With the economic climate being the way it is, wars going on in the world, interest rates causing maximum pain and the cost of living being a constant struggle, it’s no wonder that many Aussies have decided to start up a side hustle. Whether it’s lawn mowing on the weekend, getting crafty with crochet or providing some consultancy advice, the number of Aussies with a side gig is at a record high in Australia.
- Nearly 48% of Australians have or plan to start a side hustle
- Over 950,000 Australians now work multiple jobs, up more than 10% from last year
- Coco Hou provides valuable tips on how to distinguish between a hobby and a business based on key criteria
- Turning a passion into a business can lead to tax deductions and government benefits
- She warns many Aussies are potentially missing out on tax deductions
A national report released by ING in Australia revealed nearly half (48%) of the Australians surveyed either have or are planning to start a side hustle. New data from the Australian Bureau of Statistics, reveals there are now close to 950,000 Aussies working multiple jobs, up more than 10 per cent since last year.
According to Coco Hou, CEO of Platinum Accounting Australia, a highly respected leading national accounting, taxation, advisory and bookkeeping service, any additional income-earning activity that you engage in apart from your primary source of income is counted as a side hustle. This includes activities like product selling, freelance work, consulting or running a small business alongside your regular job.
With over a decade of experience navigating Australia’s complex taxation system, Hou is an expert in Australian taxation and has come up with some tips for those with a side hustle, reminding them that they can make tax claims on their side hustles as well as their primary jobs.
You must report additional income to the ATO
“Yes, you must report additional income from your side hustle to the ATO. Generally, when you provide labour, skills or goods for a fee, you need to report this income in the tax return. It doesn’t matter what role you fulfil in the side hustle, be it employee or independent contractor. Even one-off payments need to be reported,” Hou said.
“Having a Pay As You Go instalment system in place is a good way to side aside tax payments throughout the year, so that you’ll avoid accumulating a huge liability at the end of the year. The ATO is aware that many Aussies have picked up side hustles since the pandemic and it’s been at the forefront of their minds this tax season, so don’t get caught trying to evade side hustle taxes.”
Hobby or business?
Hou went on to explain that in Australia, we distinguish between a hobby and a business based on five criteria:
- Intention to make a profit
- Size and scale
- Repetition and regularity of activities
- Commercial intent
- Knowledge and expertise
“For example, if you make jewellery at home for a few friends who take you out for a coffee in lieu, then under such a private arrangement, there would be no tax consequences. But if you’re regularly setting up stalls at Sunday markets and selling through Etsy, then you would,” Hou explained.
Turning your hobby into a business
“The benefit of turning your passion into a money maker is that you can make tax deductions from your business expenditures, and you could possibly pay less tax. When you formally become a business, you’d also want to register for a website domain, which will then give you access to government benefits and concessions,” Hou continued.
“One question clients often ask me is about Goods and Services Tax (GST). Basically, if your side hustle involves providing goods or services with an annual turnover in excess of $75,000, then you must register for GST. This means that you’ll have to charge an additional ten percent on top of your sales, and also file a business activity statement. However, this also means that you can claim back the GST that you paid on business expenses.”
What you can claim
“You can claim deductions for expenses that you incurred from running your business. Typically this includes supplies, equipment, marketing costs, travel expenses and even home office expenses if you have a workspace set up in your home for this purpose,” Hou added.
“As always, you must remember to keep your records in order and keep your receipts so that you can make these claims. You can use bookkeeping software to track and file your expenses so as to keep it all streamlined.”
Side hustles are worth it
“I encourage Aussies to pick up a side hustle as it adds valuable income to their financial position. Besides this, having a side hustle can really grow your skills, expand your networks and you might even discover a new interest. If your side hustle is already something you love, this could be a lifelong thing that could take you well into retirement and keep you busy,” Hou said.
“However, if you do have a side hustle, then the best thing to do is to get an accountant to help you keep track of the ins and outs of the business end. Having a reliable accountant by your side will always be an asset to you because we’ll have the knowledge of how to reduce your tax liability while helping you save money and avoid tax penalties due to mistakes.”