With the increasing cost of living, many Australians are exploring side hustles to supplement their income. Whether you’re freelancing, driving for a rideshare service, selling products online, or creating content, it’s vital to grasp how these activities will impact your taxes. Not accurately declaring your income can lead to unexpected tax bills and penalties.

Let’s simplify the details so you can enjoy your additional earnings without any worries.

What qualifies as a side hustle?

A side hustle refers to any extra work you undertake outside your primary job to earn income. Common examples of side hustles include:

• Creating content on platforms like Twitch or OnlyFans
• Driving for rideshare services (Uber, DiDi, Ola)
• Freelancing in areas like design, writing, or consulting
• Selling handmade or dropshipping products online
• Operating a small business or offering services
• Breeding and selling pets

Your side hustle could be:

• An additional income source alongside your salary
• A small business you’ve established
• Any activity where you receive payment for goods or services

No matter the type, if you’re earning income, the ATO expects you to report it!

Do I need to declare my side hustle income?

If your side hustle is classified as a business, you must adhere to all tax, superannuation, and business registration responsibilities. This involves:

• Maintaining accurate records
• Filing tax returns and paying any taxes on schedule

Sole Traders & Tax Responsibilities

If you operate as a sole trader, you need to:

• Utilise a single ABN for all business activities
• Report all income on your tax return
• Select ‘you were a sole trader’ when lodging online through myTax

If you aren’t a sole trader, different tax rules may apply, and it’s advisable to consult the ATO’s guidelines.

Do I need an ABN to register for GST?

Getting an ABN

An ABN (Australian Business Number) isn’t always mandatory, but obtaining one can facilitate the management of your side hustle. Benefits include:

• Simplified tracking of business transactions
• Identification as a business entity
• Ability to register a .com.au domain
• Preventing tax from being deducted from received payments

Before applying for an ABN, assess your eligibility, and remember to update your details if your business circumstances change.

Registering for GST

You must register for GST if:

• Your side hustle’s annual turnover exceeds $75,000
• You’re in the rideshare industry (e.g., Uber, DiDi), which mandates GST registration from the outset

If you receive non-monetary compensation (like goods or services), they may also count as income when determining GST turnover.

Will my side hustle impact my primary job?

Yes, your tax liabilities will change if you have multiple sources of income. Keep these considerations in mind:

• Your total taxable income (from both your job and side hustle) determines your tax rate, Medicare Levy, and any study loan repayments.
• Your employer will withhold tax from your salary, but no tax is withheld from your business income, meaning you’ll need to set aside funds or pay in instalments.

How to avoid a tax debt from your side hustle

Generating additional income may lead to increased taxes at year-end. Here are some ways to avert a large tax bill:

Understand Your Tax Bracket

Your total income influences your tax obligations. If your side hustle pushes you into a higher tax bracket, be prepared for a larger tax liability.

Consider PAYG Instalments

PAYG (Pay As You Go) Instalments assist in distributing your tax payments throughout the year, helping to avoid a significant amount owed at tax time. The ATO calculates these instalments based on your business income.

Check Your Employer’s Tax Withholding

If your main job income rises, ensure your employer is withholding sufficient tax. Use the tax withheld calculator to verify, and if needed, 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 reserved from the side hustle income, the individual now faces a sizable amount due at tax time. Employing PAYG instalments could have provided better management of this situation.

Final thoughts: Stay informed, stay compliant

A side hustle can significantly enhance your income, but it’s essential to stay abreast of your tax obligations. Maintain accurate records, declare all income, and consider prepaying taxes to steer clear of unexpected bills. If you’re uncertain, consulting a tax professional can assist in fulfilling your obligations while maximising deductions. For more information on your tax matters, feel free to visit our Tax FAQ page.