With the rise of new and innovative ways to earn money, it’s crucial for taxpayers to understand their responsibilities when it comes to declaring income and operating a side hustle.
The Australian Taxation Office (ATO) is reminding individuals to assess if they are “in business” and to accurately report all income in their tax returns this year.
Today, more and more individuals are engaging in multiple jobs or leveraging side hustles and gig economy activities to supplement their income. It’s essential that everyone fulfills their tax obligations by paying the appropriate amount of tax. If you’re involved in continuous and repeated activities with the intention of making a profit, it’s likely that you are running a business.
Side hustle as a business
Businesses, depending on their structure and turnover, have various obligations. These may include registering for an Australian Business Number (ABN), maintaining accurate records, and filing the appropriate tax return. Additionally, some businesses may need to register for Goods and Services Tax (GST).
The ATO wants to emphasize the importance of understanding your obligations if your side hustle generates income. This can encompass a wide range of activities, from animal breeding to earning money through digital platforms like ride-sharing or food delivery, or even creating online content as a social media influencer.
If your home resembles a warehouse with an abundance of goods intended for sale, it’s likely that you’re running a business. Similarly, if you’re conducting bootcamp sessions alongside your regular 9-to-5 job, it qualifies as a side hustle, and you must declare this income to the ATO.
It’s worth noting that the ATO doesn’t typically consider activities as “in business” if they are one-off transactions (unless they serve as the initial step in establishing a business) or if the activity is not intended to generate a profit.
To illustrate how a side hustle can be classified as a business, the ATO provides two case studies:
Case Study 1: Hayley heads off-track for fun but on the right track for business.
Hayley works in the hospitality industry at night and spends her days fishing or engaging in four-wheel driving. She decides to start creating “how-to” YouTube videos showcasing her fishing and four-wheel driving adventures. As her online following rapidly grows, Hayley begins earning money from her videos.
Recognising the increasing interest, Hayley reduces her hospitality work and devotes more effort to her video content. She establishes a production schedule, invests in equipment to improve the quality of her videos, completes an online video editing course to enhance her editing skills, and diligently tracks all expenses related to her content creation activities.
By assessing all her activities holistically, Hayley determines that she is operating a business because she:
- Intends to make a profit to supplement her salary and wages.
- Sets up a regular schedule for her content creation activities.
- Demonstrates a business-like approach, including planning and implementing strategies to generate profit.
Case Study 2: Byron’s bolstering biceps becomes a business.
Byron works in an office job from Monday to Friday and runs a weekend bootcamp. Initially, the bootcamp was a free fitness session organised by Byron out of his passion for exercise. Byron invited friends and members of his local community to join him on Saturday mornings for weights and cardio, with optional donations into a group kitty. Byron typically used the money from the kitty to purchase equipment for the group.
At this stage, Byron’s activities are considered a hobby because:
- He doesn’t engage in the activities with the intention to make a profit.
- He isn’t a qualified personal trainer (PT).
- He doesn’t conduct the activities in a business-like manner.
However, once Byron becomes a licensed PT, he starts running more sessions and charging customers a set rate for the sessions. He also buys an insurance policy and arranges marketing activities to promote his sessions. Byron has now changed the intention of his activities and he is now considered to be carrying on a business.
These case studies highlight the importance of understanding the intentions behind your activities and the manner in which they are conducted.
Learn more: Tax tips for social media influencers and content creators
Contact KMT advisers now if you need assistance with your tax.
This is general advice only and does not take into account your financial circumstances, needs and objectives. Before making any decision based on this document, you should assess your own circumstances or seek tax advice from a qualified accountant at KMT Partners. Information is current at the date of issue and may change.
