Side Hustles Front of Mind with the ATO this Tax Season

|by Steve Payne|Business Advisory

Details have recently been announced, that the Australian Taxation Office (ATO) is paying close attention to undeclared income from secondary work, including from the sharing or ‘gig’ economy this tax year.

There has apparently been some confusion about when the income from these extra jobs taken up during Covid times, becomes taxable.

As a general rule of thumb, when you provide labour, skills or goods for a fee, you need to report this income in your tax return.

The ATO is aware that many people have picked up jobs on the side of their usual income stream during the pandemic, across a wide range of activities, from freelance deliveries, to setting up a local market stall, or receiving income from subscribers through platforms like Patreon.

Regardless of whether you are an employee, independent contractor or carrying on a business - when you receive payment for your services, that income needs to be reported even if it's a one-off.

The ATO receives data feeds from a number of sources, which may be used to cross match the income being declared by individuals or businesses.

The upside to declaring extra income is that you can also claim deductions for costs (or part thereof) as they directly relate to generating that income, if you keep receipts and can substantiate the outlays.

E.g. - If you’re a food delivery rider, you can claim some of your bike costs, but you can’t claim for your personal riding time and costs. Similarly, Chefs can claim the knives and hairdressers can claim the scissors they use for their job - but a truck driver or a salesman would have difficulty proving the relationship of these items to their income – so every scenario is different and needs to be assessed on its merits.

Further examples from the ATO: -

Taxpayer does not need to declare any income

Amber wears her homemade jewellery to meet up with a few friends. She offers to make them some pieces, after receiving compliments. Her friends shout her dinner as thanks for the gift.

As she was not paid for the jewellery and this was a private arrangement there are no tax consequences for Amber.

Taxpayer needs to declare income

After the positive feedback from her friends, Amber decides to sell her jewellery on a regular basis with the intention of making a profit. She uses an existing online marketplace, pays sales fees, and sets up social media accounts to advertise her products.

Since Amber has increased the scale of her operations and is now making regular sales with the intention of making a profit, she needs to declare this income in her tax return.

While it’s not compulsory at this scale, Amber can choose to apply for an ABN. As her GST turnover is under $75,000, she does not need to register for GST.

As the income from your side business grows there are several factors which need to be considered in relation to tax planning, entity structuring, ABN/GST registrations and general implementation of record keeping and bookkeeping processes.

We are well positioned to assist in this regard, so if you want further information or even advice on where you currently sit with your current operations, please do not hesitate to contact our team members who can provide some guidance for you.

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