It is worth taking a minute to realise how many of us are juggling side hustles on top of full-time jobs or studies. Be it walking neighbourhood dogs, tutoring chemistry students, or selling quirky handmade jewellery, these extra gigs often start as passions or a quick way to bring in some extra cash. But what happens when that extra cash starts growing legs? Keeping your earnings below the tax threshold while building an income stream demands strategy, not luck.
Decoding The Hobby And Business Divide
When does your weekend crafting venture or fitness coaching leap from “just something I do” to something the tax office takes a keen interest in? It boils down to how you operate.
To keep it on the hobby side of the line, these are the basic rules of thumb:
- You’re not actively advertising or promoting services beyond casual means.
- There’s no deliberate profit-making setup, like hiring others or establishing contracts.
- Your activity isn’t executed in a distinctly business-like way (hint: no spreadsheets tracking profits and expenses).
On the flip side, picking up gardening gigs on Airtasker or selling commissioned artwork often signals a profit-oriented plan which can result in tax obligations. The distinction is critical because crossing into “business” territory might bring unexpected tax consequences.
Understand What Falls Into The Tax Net
All good side hustles begin with earning more than you spend. But the moment those earnings start stacking up past the tax-free threshold (AUD $18,200 for individuals), the tax office takes notice. Suddenly, the layers of tax compliance—like reporting income, keeping meticulous records of expenses, and filing accurate returns—come into play.
There’s also the complication of GST registration if your earnings hit AU$75,000+ annually. It’s wise to avoid this scenario prematurely by keeping your hustle lean while ensuring you maximise your output efficiently.
Keeping Deductible Expenses Straight
Expenses play a starring role in ensuring that only your net gains become taxable. From travel costs to materials, these can significantly affect your taxable income. However, a few golden rules apply:
- Only claim expenses directly tied to your side hustle.
- Document these clearly. A well-maintained receipt shoebox is still a legitimate strategy.
- Mixed-use expenses (like mobile phone bills) must be proportioned between personal and work use.
For example, if you tutor kids part-time, downloadable curriculum materials and a portion of your home internet becomes deductible. However, the daily cappuccino you buy on the way to your client’s house? That’s firmly your treat.
Smart Strategies To Stay Tax-Free
It’s not a game of chance. Staying below the tax radar is about proper financial planning and understanding the triggers that vault you into taxable territory.
Here’s how you can stay within the tax-free bubble:
- Keep a Close Count of Income
Stay on top of what you earn. Logging all payments goes a long way in avoiding surprises at year’s end. - Set Aside Some Funds For Tax
If your income starts creeping above the tax-free bracket, avoid the last-minute scramble by stashing away a portion (say 20%) of your side hustle earnings during the year. - Make Use of Allowable Deductions
From mileage on a car used for work errands to a portion of home office expenses, smart deductions reduce your profit on paper, keeping taxable income lower. - Set Aside Some Funds For Tax
If your income starts creeping above the tax-free bracket, avoid the last-minute scramble by stashing away a portion (say 20%) of your side hustle earnings during the year. - Stay Clear of GST Unless Absolutely Necessary
GST registration can complicate operations unnecessarily if you’re not planning to scale. Keep your turnover manageable below the AUD $75,000 trigger point.
The Perks Of Turning A Hobby Into A Low-Key Business
While keeping side gigs under the tax radar is a crafty move, there might be cases where scaling to a fully taxable small business might offer genuine perks. Beyond the broader scope for deductions, businesses set up as sole traders or under partnerships offer tax offsets and streamlined access to ABNs. It also unlocks new opportunities, allowing you to take the side hustle full-time when the moment feels right.
However, the rules can get murky before the taxable benefits come into play. That’s why it’s always better to know your options.
Small Cases, Big Tax Questions
Consider the following scenarios common among part-time hustlers:
- If you offer casual keyboard lessons on weekends, do you need to issue invoices?
- If every art piece sold comes with the occasional large sale from exhibitions, at what point does this get flagged by the tax office?
- If you maintain a blog-turned-vlog channel and monetise it with occasional ad revenue, is this classified as a taxable entity or an informal hobby?
Such situations underscore the need for clarity. The best way forward lies in getting accurate guidance.
When To Call The Experts
You might have started with just walking dogs or setting up an online marketplace page for your thrift finds, but when questions over recordkeeping, reporting, or tax thresholds start casting shadows, it’s better not to struggle alone. Whatever extra pathway you’re pursuing, it often helps to get insights into allowable deductions you may have missed or approaches to legally optimise your income.
Abletax Business Solutions is your trusted partner, helping side hustlers and small businesses fine-tune their finances with tailored tax advice, optimised deductions, and clear strategies. From simple bookkeeping to advanced tax planning, Abletax knows how side hustles work and ensures you get the most financial benefit while staying compliant. Reach out to take the worry out of balancing profit and compliance so you can focus on growing with peace of mind.
Why let taxes hustle you when you can hustle smarter?