is no legislative definition of "carrying on a business” but the ATO provides information and questions to help you decide:
Step 1: Identify relevant, related activities, including:
- keeping records
- obtaining and maintaining licences and permits
- renting out premises or goods
- providing goods or services.
Step 2: Are the activities a business?
The more “yes” answers, the more likely your activities in business:
- Do you intend to be in business?
- Do you intend to make a profit and is there a realistic chance of doing so?
- Is the size or scale of your activity enough to make a profit?
- Are the activities repeated and continuous?
- Are your activities planned, organised and carried out in a business-like manner? For example, do you:
- keep business records and use a separate business bank account?
- advertise and sell your goods and services to the public?
- operate from business premises?
- maintain required licences or qualifications?
- have a formal business plan or budget?
- have a business name or an ABN?
Accurate recordkeeping from the start
It’s important to set up a recordkeeping system from day one to track your income and expenses accurately.
You’re legally required to keep records of all transactions relating to your tax, superannuation and registration obligations when you start, run, sell, change or close a business.iv
In most cases, these records need to be kept for five years, and you must be able to show the ATO your records if required.
Claiming genuine business-related expenses
If your side hustle is a business, all income must be declared, regardless of the amount.
The good news is you can claim tax deductions for business expenses, provided you keep receipts and the expenses directly relate to earning side hustle income (including the cost of managing your tax affairs).
If your annual turnover exceeds $75,000, you must register for Goods and Services Tax (GST) and pay all the GST collected on your taxable sales to the ATO every quarter.v
Managing cashflow
Good recordkeeping also helps you monitor the financial health of your business and know whether your business is running at a profit or loss.
It’s crucial for managing cashflow. One of the most common reasons small businesses fail, is losing control of their cash position and unable to pay their bills on time.
ATO data matching
If you are only earning small amounts, it might be tempting to assume the ATO won’t notice if you don’t report your side hustle income. But side hustles are now an important ATO surveillance target.vi
More than 600 million transactions are reported to the tax office each year. The ATO receives and matches data from banks, payment systems, government agencies, share registries, cryptocurrency service providers and building and construction payments. It can also gather industry-specific data under its “special purpose acquisition data programs”.
Impact on government benefits
Extra income from your side hustle can also affect your eligibility for government benefits. It may reduce or even eliminate payments such as the Family Tax Benefit or Child Care Subsidy. It may also affect how much Medicare Levy surcharge you pay and when you are required to start repaying a HECS/HELP debt.
Are you in business?
If you need help getting your side hustle onto a solid business footing, contact our office today.
Case study: Hayley’s four-wheel business
Hayley works in hospitality at night and spends most days fishing or four-wheel driving. She begins creating ‘how-to’ YouTube videos during her outings.
As her online following grows, she starts earning money from her content and cuts back on her hospitality work.
Hayley sets up a schedule outlining the type of content she will produce on a weekly basis, buys equipment to improve her production quality, completes an online video editing course and records all the expenses from her content creation activity.
In deciding whether her side hustle is a business, she looks at all her activities together. Hayley determines she is running a business because she:
- intends to make a profit to supplement her salary and wage income
- set up a regular schedule for these activities
- operates in a business-like way (she has a plan and system for making a profit).
Source: ATO
i Are you in business? | Australian Taxation Office
ii What to include in your business's assessable income | Australian Taxation Office
iii PAYG withholding | Australian Taxation Office
iv Overview of record-keeping rules for business | Australian Taxation Office
v GST - Goods and Services Tax | Australian Taxation Office
vi Side hustles are front of mind this tax season | Australian Taxation Office
