tax tips for when you're running a side hustle

You can probably think of a zillion fun things to do right now that don’t involve tax. We get it: figuring out finance stuff can drive you up the wall.

It doesn’t have to be so painful, though (we promise!). Whether you work a side hustle, have started making some extra coin from your hobby or have just crossed over into full-time self-employment (hurrah!), it’s super-important – and totally possible – to wrap your head around tax. And hey, being on this very page is a good place to start.

We’ve put together an explainer with help from Amanda Newton, a trained accountant, a former small-business owner and GM of partner experience at Xero, (basically, she knows what she’s talking about).

Quick disclaimer: the information below refers to Australian taxation law, and is not intended to be relied upon as legal, accounting or tax advice. Make sure you get some independent, professional guidance if you’re unsure.

I have a day job and make a bit of money from my side hustle. Do I have to declare those extra earnings? Yes. If you consider your side hustle a business, you’ll need to declare any money you make from it, no matter how big or small the sum. 

How do I know if what I do is a hobby or a business? There’s no one qualifier on determining if you’re a business. But, if you approach your venture in a business-like manner – for example, you make or do things in order to make a profit, advertise your services/wares, have an ABN (Australian Business Number) and believe your hustle is going to grow over time – you’re probably running a business. The ATO has a more detailed breakdown for online sellers (as well as a nifty quiz), which night help you determine whether you’ve got a business or a hobby on your hands. 

Is there a financial reason to turn my hobby into a business? The main benefit is that you can claim tax deductions on business expenses (and therefore potentially pay less tax). You can also register for a .com.au domain and get access to government concessions for businesses.

I’ve figured out I’m running a business. What tax obligations do I have? This depends on the structure of your business. The four common business structures – sole trader, partnership, company and trust – all have different obligations. Think about what structure suits you, and chat to an accountant from early on in the process. 

If what you do is going to be a side hustle (or a business that only involves you), you might start small as a sole trader. Simply register for an ABN and presto, you’ve got a business! If you think it’ll be more complex, want other people involved or really want to build it into something bigger in the future, you can look at creating a partnership or company.

If you’re a sole trader with an ABN, you’ll have to report your business income once a year as part of your individual tax return. The other business structures require an additional tax return, separate to an individual return. 

When do I need to pay my taxes? There are different timelines for different kinds of businesses. If you’re a sole trader and are not registered for GST, you’ve got an annual filing date of October 31st. If you lodge that through a tax agent, though, you’ve got until May 15th the following year. If you’re a small business with payroll and are registered for Single Touch Payroll (STP), you have different filing dates throughout the year.

Do I need to worry about GST? You only need to register for GST (goods and services tax) if your business makes (or you expect it to make) $75,000 a year or more. If that’s the case, you’ll need to charge 10 per cent GST on top of what you sell. You’ll also need to lodge a business activity statement (BAS). Most businesses lodge these quarterly, but times can vary depending on your circumstances.

What’s the deal with expense claims and deductions? In a nutshell, claiming expenses can help lower your tax bill. It literally pays to keep a record of expenses throughout the year – this includes everything you’ve spent on your business, from stationery to a new laptop. Even if you’re unsure, just keep the receipt. Here’s the ATO’s guide to what expenses you can and can’t claim. (A good tax agent or accountant can also guide you through this process.)

How do I avoid being slugged with an unexpected tax bill? If you’ve been tracking your business throughout the year and it’s doing well, it’s a good idea to regularly set aside money to pay tax, so you don’t get a big shock when you file your return. A tax agent can help you figure out how much you might have to pay, then you can put aside a part of that sum every fortnight or so. The ATO has a tax calculator, too, which allows you to estimate your tax and plan ahead.

What are PAYG instalments? This is one way to pay your tax directly to the ATO in regular instalments, rather than as a lump sum at the end of a financial year. If your business is brand-spankin’ new, but you still reckon you’ll make a good profit, you can register to voluntarily pay tax during the year (this is usually in quarterly payments). It’s like forced savings to ensure you’re not out of pocket down the track.

Keep in mind the ATO will automatically sign you up for PAYG instalments if your business income reaches a certain threshold, and it will automatically remove you from the system when you no longer meet that threshold.

How can I make tax time less stressful? The key is to have it all as streamlined as possible. Technology has made things much easier for us; 20 years ago, everyone kept their receipts in a box and manually entered them into a spreadsheet. Software like Hubdoc automatically sends photos of your receipts to your accounting software so that it’s ready for you when you need it. Systems like Xero will show you how much you earned in the year, keep track of how your business is performing month on month and allow you to access that data right away.

If you’re feeling overwhelmed, see a tax agent who can walk you through it all (their fee is tax-deductible!). When you’re just starting out, you might not think you’re making enough money to get a tax agent, but doing so can be a worthwhile investment in the long-term. Getting the right advice early on, especially from someone who specialises in your area of work and knows the nuances of your industry, can do a lot to set you up on the right path.  

With all that said, is it possible to do it all myself? It certainly is. For that we salute you, tax whizz. 

Download our our tax time checklist for sole traders here. 

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