So you’ve started a side hustle and it’s now beginning to make money. Whether you’re a blogger, a social media influencer, an artist or musician, you may need to pay tax on the income you’re earning from your side hustle. It all depends if your activity is considered a hobby or a business under Australian law. So how can you tell the difference?
According to the Australian Taxation Office (ATO), a business has certain tax obligations that it must follow, while a hobby does not. It’s important to note that while your side hustle may begin as a hobby, it may turn into a business down the track, so it’s important to keep note and disclose all your paperwork to your accountant. If you answer ‘yes’ to one or more of the following questions, your side hustle may indeed be in business.
1. Have you registered your business name or applied for an Australian Business Number (ABN)?
These are usually the first steps an entrepreneur will take to launch a new business. You’ll need an ABN to register your business name, sign up for Goods and Services Tax (GST), and claim GST credits, among other things. If you’re practicing a hobby, it’s unlikely you’ll have an ABN or need one. However, it’s important to note that if you try to sell goods or services without quoting an ABN on your invoice, up to 47% of the payment will be withheld and paid to the Australian Taxation Office (ATO).
2. Is your goal to make a profit from your activities?
Although some hobbies may result in sales – for example, making jewellery or homewares to give to friends and family in exchange for money or gifts – a business intends to turn a steady profit. For instance, if you’re deliberately purchasing or making items to sell at higher prices than what you paid for them, you’re probably operating a business.
3. Are you making consistent sales?
If you’re consistently selling goods or services to customers for profit, you’ll almost certainly fall into the business category. As a business, you’ll need to declare your income to the ATO and, if your turnover exceeds $75,000 in a single year, you’re obliged to register for GST – a broad-based 10% tax on Australian goods and services.
4. Have you hired or thought about hiring employees?
If you’ve considered hiring an employee, this speaks to the scale of your operation and means you’re more than likely running a business. Before expanding your team, ensure you’re aware of your obligations as an employer.
5. Do you partake in ‘businesslike’ activities?
If you keep detailed records and accounts, have a designated business bank account for expenses and payments, or conduct your pursuits from commercial premises, you’re operating a business. Businesslike activities are planned and organised where the motive is typically to sell a good or service and make a profit While pursuing a leisurely hobby sounds nice, there are a lot of benefits to being in business. From access to government information and services, tax concessions and deductions, and the flexibility to work your own hours – being in business is good.
Considering launching a business? Check out our advice for entrepreneurs.