Turning your passion into profit? Stay tax-savvy!
With the rising cost of living, many Australians are diving into side hustles to earn extra income. Whether you’re freelancing, driving for a rideshare service, selling online, or creating content, it’s crucial to understand how this affects your taxes. Failing to declare income accurately can result in unexpected tax bills and penalties.
Let’s break it down so you can enjoy your extra earnings without stress.
What counts as a side hustle?
A side hustle is any additional work you do outside your main job to generate income. Some everyday side hustles include:
- Content creation on platforms like Twitch or OnlyFans
- Rideshare driving (Uber, DiDi, Ola)
- Freelancing in design, writing, or consulting
- Selling handmade or dropshipping products online
- Running a small business or providing services
- Breeding and selling pets
Your side hustle could be:
- A secondary income in addition to your salary
- A small business you’ve set up
- Any activity where you receive money in exchange for goods or services
Regardless of the type, if you’re earning income, the ATO wants to know about it!
Do I need to declare my side hustle income?
If your side hustle qualifies as a business, you must meet all tax, super, and business registration requirements. This includes:
- Keeping accurate records
- Lodging tax returns and paying taxes on time
Sole Traders & Tax Responsibilities
If you operate as a sole trader, you must:
- Use a single ABN for all business activities
- Declare all income on your tax return
- Select ‘you were a sole trader’ when lodging online via myTax
If you’re not a sole trader, different tax rules may apply, and you should check the ATO’s guidelines.
Do I need an ABN to register for GST?
Getting an ABN
An ABN (Australian Business Number) isn’t always required, but having one can make running your side hustle easier. Benefits include:
- Easier tracking of business transactions
- Identification as a business entity
- Ability to register a .com.au domain
- Preventing tax from being withheld from payments received
Before applying for an ABN, check if you qualify and remember to update your details if your business changes.
Registering for GST
You must register for GST if:
- Your side hustle’s annual turnover exceeds $75,000
- You’re in the ride-sourcing industry (e.g., Uber, DiDi), which requires GST registration from day one
If you receive non-monetary payments (like goods or services), they may also count as income when calculating GST turnover.
Will my side hustle affect my main Job?
Yes, your tax obligations will change when you have multiple income sources. Keep these points in mind:
- Your taxable income (from your job and side hustle) determines your tax rate, Medicare Levy, and study loan repayments.
- Your employer withholds tax from your salary, but no tax is withheld from your business income, meaning you must set money aside or pay instalments.
How to avoid a tax debt from your side hustle
Earning additional income means you might owe more tax at the end of the year. Here’s how to prevent a big tax bill:
Understand Your Tax Bracket
Your total income determines how much tax you’ll owe. If your side hustle pushes you into a higher bracket, you must prepare for a more significant tax liability.
Consider PAYG Instalments
PAYG (Pay As You Go) Instalments help spread your tax payments throughout the year, avoiding a hefty bill at tax time. The ATO calculates instalments based on your business income.
Check Your Employer’s Tax Withholding
If your primary job income increases, ensure your employer withholds enough tax. Use the tax withheld calculator to confirm, and if necessary, submit a withholding declaration to increase tax withholding.
Side hustle example: What happens at tax time?
Scenario:
- Primary job income: $40,000 (tax withheld: $4,942)
- Side hustle earnings: $35,000
- Total taxable income: $75,000
- Tax payable on total income: $14,842
- Medicare Levy: $1,500
- FEE-HELP student loan repayment: $3,375
- Total tax due: $19,717
- Tax already withheld by employer: $4,942
- Remaining tax owed: $14,775
Since no tax was set aside from the side hustle income, the individual now owes a significant amount at tax time. Using PAYG instalments could have helped manage this better.
Final thoughts: Stay informed, stay compliant
A side hustle can be a fantastic way to boost your income, but you must stay on top of your tax obligations. Keep accurate records, declare all income, and consider prepaying tax to avoid unexpected bills. If you’re unsure, consulting a tax professional can help you meet your obligations while maximising deductions.
