With the cost of living going up, more people are finding creative ways to make money on the side. While the added income can be a welcomed boost, it's important to know what you need to do when it comes to tax and what you need to declare.
We’re here to break down some tax tips so you can stay on top of things while enjoying that extra dough.
Okay but first - what even is a side hustle?
A side hustle is work you do outside of your primary job for extra income.
Side hustles come in many forms – some of the ones we’ve seen lately are content creators on platforms like Twitch or OnlyFans, the sharing economy, drop shipping, gig economy work, freelancing, or even animal breeders.
To break it down a bit further, a side hustle could be:
secondary income on top of your normal salary or wages job
a second business you’ve set up
a small activity you receive money from.
To declare, or not declare, that is the question
If your side hustle is a business this opens in a new window , big or small, then you need to make sure all your tax, super and Australian business register obligations are met – this includes things like keeping good and accurate records and lodging and paying when required.
If you’re a sole trader with more than one business, you’ll use the same ABN for each. For example, you run a hair dressing business, and are an influencer on the side, you’d use the same ABN for both.
What about other tax stuff? Do I need to pay GST or apply for an ABN?
Long story short, you don’t need an ABN unless you register for GST. However, getting an ABN is free and can make running your business or enterprise easier, so you may decide to apply for an ABN before it's required. For example:
it can make keeping track of transactions easier
it helps others identify your business
you can use your ABN to buy a domain like ‘. com.au’
it stops tax being withheld from payments you receive from other businesses.
If you have a GST turnover this opens in a new window of $75, 000 or more in a 12-month period from a business you carry on, including your side hustle, you’ll need to register for GST. Remember, if you’ve received products and services instead of money for your activities these may count as income. You’ll need to include their value when working out your GST turnover.
Having a side hustle while working another job is totally fine! You’ll just have to remember a couple of things:
We work out your assessable income using all income you earn. This includes both your job and side hustle, and any other income you may earn. Your total income lets us work out things like your Medicare Levy or study loan repayments.
Your employer withholds tax from your pay as normal through pay as you go (PAYG) withholding. Tax is not withheld from your business income, but you can enter pay as you go (PAYG) instalments.
How do I make sure I’m paying enough tax to prevent a debt?
If you’re earning income outside of employment you’ll need to pay tax yourself. How much tax exactly? Well, that’s worked out by whichever tax bracket this opens in a new window your total combined income puts you in.
Let’s look at PAYG instalments a little more. PAYG instalments make it easy to plan ahead by prepaying tax throughout the year. It also helps you keep a healthy cash flow. Instalment amounts are based on your business and investment income, not your salary and wages.
Check out our article for info on how to enter the PAYG instalment system.
Let’s say, you earned $40,000 in the financial year from your regular job. Your employer has withheld $4,942 tax during the financial year.
You’re currently under the repayment threshold for your FEE-HELP study loan. This means you don’t have to make a compulsory repayment at this stage. So your employer doesn’t withhold extra tax to account for your study loan.
However, you set up a side hustle as a sole trader. You earned $35,000 from your business. At the end of the financial year, that’s added to your regular job income.
This means you‘ve earned $75,000, but your employer only withheld enough tax to cover the $40,000 from your regular job. Now you’re also over the repayment threshold for your FEE-HELP study loan. But your employer didn’t withhold extra tax to cover that.
At the end of the financial year, the tax payable is worked out on:
your taxable income
Medicare levy
compulsory study loan repayments.
Let's crunch the numbers:
Regular job income: $40,000
Side hustle income: $35,000
Tax payable based on total taxable income: $14,842
Medicare Levy: $1,500
FEE-HELP compulsory repayment: $3,375
Total tax payable: $19,717
Current tax withheld: $4,942
Shortfall: $14,775
So, because tax wasn’t put aside from your side hustle income, you’re left with a shortfall payable. Prepaying tax using PAYG instalments is a good way to avoid this exact situation.
Don’t panic though, you’re still ahead. After tax you’re taking home over $55,000.
