Side Hustle Kings & Queens – Everything you need to know about side hustle tax tips
Many Australians started a ‘side hustle’ during the COVID-19 pandemic. While there are many benefits to having multiple streams of income – in addition to the 9-5 reality – have you wondered what your tax obligations are and what expenses you are entitled to? What if your ‘side hustle’ is going well and becoming something more permanent? Here is everything you need to know about side hustle tax.
Do I need to declare the side hustle income in my tax return?
Yes, if your side hustle is a business rather than a hobby, you need to declare the income in your tax return regardless of whether you are using a digital platform or more traditional means, such as word of mouth. If you receive cash for service and goods you provided, do not forget to declare it. The ATO is aware of these ‘side hustles’ and matches data from financial institutions, online marketplaces, ride- sourcing applications and short-term rental websites, such as Uber, Airbnb and AirTasker against individuals’ tax returns. Big brother is watching!
Is it a hobby or a business?
Unlike a business, income generated from a hobby is not required to be declared, hence no expenses can be claimed. How do you know when you cross the line from hobby to business? While there is no single factor that determines if you carry on a business, there are some indicators for having a business rather than a hobby:
- Your intention is to make a profit from the activity– even if you are unlikely to do so in the short term
- The activity has been operated in a business manner, such as obtaining an ABN, having a business name, keeping a separate bank account, leasing a business premises, etc.
- Similar types of activities are repeated
- The size and scale matters
What about GST?
You are only required to registered for GST (Goods and Services Tax) when your business or enterprise has a GST turnover (gross income from all businesses minus GST) of $75,000 or more. This is the total sales figure not the profit amount. If it is the first year of operation, you need to register for GST if you expect your turnover to reach the $75,000 threshold. Upon registration, you are required to lodge Business Activity Statements either on a monthly or quarterly basis depending on your circumstances.
What expenses can I claim?
There are a range of running expenses you can claim depending on the character of your business, such as stationery, phone, internet, advertising, home office, etc. Importantly, you can only claim deductions that are directly related to earring this side hustle income. For example, if you’re a food delivery rider, you can claim some of your bike costs, but you can’t claim for your personal riding time and costs. Last but not least, always keep your receipts to back up your claims.
What’s next if my side hustle becomes a real “cash cow”?
You may have started your side hustle as a sole trader but then realised the business is taking off and you are considering have a more permanent setup. A well-thought-out business structure not only protects hard-earned assets and limits liabilities but also helps to minimise tax, maximise wealth and provides succession flexibility.
Still have questions? Please feel free to contact your accountant on 07 3394 2311 for assistance.