Don't Get Caught Out: Understanding Tax Obligations for Your Australian Side Hustle

The Rise of Side Hustles in Australia

In recent years, the concept of a side hustle has become increasingly popular in Australia. A side hustle is a way to earn extra income outside of your regular job, often through a passion or hobby. According to the Australian Bureau of Statistics, 48 per cent of Australians have a side hustle, with the most common being freelance work, selling products online, and tutoring. This rise in side hustles has led to many questions about how they impact taxes and what obligations individuals have when it comes to reporting their income.

What is a Side Hustle and How Does it Impact Your Taxes?

A side hustle is any type of work that you do outside of your regular job to earn extra income. This can include freelance work, selling products online, or providing services such as tutoring or pet-sitting. When it comes to taxes, any income earned from a side hustle is considered taxable income and must be reported on your tax return. This means that you may need to pay additional taxes on your side hustle income, depending on how much you earn.

It's important to understand the difference between a hobby and a business when it comes to taxes. If your side hustle is considered a hobby, you may not be able to claim deductions for expenses related to that activity. However, if your side hustle is considered a business, you may be able to claim deductions for expenses such as equipment, supplies, and advertising. The Australian Taxation Office (ATO) has specific guidelines for determining whether your side hustle is a hobby or a business, so it's important to consult with a tax professional if you're unsure.

Registering for an ABN: Do You Need One for Your Side Hustle?

An Australian Business Number (ABN) is a unique identifier that businesses use when dealing with the government and other businesses. While not all side hustles require an ABN, there are certain situations where it may be necessary. For example, if you earn more than $75,000 per year from your side hustle, you will need to register for an ABN and charge Goods and Services Tax (GST) on your products or services.

Having an ABN can also provide other benefits for your side hustle, such as being able to claim deductions for expenses related to your business. Additionally, some clients or customers may require you to have an ABN in order to work with them. It's important to note that registering for an ABN does not automatically make your side hustle a business, so it's still important to determine whether your activity is a hobby or a business for tax purposes.

Understanding GST: When Do You Need to Register and Charge It?

Goods and Services Tax (GST) is a tax that is charged on most goods and services sold in Australia. If your side hustle is considered a business and you earn more than $75,000 per year, you will need to register for GST and charge it on your products or services. This means that you will need to add an additional 10% to the price of your products or services and remit that amount to the ATO.

It's important to keep accurate records of your GST obligations, including the amount of GST you collect and the amount you pay to the ATO. You will also need to report your GST on your Business Activity Statement (BAS), which is a form that businesses use to report their GST and other tax obligations.

Deductions and Expenses: What Can You Claim for Your Side Hustle?

As mentioned earlier, if your side hustle is considered a business, you may be able to claim deductions for expenses related to that activity. This can include expenses such as equipment, supplies, advertising, and travel expenses. It's important to keep accurate records of your expenses and to only claim deductions for expenses that are directly related to your business.

It's also important to note that there are certain expenses that you cannot claim as deductions, such as personal expenses or expenses that are not related to your business. If you're unsure about what expenses you can claim, it's best to consult with a tax professional.

Record Keeping: Why it's Important and How to Do It Right

Keeping accurate records is essential for any side hustle, as it can help you stay organised and ensure that you're meeting your tax obligations. This includes keeping track of your income, expenses, and any GST obligations. There are many tools and resources available to help with record keeping, such as accounting software or spreadsheets.

It's important to keep your records up-to-date and to keep them for at least five years, as the ATO may request to see them during an audit. By keeping accurate records, you can also ensure that you're claiming all of the deductions and expenses that you're entitled to, which can help reduce your tax liability.

Different Types of Side Hustles and Their Tax Obligations

There are many different types of side hustles, each with their own tax obligations. For example, if you're a freelancer, you may need to pay Pay As You Go (PAYG) tax on your income and may be able to claim deductions for expenses such as equipment and software. If you're selling products online, you may need to register for GST and charge it on your sales.

It's important to understand the specific tax obligations for your type of side hustle and to consult with a tax professional if you're unsure. The ATO also provides resources and guidance for different types of businesses and activities.

How to Calculate and Pay Your Income Tax for Your Side Hustle

Calculating and paying income tax for your side hustle can be complex, as it depends on how much you earn and what deductions you're able to claim. If you're earning income from a side hustle, you will need to report it on your tax return and may need to pay additional taxes on that income.

The ATO provides guidance and resources for calculating and paying income tax for your side hustle, including information on how to estimate your tax liability and how to make payments. It's important to stay up-to-date on your tax obligations and to pay any taxes owed on time to avoid penalties and interest charges.

Common Mistakes to Avoid When Filing Taxes for Your Side Hustle

Filing taxes for your side hustle can be complex, and there are many common mistakes that people make. Some of these mistakes include failing to report all income earned, claiming deductions for personal expenses, and failing to keep accurate records. It's important to avoid these mistakes and to consult with a tax professional if you're unsure about any aspect of your tax obligations.

Staying Compliant and Maximising Your Earnings from Your Side Hustle

Having a side hustle can be a great way to earn extra income and pursue your passions. However, it's important to understand your tax obligations and to stay compliant with the ATO's rules and regulations. By keeping accurate records, understanding your deductions and expenses, and consulting with a tax professional when needed, you can maximise your earnings from your side hustle and avoid any potential penalties or fines.