The Australian Taxation Office (ATO) is cracking down on individuals who have not declared additional income from secondary work like side hustles or freelance jobs.

According to research from ING, around 48 per cent of all Australians have a side hustle or are planning to start one.

But while social media and online marketplaces have made it accessible for people to start their own businesses, the ATO are starting to examine the books more closely.

The Australian Taxation Office Assistant Commissioner Tim Loh said there is some confusion as to when additional income through your side hustle becomes taxable income.

“Generally, when you provide your labour, skills or goods for a free, you need to declare this income in your tax return. This applies regardless of whether you’re using a digital platform or more traditional means, such as word of mouth,” he says.

The ATO said especially during the pandemic, many Australians had picked up a side hustle that included a variety of activities such as freelancing, setting up a local market stall or receiving income from subscribers through platforms like Patreon, Twitch or OnlyFans.

But the ATO has issued a warning saying Australians must declare their secondary income.

My story

I’ve been freelancing for the last few years and although it started out as just wanting additional income, I immediately registered for an ABN (Australian Business Number) so that I could more easily lodge my taxes at the end of the financial year.

I am extremely meticulous with recording hours of work and staying on top of my tax after hearing horror stories.

The biggest lesson I learnt was after I was audited by the ATO last year.

It will start off with a phone call to check on some details. They will follow this up with a letter and give you a deadline to respond with your financials.

At this stage the process is fairly informal, but as you progress through it, you’ll find yourself needing to enlist the services of an accountant. A tax audit accountant can cost you several thousand dollars.

When I was audited, I forked out around $30,000 during the audit. Audits truly are as painful as you’ve heard they are. My audit started in January and ended three months later in March of the same year.

Now, I make sure that I always pay my taxes in advance and if I’m in doubt, I don’t claim. It’s better to pay too much tax than to risk being audited and having to go through all your financial records, which can be very messy and time consuming.

They key thing to make sure you’re ready for situations like these is to keep accurate records of jobs and income.

Top 7 tips for anyone running a side hustle:

  1. Register for an ABN as soon as you start generating an income. Even if it’s only a few hundred dollars it will make end of financial year reporting much easier.
  2. Keep accurate records. Either ensure that clients pay you to your bank account, so you have a record, or maintain a spreadsheet with income and the date paid.
  3. Set up a good system for recording payments. I keep accurate records of the jobs that are coming in and how much they were worth. My records include a column for the date, what the job is, how much it is worth, anticipated tax, date that I invoiced and the date that it was paid. I then use colour coding to indicate when the invoice has been paid. These records are in an Excel spreadsheet, and they are broken down by financial year, so it is easy to keep track.
  4. Set up a myGov account to easily pay your taxes online. They will also help you with reminders of when your tax is due.
  5. Pay your tax as you go. This will reduce the risk that you’ll wind up with a tax bill at the end of the year.
  6. Keep electronic records. While some people may prefer to use cash, it is easier to track your incomings and outgoings if money changes hands electronically.
  7. Use an accountant. It may be tempting when you’re just starting out to manage your taxes yourself but if you don’t do them correctly it could cost you thousands of dollars as opposed to just a few hundred dollars for your lodgments.

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